> I am having a hard time understanding why this is a useful way of thinking about equity investment. In the most common case i.e. in secondary markets, you aren't giving the company any money by buying stock. And in the most common case you don't want the company to return the money.

I don’t know how well this translates to different people with different approaches to life and investing styles, but here’s my thoughts on it.

If you want to start with first principles and understand how to invest, you need a foundational model to start building theory on.

Modeling investing as a loan made to a company where the company can choose to not return money at all comes with all sorts of nice properties. The first question you ask is “if I give them money, will they eventually be able to return it?” which will make you look into their business and figure out how much money they need to make to pay you back and when they can pay you back and who else they need to pay back and ultimately how much paying everyone back will cost them. Share buybacks then look a lot like companies paying back some investors and dividends look a lot like interest payments. This is fits very cleanly into all sorts of other models we have today.

Take a look at a plot of number of outstanding apple shares over the past 15 years. It’s abundantly clear that they’ve been “paying back” consistently over time. If that were a person looking to borrow money, you would happily lend money to them!

Take a look at American Airlines. They have a monumental amount of corporate debt and then they need to pay $10B back to all share holders. They were “paying back” their share holders at a steady clip until around covid and then they had to “borrow” more from investors and doesn’t look like they’re ready to go back to “paying” back just yet.

Obviously these are very unsophisticated models. But as a simple approximation, they work really well (for me).

If I were to go to a VC and “borrow” money from them, it’s very helpful to think about how much I can pay them back - it’s super easy to model that like borrowing any other amount of money.

And ultimately, it really does function as a loan from the investor’s perspective. You give away money to an entity expecting to get back that amount and then more. If that entity goes broke, you will not get your money back. If that entity does really really well, they can pay you back a lot more money and so on.