the Truth About Stocks

Mar 22, 2022 | Finconomics 101

A company like McDonald’s had an average of 752 million shares during 2021 and currently has a market cap of around $176 billion. Who really owns this company?

While investment companies that manage money for individuals (like Vanguard and Fidelity) have “big” ownership stakes in companies like McDonald’s, they still own a relatively small share of total MCD shares because they are focused on diversifying their portfolios. Resultantly, a fund that owns just 1% or more of McDonald’s is considered a significant shareholder as that would represent an investment of over $1.76 billion.

But how about the individual investor who buys 100 MCD shares at a value of around $24,000? What does this person really own?

The short answer is that this individual purchased an electronic entry that hopefully tracks McDonald’s financial performance over the long-term. These investors are not really owners of McDonald’s because they have no say in the company’s management. This is also largely true of the big funds as well. A 1% stake in McDonald’s doesn’t give Vanguard or Fidelity much say in how McDonald’s is run either.

The only real recourse for investors of all sizes is to sell their shares in protest of what they perceive as poor management decisions. However, this will only lead to changes in the management’s direction if there are enough sellers to warrant their attention. Otherwise, investors are along for the ride with the belief that the company’s management is headed generally in the right direction.

So investors in MCD shares own electronic entries that they can sell to other investors in a very large, well-accepted and liquid market. Shareholders of large, publicly traded companies are not actually owners because corporate decision making is the prerogative of management teams and the board of directors that they report to. Interestingly, we have come to see that social media has grown to fill the vacuum in corporate oversight given an ability to influence which far exceeds the common shareholders.

 

Disclaimer of Liability: Although the information in this post has been obtained from sources NBE Media LLC believes to be reliable, NBE does not guarantee its accuracy. The views expressed herein are subject to change without notice and in no case can be considered as an offer or solicitation with regard to the purchase or sales of any securities. NBE Media LLC’s analyses and opinions are not a guarantee of the future performance of the economy nor any industry, company or security. NBE Media LLC disclaims all liability for any misstatements or omissions that occur in the publication of this post. In making this post available, no client, advisory, fiduciary or professional relationship is implied or established. While this post is intended to provide an relevant economic analysis, it cannot be used as a substitute for independent investigations and sound business judgment.
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