Shareholders and the stock exchange may not be good for a company. The problem, is that they are mistakenly referred to as investors. However, a quick look at history does confirm that shareholders are mere gamblers held in high esteem. It is often said that shareholders invest their money in firms with the aim of recouping their investment - a reward for placing a risk on the company.

However, shareholders are legal gamblers, and most of the time a risk to the company, depending on the level of majority shareholding. Shareholders mostly back a company that is on the rise with the intention of offloading their shares once the company’s shares double or triple.

Once there’s a whiff of trouble, such shareholders quickly ditch their shares. Nevsun Resources Ltd, who operate a mine in Eritrea saw their shares drop this week on the news of a suspected coup attempt in Eritrea.

In the last six months, Apple shares have hit a high of $700 (KES 61,250)  per share, almost costing as much as an unlocked iPhone. Recently, they have been trading at about $500 (KES 43,750) ,  almost falling by a third of their value. To deserve such a punishment from their shareholders, all Apple did was not have any revolutionary product in a number of years.

Note, it is not that Apple are not making any money, they are making lots of money; and will continue doing so for quite a while. They have had more money than the US government ,  or rather most governments, in the bank. Over the last 90 days, the amount of money Apple has in the bank has risen to $ 117 billion from $ 110 billion, or to KES 10. 241 trillion from KES 9.631 trillion.  Not a lot of money, but enough to fund Kenya’s entire budget for the next seven years, if it remains at its current amount.

And it still isn't enough, according to Apple shareholders.

One would also think that shareholders would be there for a company through it’s thick and thin, and mostly though it’s thin, with the aim of making merry and joy through it’s thick. Clearly, these chaps are only there to make as much as they can now. The future, well, is for making money from another firm.

But how do firms end up with shareholders, if they are not a desirable bunch?

Well, for beginners, shareholders are quite good for raising funds, such as when a company’s founder need money to grow the company, or invest in cash intensive interests; or even run the company for a while as they await future returns. Power generation, such as that done by KenGen, needs a lot of money. So shareholders will come together, put a stake in building a new dam, and recoup their money through selling you power over tens of years, ideally.

Mark Zuckerberg, Facebook’s founder, raised $16 billion (An obscene amount in KES.  but not as obscene as the amount printed out when Apple’s CEO requests the company’s bank balance. Actually, Kenya’s current budget to be exact) when he publicly traded his company’s shares. The lucky guy now has enough money to fund Facebook, and toy around with ideas, and even Like a few of them from all the money he raised.

Meanwhile, the shareholders were left with very little to like, and lots to comment on. With many buying the share at $38 (KES. 3,300) and higher, the shares almost went below their $38 starting price. In the last six months, the shares have been to hell and almost back, trading at less than half their opening value at $17.7 (KES. 1,500) and now currently at about $31(KES. 2,700).

The speculative shareholders speculated that Facebook was unable to make money on mobile, where most of their users are coming from, prompting a drop in prices. The recent recovery is due to moves such as sponsored posts on mobile phones and Facebook’s Open Graph, which is more of an attempt at searching all that stuff that is within Facebook.

See, Facebook has not yet been able to come up with a way to search your comments last year on that restaurant that you may have gone to, or not. There’s lots of valuable information there, such as whether you like my writing, which may give the perception of shareholders among the public. All these may be worth lot’s of money once Facebook finds a way to present such information. Shareholders however, do not understand this, and will rush to sell their shares if news leaks that Zuckerberg was injured from paper cuts while counting his money.

Zuckerberg, knowing the gambling and skeptical rationale of shareholders, made sure that he maintained control of his company, while selling shares at above value to satisfy those who rushed to buy so that they can resell.

Another use of shareholders and their gambling and skepticism is in cashing out of a company. Some companies are quite valuable, like Safaricom, and shareholders like them, and especially want to buy and sell  their shares since they may keep rising. A large shareholder may decide that time to let go of their investments has come, such as the government, or an aging earthing who decides to cash out of a company they founded.

In the case of Safaricom, the government of Kenya decided to cash out. The Initial Public Offer was met by huge demand from mostly new shareholders, who had heard of how people buy shares at a low  price and sell it at a much higher price. The government thus decided to sell 25 percent of Safaricom at only KES 5, but issue 10 billion shares. One was allowed to buy as little as 100 shares. Few did the math, but spend their cash. The demand was more than five times the number of available shares.

With KSh. 50 billion in shares, and lot of small shareholders holding about 100 shares, you can understand why the share has been below IPO price for almost four years, even as the company made billions (billions in shillings, not billions in Apple US dollars)in profit and remained Kenya’s only profitable mobile operator. The share had nothing to do with Safaricom’s performance, but everything to do with shareholder demand and supply.

It thus brings tears to the eyes of many, hearing that company CEOs are meant to dance to the tune of irrational shareholders. But all is not lost, shareholders and their irrationalism are good when cashing out of your company, or raising cash as long as you maintain the majority holding.