> It does clear some things up. I'm still wondering though, what service do you provide? If you're making money, and you're not just stealing it from someone else, you must be accomplishing something.
>

If you're making money on the stock market, it's not because you provide any kind of service. It's because you buy something at a lower price and resell it at a higher price after market conditions change. It's the same for people who buy land in developing areas or when real estate prices are low, and then resell it when there's more demand.

Try to think of stock trading as buying property on the speculation that people will want it more tomorrow, rather than providing a service for pay. If it were just providing a service, everyone would make money.

> Is it the fact that when you buy stocks you (try to) give your money to the companies which can get the most use out of it? And so your service is choosing which companies have the most potential for succeeding, and giving them the resources that they need?
>

This is a common misconception. Companies are not involved in the trading of their own shares. When you buy shares, you buy from another private trader who already owns some and is willing to sell at your price. The company only gets money when it initially issues shares - a common way of raising capital. This is called an "initial public offering" or IPO. After that, all trades are in the secondary market, between private buyers and sellers, and the company has no part in it.

Imagine if you started a company and later sold it to someone. Your act of selling the company does nothing for the company itself. It doesn't give the company extra money, it just changes the ownership. That's exactly what happens in the stock market.

There is some value to a company in having its shares do well. Many companies reward their directors with stock options that only make money when the share price goes up, to motivate them to manage the company for the benefit of shareholders. A healthy stock price allows a company to use its shares as "currency", to lure the best management and buy other companies. A company with a well-performing stock can buy another company, sometimes one almost as large as itself, without using any cash at all.

And, of course, the general market climate determines how the next company will do with its IPO, and how much capital it will be able to raise. Also, sometimes public companies decide to issue more shares to raise money or buy back their own shares to boost the share price.

> I asked my roommate about that a couple months ago, he's an economics major who's really in to the stock market. He seemed to think of the whole stock market as a pyramid scheme. I don't think that's right. It's possible that he's just the type of person who does things without thinking about why they work.
>

In a sense it is a pyramid scheme, but it's really more than that. The "pyramid" part is you're really just buying something in the hopes of selling it to someone else later at a higher price. The ever-increasing prices depend on more money coming into the system and more people willing to pay higher prices. The big difference is that what you're buying and selling is an actual piece of a real company, and it's possible for that company to increase in value and justify the higher selling price. Wal-Mart was not the same company in 1980 that it is today, so there are valid reasons for a split-adjusted share of WMT to be worth much more than it was back then.

And there are also the dividends that some companies pay, which can make it worthwhile to hold them even if you're not looking for the "greater fool" to take the shares off your hands for more than you paid.

^v^:)^v^
F"no, I don't own any WMT either"B