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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: JeffT who wrote (56659)	1/14/2002 4:27:16 PM
From: Stock Farmer	Read Replies (2) \| Respond to of 77400

Jeff - you are perhaps confusing the purchase and sale of shares in the secondary market as a capital item with their genesis in the primary market as a debt instrument. Your mortgage. The primary market is between you and your financial institution. They give you capital, you commingle it with your own and buy stuff. Which may include a house and maybe also shares or a boat (e.g. refi)... They don't own your house. They don't "own" anything, except the rights which you grant them in satisfaction of the debt. Like the right to get a periodic payment from you. Amongst others. Nobody would confuse that debt instrument with capital now, would they? Oh yes, perhaps they would. For your financial institution likely packages up title to these mortgage agreements, capitalizes them, and sells the package in the secondary market. It is the AGREEMENT that has capital value. Title to the Agreement is what is transferred in the secondary market. The existence of each agreement occurs in the primary market. This same process occurs with shareholder equity. In this case, it is the share certificate that has capital value. The thing that changes ownership. In the secondary market. And it's not called a secondary market by accident. Those who buy from those who bought from someone else who bought from ... Yes. They are swapping capital assets. Exchanging title to an IOU. Which represents rights that the company must satisfy in the aggregate or suffer the consequences, not fractional title. There is a big difference. The former is debt. But you are not alone. Most people think that they own a piece of the rock. As if they could walk into an office somewhere and ask for a seven billionth of Cisco in exchange for a share. For example. Try it some day. You will be referred to the prospectus and informed that so long as the company is in satisfaction of its obligations to you that you have no rights to anything. Aw, shucks. As a shareholder, the capital that you "own" is merely an agreement! Not a slice of the entity with which that agreement is forged. Big difference. It is the share that is held, not a piece of the company. Very very very important distinction. The entire asset base of the company is due to the shareholders by agreement. Forget for the moment how much money shareholders have paid each other in their jostling over little pieces of paper. What the company accounts for is how much it has recieved and from whom. Why? Because in the end, all assets of the company get divied up the holders of all of these certificates. So anything that comes from the shareholder bucket gets returned to that bucket. That's what makes it a loan. Sure, the faces on the folks in the bucket labeled "shareholders" probably all changed a few times. But from the bucket "shareholder" came some cash. Not a gift. Not a sale. It's going back. And the folks that contributed it expect it and more in return. Quacks like a duck. John