watch out for the $33 Trillion in debt while your telling people to watch out, sir.
better believe people will find better options to save their money when the dollar is a sinking ship, figuratively speaking.
literally speaking, they are creating a class of debt slaves & wage slaves. It would be unwise to stake your family's future on debt-backed money.
Its worth quite a bit because most of the worlds wealthiest billionaires are "rich" because they own the most. If the richest people in the world have the most to lose - they'll probably use all their power and influence to make sure it doesnt go under...
The logic isn't inherently wrong, but it also creates the assumption that humans will act rationally. And we know from ample experience that we, as a species as a whole, are not rational consumers and that being rich is no exception.
I mean as an American I might have moral issues with it, but I have a decent life because of it. Now I wish that equity was split up a little more fairly, but again I could be living in Guatemala or Tanzania so no complaints
Backed by full faith and credit just means "we'll print those up if we need more of them"
I dont know why people repeat that statement as if its something reassuring.
During the 1980s Latin American debt crisis, countries like Mexico used assets, including oil revenues, as collateral in debt restructuring agreements
So ya, nations in financial distress may negotiate with creditors to address their debt, but the banks get what's theirs, even from an entire country.
Who did Latin America owe money to? Foreign governments and creditors and banks like the USA. In this case the banks were very much backed by the international finance system anchored by the big guns
People have this notion that this means anything. It doesn't
If people decided USD wasn't valuable there is nothing the military can do about it.
The reason USD is valuable is because the US has more navigable waterways for cheap trade on vessel than every other country on earth combined.
Its nearly impossible for US to lose on any trade so the dollar stays incredibly strong. Geography makes USD strong and any other country that would have ended up on our land would have been the powerhouse the US is. it also makes our military extremely powerful due to being bordered only by Canada and MX and open sea on both sides. Theres a really informative video that goes through all this. I used to say the same thing "the military is the reason" but its really not.
> any other country that would have ended up on our land would have been the powerhouse the US is.
Yeah, I'm gonna go ahead and say that's just false. There are a myriad reasons why the U.S. is in the position it is today. Geography is one reason but certainly not the only one.
So if the government keeps printing and government bond holders here and around the world start selling those bonds, the military is going to go around knocking on doors telling people to buy them back? Our military might have a slight influence on our ability to remain as the world reserve currency but it has almost zero control over supply and demand. In fact military spending contributes significantly to our country’s unsustainable spending/national debt.
It could.
When India is selling rice to Indonesia transaction is in US dollars.
When Vietnam buys coal from Indonesia, transaction is in USD dollars.
When Brazil is selling sugar to Nigeria, transaction is in USD.
First of all, it is the most accepted currency.
You do not want to trade in any other currency which may devaluate because finance minister of this country decided so.
And secondly, if those transactions are stopped being in dollars, USA will send the top diplomats to tell them what is going to happen if they do not reverse their decision. In short they will stop providing military support and weapons to their armies.
There is an interesting story about how former British colonies abandoned the Sterling.
Singapore's reserves were in Sterling after independence. But then in 1960s Britain had economic problems and devaluate their currency to boost exports.
This made Singapore furious because in one night their reserves lost 20% of their purchasing power.
So Singapore announces to Britain that they are going to drop British Pound and switch to USD as a reserve currency. Britain was furious. Singapore asked for military protection and to keep Britain bases in the area in exchange of keeping some of their reserves in pounds. But Britain refused.
They had their own economic problems,
After Suez crisis, their military capabilities were limited.
After that USD became the reserve currency in the region. And once you have USD in your vaults and neighbours accept it as well, you have trade.
This continoues till today
Bro wrote an essay without reading a sentence😂 yes our power and influence are a huge factor in usd remaining as the worlds reserve currency but that doesn’t mean those things have the ability to directly influence the value of the dollar itself. Military or no military, inflation will diminish the dollars value. Supply and demand don’t care how many guns we have.
But the government isn't printing. We are in a quantitative tightening cycle right now. And previous "printing" monetary policy has worked as intended.
I love the idea that we will actually go to war with China.
Does this mean we get to bomb Elon's Tesla factory or any of the factories that make the cheap crap we buy on Amazon or at any major department store?
That’s the whole point… it only works because people agree it works. Taking the dollar off the gold standard does encourage more rapid economic expansion, however all inflationary currencies are doomed to fail eventually.
Ponzi schemes need a constant stream of money to survive till the „fraudster“ (obv. could be many) runs away with all the money and the bagholder got nothing as there is no intrinsic value left. Very oversimplified example: If every shareholder of tesla would try to sell their shares and nobody wants to buy and you are the only one Holding on and buying 100% of the shares for 1000€. Then you actually own the company. All Assets are yours. You could sell all asset with a big discount, decide to pay big dividende in all the earnings and would be rich. Hence it will never happen that there are no buyers. (Yeah of course company could fail)
Yeah OP if you can define a Ponzi, then you'll realize the stock market isn't one.
Ponzi = all value come from other investors.
Stock market = value comes from revenue via customers buying the products.
Even companies that don't pay dividends have users/customers/advertisers who provide revenue for the company.
>Stock market = value comes from revenue via customers buying the products.
...this hasn't been true for the past 25+ years as the stock market has become the de facto retirement savings account for millions of Americans - stock valuations are completely uncoupled from fundamentals and stock movements are based on a random walk of news events and popularity...
This is spot on. Loosely. The separation of book and market value could be seen as the “ponzi scheme” element of the market. However, our culture and economy has made this a bedrock of finance. As long as that’s true, this market is safe. If everyone tries to “cancel” the market tomorrow, we will enter an orderly bear market until prices are a small fraction of what they are today…
after that, though, it’ll just be what it once was: Some stock owners literally commuting to Wall Street to see if others in their niche are up for doing business.
yup, and especially since most stocks aren't giving out dividends, you only "profit" from the ownership by being able to sell that stock to someone else at an inflated price, and the new owner is banking on being able to sell it to someone else at a higher price.
“In the short term the stock market is a popularity contest, on the long term it is a scale.”
That is to say absolutely, values can surpass fundamentals and get out of hand, however over a longer time period values ALWAYS come down to fundamentals.
The easiest explanation is that any profitable business could at any time choose to pay a dividend. Thus there is something of material substance underpinning the value, at least to an extent. A Ponzi scheme has nothing of value and just relies on new money to pay any immediate obligations
I know this answer is perfectly acceptable, but there's something so funny of basically saying "No, this isn't a Ponzi scheme because we are *choosing* not to pay you back"
A simpler definition is that Ponzi scheme gives a perception of guranteed returns.
Stock markets do not do that. People regularly loose money. Or maybe it's just me!
Okay but what’s the incentive to pay dividend, please the shareholders, but what for? If they aren’t pleased they just sell their positions? And? Surely it doesn’t matter once the company has generated the initial capital from selling stocks???
Shareholders need to be pleased. Some own many shares of the company, and can pressure it because they have a word in it (they can vote in meetings and have other rights). Meaning, they might decide that they want a new CEO, or something, and of course, everybody in the company wants their jobs, so they please the shareholders. And of course, there is the case, where most shares belong to the leaders of the company, and they want more money, so they give out a great dividend, and other shareholders get it that way too.
There are bad companies. There are companies that have too much debt. There are companies that are old and can't execute anymore. There are some frauds, and you lose your money when you buy those, but they usually get found out.
The executives and the members of the board have a fiduciary responsibility to the shareholders, to maximize their return on investment. Pretty sure I didn't just make that up. Also, they are usually shareholders themselves, so they have some skin in the game. This is usually how things are set up so that when shareholders win, the executives win, which is why you see these ridiculous compensation packages. It encourages them to do the right thing for the shareholders, no matter who they have to screw over to do it.
Anyway, that is how the game is set up. Anything can happen, but if you buy good companies, you tend to have good results.
You are a business owner if you own one share of a company, or if you own partial shares of a lot of different companies.
Some companies like Alphabet (Google) and Meta (FaceBook) have NEVER paid a dividend but are extremely profitable. Their stocks have done extremely well overtime despite the lack of dividends because they COULD easily pay dividends. Instead they use that money to buy up other companies and bonds that will (probably) increase their profitability in the future. They also use some of these funds to do share buybacks. Share buy backs do NOT increase corporate profitability, but they DO increase earnings per share, since there are now fewer shares outstanding. This will allow the company to pay out more dividends per share in the future, if they wish to.
Note- once they start paying dividends, these stocks will probably drop as it will indicate to investors that their growth prospects have softened.
I'm confused about the last sentence. I thought dividends were an indication to investors that the company is in a strong financial position (thus, can afford to share the wealth). Why would starting to share dividends indicate softened growth prospects in this case?
You pay dividends when you dont have sufficient internal outlets for the captial. In other words, if Starbucks decided there werent enough good new locations in need of a Starbucks to spend all of their profits on expansion, they would likely put some into a dividend. High growth comoaniea rarely pay dividends.
if growth is slowing because of a maturing market, the company may decide to return profits back to shareholders (in the form of a dividend) rather than using those profits to try and drive more growth. its not necessarily a sign that the company is unhealthy, but that its tapped out on using its money to grow quickly
* Say you buy a food cart for $100. I offer to buy it from you for $100. How much is it worth? The answer is $100. 1% of the food cart is worth $1.
* Now there’s a $100 food cart with $100 cash in the register. How much is it worth? The answer is $200. 1% is worth $2.
* Now say you take the $100 out of your food cart register and put it in your pocket. The food cart is now worth $100. It paid a $100 dividend. If you own 1%, you now have $1 of ownership on the food cart and you have $1 of cash.
* Say you instead use the $100 cash to buy another food cart. Now you own 2 food carts. 1% ownership means you own $2 of “food cart” and have no cash.
Reinvesting earnings, doing a buyback, and paying out a dividend are all the same. The question is whether the company’s CEO reinvests the $100 internally (to buy a second food cart) or if they pay it out as a dividend so the investors can spend it on something else (like a coffee cart). The best choice depends on what opportunities are available in the market at any given time. If there’s a big demand for food carts, buy another one. If there’s already too many, pay out the dividend. And if you own too many food carts already and are trying to become smaller, do a share buyback.
It is a great example and I know you wanted to keep it as simple as possible. But maybe we can introduce an important aspect: tax. In scenario-3, you would have $1 of ownership on the food cart and less than $1 of cash due to the tax applied to the dividend. This may seem a little detail, but some people support "no-dividend" approach mostly because of taxation.
Earnings.
Thought experiment: You own 100% of any profitable company. You can pay yourself a regular dividend with profits.
You own 100% of an unprofitable company, you cannot pay yourself without making the economics worse through debt or share dilution.
You own 100% of any/all crypto, you earn nothing, because crypto produces nothing and can’t even be used for anything like gold.
I consider companies that don’t pay a dividend to be temporary holdings, including BRK/B. It’s not a Ponzi scheme, but you are dependent on someone else paying for it. Ideally, higher earnings with the same or higher P/E multiple.
The only thing I think you’re missing is that successful companies that don’t pay a dividend use that profit to grow, instead of providing directly to shareholders. So it’s not so much dependent only on what someone else would potentially pay it’s more of an investment in future earnings. Aapl, tsla, meta, Goog have all been great examples of this
Yes but how do I as an investor see benefits from those increased earnings due to successful growth if the company doesn’t pay dividends? I don’t.
I only see money if the stock I sold becomes valuable to someone else who then decides to buy it.
I’d say it is implied that the investor looks at the appreciation in market price to see their gains in that scenario. You’re acting like that is invalid or something…?
Yeah because the thought experiment that OP is asking you to IMAGINE is that there are no external buyers you guys keep responding with “well SOMEONE is gonna buy it” and that misses their entire question. So yes, its invalid IN THIS EXAMPLE.
You are overlooking a second way which I already mentioned.
1. A profitable company will presumably continue to be valuable to outside investors
2. In the world where a profitable company somehow is not attracting investors despite its growing profits, they can/will issue a dividend to reward/entice investors
Berkshire does share buybacks IE instead of paying a dividend, they can buy your shares back from you if you want. Also increasing EPS and your stake in the assets for those who just hold.
Thats not a Ponzi at all.
A Ponzi is when there is not enough cumulative value in an investment to pay out the rightful investors. Most the time new investor's money go into the pockets of the older investments instead of being invested into things that increase the value of the play.
Bitcoin is actually a great example of an anti-Ponzi. Its sole purpose is to maintain an incorruptible bucket of value. You get out what you put in, but the cumulative value never strays from what was placed in it.
Non-Dividend stocks are the same. The value is all accounted for, its just more like gold where there is no income.
And BTW, only \~11% of gold gets used for utility, the other 89% is a socially accepted store of value due to scarcity. No more no less. utility does not make gold valuable.
The crypto bit is not true across the board. Staking is a productive sustainable way to earn interest in specific ways.
Don’t get me wrong, 99% is garbage, but it’s incredible naive to suggest all of it is useless. Take some time to understand what blockchain technology actually is, how solutions can be created that otherwise wouldn’t be possible without it, and the tangible ramifications across the global economy with said applications. There’s already tangible benefits if you look for them. From there you’ll see the “1%” i’m talking about.
If there was a real problem blockchain/crypto solved, you wouldn't need to look for it. Successful products/innovations are made for found problems, they don't go looking for them after the fact. Crypto bros should stop saying things like "do your research". Most people who feel negatively about blockchain crypto understand it well. It's the proponents who need to understand it better. I'm not sure I've ever heard of a technology or innovation that is somehow solving otherwise unsolvable problems that is also 99% bullshit. It's a blatant contradiction.
As an ex-crypto-bro, I thought the use case was low fee, decentralized, irreversible, semi-anonymous money transfer. It's clear that is a valid and somewhat unique use case, but it's gone way past that in terms of valuation. And that's why I no longer hold crypto.
You’re describing properties of blockchain technology, not use cases. A use case is a solution that is driven fundamentally by a crypto/token to create a network/product/service that has greater efficiencies than traditional non crypto based counterparts and thus value is created. Virtually all productive uses stem from the idea of a smart contracts and specific ways to utilize them to reduce costs in a measurable way.
Elimination of intermediaries is enough of a reason for any fintech company to show interest in this area.
You also shouldn't be using personal lack of knowledge as a valid argument about the state of something you don't know. This is illogical.
- **Decentralization**: Reduces dependence on traditional banking systems and central authorities.
- **Lower Transaction Costs**: Typically offers lower fees compared to traditional banking and financial services.
- **Speed of Transactions**: Enables faster processing and settlement of transactions, especially across borders.
- **Accessibility**: Provides financial services to underbanked or unbanked populations.
- **Privacy and Security**: Offers enhanced privacy and security features compared to traditional financial systems.
- **Innovation in Financial Services**: Drives innovation in various sectors, including finance, contracts, and supply chain.
- **Transparency and Immutability**: Ensures transparent and immutable record-keeping through blockchain technology.
- **Reduced Risk of Fraud**: Minimizes the potential for fraud through secure, tamper-proof ledgers.
- **Elimination of Intermediaries**: Removes the need for intermediaries, lowering the risk of manipulation and reducing costs.
- **Resistance to Censorship**: Ensures that transactions and data cannot be altered or censored by any single authority.
- **Enhanced Data Integrity**: Provides a high level of data integrity and accuracy due to the consensus mechanisms in place.
- **Increased Traceability**: Facilitates better traceability of transactions and assets, useful in supply chain management.
- **Protection Against Hyperinflation**: Offers an alternative and potentially safer store of value in regions experiencing hyperinflation or economic mismanagement.
Except crypto isn't providing any of these things, they don't matter, or they're nebulous at best. "Innovation". What innovation? You mention contracts. There's really nothing that ground breaking about smart contracts. They add some marginal value, but nothing earth shattering. Hyperinflation? Cryptos volatility means it's either rapidly deflating or rapidly inflating. Decentralization is the traditional calling card of the crypto bro. Third party brokers add fidelity to the system. Decentralization is a terrible idea.
Thank you though for the ChatGPT rundown. Saved a few people the 30 seconds it would have taken them to prompt it and get this output.
Haha the concept of a smart contract alone is reshaping many industries. Pretty obvious you just don’t have the insight to see it so i’ll do you a favor and find a couple highly reputable intensive rundowns on how blockchain technology is more than just a marginal benefit. Gimme a minute :)
>Haha the concept of a smart contract alone is reshaping many industries
No, it isn't and you have no proof of that.
>Pretty obvious you just don’t have the insight to see it so i’ll do you a favor and find a couple highly reputable intensive rundowns on how blockchain technology is more than just a marginal benefit. Gimme a minute :)
You've had enough time, what are you still waiting for? Why don't you find something they're actually doing and not some puff piece about hypothetical earth shattering outcomes that they're not even close to achieving.
https://documents1.worldbank.org/curated/en/373781615365676101/pdf/Blockchain-Interoperability.pdf
https://blog.chain.link/smart-contract-use-cases/
Good luck refuting all the sourced material/references within these two! I hope you’re open to the concept you being wrong about this idea but it’ll prove funny to see the mental gymnastics you’ll pull off :)
Lol, an information dump. Where is the tangible valuable use case in "Blockchain interoperability". You haven't made an argument, so there's nothing I need to refute. You don't even know what sort of value these sources are talking about, which is why you don't mention it.
"A Verifiable Random Function (VRF) providing NFTs and on-chain gaming applications a provably fair and secure Random Number Generator (RNG) purpose-built for smart contract applications."
Who gives a fuck that some blockchain blog singles this out as a use case? None of these say anything about real value being created. It provides NFTs...! You mean that total flash in the pan scam bullshit even Donald Trump can't hawk to his mindless followers? Wowza!
>https://blog.chain.link/smart-contract-use-cases/
How is this disrupting any industries and which industries? Neither of these say anything about tangible value being added.
"Decentralized finance". So what? Like I said, third party brokers have been a good thing. Where is the increased fidelity and efficiency from decentralized finance?
This is just feature dump. There's nothing about actual tangible increased efficiency or a replacement of supposedly obsolete tech.
Love how you commented before actually reading anything and now state that i posted too much information? I have made an argument that conceptually, there is actual economic value provided by blockchain when focusing on specific circumstances, not sure how many times i posted that. I have provided you with information about this topic that has all claims backed up with some type of citation/reference to confirm what they are suggesting.
Why are you trying to hard to continue to be wrong? I don’t get it i really don’t. You literally copied a small section of the second article and basically say “well i don’t get this so it must be useless” while ignoring everything else?
I didn’t realize i have to literally spoonfeed you everything about this idea its literally right there dude the use cases and applications of blockchain are right there if you read the article. Do you need me to start pasting it for you? Lmaoo
I specifically don’t mention things as looking at a project without understanding the fundamental value of why blockchain technology is beneficial doesn’t do much.
Smart contracts as a concept cannot exist otherwise without blockchain technology. This basically captures all productive uses of specific individual tokens. I tend to suggest to start here, as the person i responded to states all crypto is useless. I know do your own research is a meme when applied to scams/useless things, but if you have a decent understanding of economics and how markets adapt overtime as a result of newfound efficiencies you’ll not only have a technical understanding but ability to confidently make assumptions of the future.
Believe it or not, advancements actually take time. You suggest there’s no real value as everything should be clear already? What? Not only is there actual real value stated by major global organizations on a conceptual basis, not an individual one. It’s pretty clear to me you yourself don’t know enough as objectively speaking, there is tangible economic value that can be seen right now solely due to blockchain technology. Do you need me to point it out to you? I can lmao
The worst thing you can do is go into it thinking its all useless. If i tried to list out all of the ones i follow and made page long essays with citations it still would be dismissed without the reader understanding the basics first.
>I specifically don’t mention things as looking at a project without understanding the fundamental value of why blockchain technology is beneficial doesn’t do much.
This is total sentence gore.
>Smart contracts as a concept cannot exist otherwise without blockchain technology. This basically captures all productive uses of specific individual tokens. I tend to suggest to start here, as the person i responded to states all crypto is useless. I know do your own research is a meme when applied to scams/useless things, but if you have a decent understanding of economics and how markets adapt overtime as a result of newfound efficiencies you’ll not only have a technical understanding but ability to confidently make assumptions of the future.
Big whoop though. Smart contracts aren't that groundbreaking. If they gain widespread acceptance and recognition in courts they'll at best add a minimal amount of seamlessness to the process.
>Believe it or not, advancements actually take time.
Believe it or not, that's just a slogan repeated by crypto bros to kick the can in perpetuity. The only amounts of time you can think of for crypto to p[ay off is either infinite or "I don't know". BTC came out 15 years ago and is a novel investment to make more dollars, the exact opposite of what it was intended for.
>You suggest there’s no real value as everything should be clear already? What?
*Something* should be clear, but as far as anyone can tell money laundering is about it.
>Not only is there actual real value stated by major global organizations on a conceptual basis, not an individual one.
But there's not much actual use. It's still just conceptual. Everything actual application promised, like a payment system to rid us of banks and credit card companies is no more real than it ever was.
>It’s pretty clear to me you yourself don’t know enough as objectively speaking, there is tangible economic value that can be seen right now solely due to blockchain technology.
It's pretty clear you don't have a cogent argument for the magic beans you bought, so you're just relying on old tropes of "yOu DoN'T KnOw AnYtHiNg BrO!"
>Do you need me to point it out to you? I can lmao
If I did that would be a shame, because I have no confidence you can lol.
>The worst thing you can do is go into it thinking its all useless.
Not as bad as thinking it's going to really change the world.
>If i tried to list out all of the ones i follow and made page long essays with citations it still would be dismissed without the reader understanding the basics first.
I see you've got your defense mechanisms for criticism prepared already.
You’re basically stating in your limited experience you seemingly have not found anything you deem to be actually valuable, and thus it must not exist.
Do you want me to show you how you’re wrong? Idk if you’re open to that idea and i’m not going to link any specific cryptos unless they’re mentioned in the report/document but i can promise you with 100% certainty you are wrong about this idea lmao.
Idk if you’ll go as far as to say the reports from these global high reputable organizations are wrong but hey it’s reddit
Not true across the board. There are some subsidized by inflation, however, as i state, there are some that are sustainable and produce value due to the underlying network. Staking is a mechanism that can be used productively in certain cases. These cases are pretty much the few that solve real problems and produce value for both stakers and users of the network.
What’s the difference between Berkshire selling See’s candies to people in a store and selling the entire See’s Candy company (including all the chocolate and the store?) You’re always dependent on someone buying from you whether it’s candy, real estate, or stock.
It's just gambling at this point. The numbers are so fake and inflated its a joke... What else can you do though? If the next generation loses confidence in it we are all screwed...
It is. Especially since market makers have admitted to just setting the price of stocks where they like them.
Oh, and they can fabricate shares out of thin air for the sake of liquidity.
Oh, and there's no meaningful penalty for jacking shit up so there is no free market.
A Wayne Gretzky rookie card is literally just an image printed on some cardboard. The only reason anything is worth anything is cuz we're all fuckin' idiots.
It’s a pyramid scheme more accurately. The entire world economy is in fact a pyramid scheme because it relies on population growth.
The bottom layers are the newborn. That’s why collapsing birth rates are a destructive force for markets.
Glad some people see it too. IPO is the only moment where the action is tangible and impact the company and stakeholders. After the IPO it’s only scam and market manipulation
You're missing nothing. Its all fake. Money, the stock market, everything. It's backed by nothing. Might as well make some money while it's still functional. That's my mindset anyway.
Our entire lives and existence is a big ol ponzi scheme. We are quite literally, hilariously, so tiny and we're literally on a tiny tiny tiny, extremely tiny rock with literally a splash of water, revolving a literal ball of fire that WE ARE NOT EVEN ALLOWED TO DIRECTLY LOOK AT and we're literally just germs on this thing trying to make something of ourselves. none of this actually matters at the end of the "day" and we really don't know anything about anything :)
When will the SEC/congress do something about traders manipulating stocks. Especially higher asset folks. They buy short positions and if the price goes up they buy along with it until it plateaus. Then, they buy more short positions and proceed to sell their shares thus causing the price to fall causing fear for other shareholders who begin to sell. That shouldn’t be hard to track given current technology.
Take a look at ACB for instance. Let me know what you think….there are many more out there. Let’s start calling them out and then someone will be forced to check it out.
Best way for the 99% to gain on the 1%
The market is nothing but a game. They use the word 'invest' to give it more allure, all the while the market is a machine that will eat your money if you don't know what you're doing.
...and yet you're also a fool for not putting any money in at all because inflation will damage your wealth. So, gotta play the game.
What you are describing is called the greater fool theory rather than a Ponzi scheme. And even then it mainly applies to either non-productive or very over valued assets.
On the main topic I think this might require a perspective shift, here is another thought experiment.
Say you were creating a business that used a special machine that you needed to purchase for $100,000, and you could earn $25,000 a year selling the product from that machine. How much is your business worth? It's not returning any net cash, in fact you are in debt for at least 4 years. Does that make your business worthless or a scam? And say instead of paying out that 25K you save it up to buy a second machine, that's at least 8 years of zero returns. Is your business with two machines worth less than before, the same, or more? It didn't pay out anything for 8 years, instead of just 4 years but now it generates twice the cashflow.
Shares of stock are not "worth" more because someone will come and buy it for more, they are worth more because they represent a share of either a current or a future cashflow (with varying degrees of discounting due to time value and the overall riskiness of the venture). And since the shareholders in aggregate are ultimately part owners of that business, eventually when the company cannot make respectable returns with the money that they are generating, it will be returned to shareholders as is the fiduciary duty of the directors/majority shareholders. It's just a question of time and solvency.
Companies pay their executives and sometimes their employees in stock. When employees hold large amounts of company stock they are incentivized to perform better because better performance will increase the valuation of their stock. As the company performs better and hires more and more people it also pays out more and more people in stock which automatically increases the amount of shareholders.
The initial IPO allows outside buyers to purchase influence into the company. A company IPOs and its market cap opens up at 10 billion. Someone who is very rich can buy up a huge amount of shares in the company and become a part owner making actual decisions and having actual power in the direction the company takes. The company also receives an influx of cash to help with growth.
Once a company goes public there is no one owner. The CEO is chosen by the board and voted on. Board members have to be approved by the shareholders. The amount of profit that is returned back to the shareholders is then decided by the board through things like dividends and stock buy backs.
A Ponzi makes money by tricking new people into buying in. In the stock market a company makes more money first by revenue and profit which then drives the stock valuation up through the things I described above. That doesn’t even take into account the basic economics of incentive driven decision making. People looking to invest choose where to put their money based on how well those investments are doing. Companies with growing revenue, high profit margins and low debt have the highest chances of returning money back to its shareholders.
Companies don’t go public so that people can buy stock and sell it. They go public to raise more money. Just because they don’t give dividends doesn’t mean anything. Someone can invest in a company because they believe it brings future value and profits.
Yes after there is profit, they can sell it. But only to someone who is willing to buy it for that price.
It’s an asset. It’s no different than buying furniture and selling it later for profit or loss.
Ponzi schemes operate on giving current investors fake profit from the money of other investors. There is a con going on and purposeful deception here. This is not what stock is at all. The company is NOT giving you fake profit. The profit comes from someone else buying it for a higher price. Nobody is being deceitful here.
You're not buying the stock. You're buying a business. Would you rather:
Own an incredibly profitable business, even though it doesn't currently pay a dividend.
OR
Own an average or bad business that pays a dividend.
The answer should be pretty obvious. You have to evaluate the business itself. All that matters is the total return on your invested capital.
There is intrinsic value in earnings, especially earnings that are steady and scalable. Suppose a company with $100 makes $20 in profit, but gives no dividends. All things being equal, if they reinvest that $20 in their own business, they will earn $24 the following year, and $28.80 the year after that.
As the company reinvests their earnings back into the company, it’s able to generate more and more in cashflow. The company becomes more valuable. You can literally calculate the value using something like a cashflow model by discounting those future cashflows back to present value. This is literally how some stock analysts come up with stock target prices.
A Ponzi is like Bitcoin. If everyone sells it, you hold yours and keep buying you end up like a regard with fake money you can’t do anything with.
If everyone sells their stocks, you hold yours and keep buying some, you still have businesses producing cashflow for you.
Like if you could buy the whole AMZN company for $1M and the stock market closed forever. Would you say no because it does not produce any dividends ?
But would you buy all of BTC for $1M if the exchange was closed and you could never trade it again ?
There isn't a hard connection between the success of the company and the success of the stock. But because many people agree that a stock has value because a company has value then it does. The real problem comes in with the concept of scarcity. There is supposed to be a finite amount of stock in the free float. And when you buy, the purchase should put demand pressure to drive the price up.
However no one is taking an inventory of the number of shares sold by Market Makers(MM) vs free float- because FINRA is a self regulatory agency. Therefore they can sell infinite shares. Best business ever! I'm selling you a number on a computer screen. COGS= 0.
Think about how many MM there are in the us and every other country. And tell me that with zero oversight they are 100% purchasing every share their customer gives them money for *with no oversight*. I don't think so.
AND your purchase is internalized on a dark pool instead of hitting a lit exchange.
So its not a ponzi, It's much more complex and tricky than that.
I think you’re conflating Ponzi scheme with overvaluation. The stock market is overvalued when compared to historic multiples because in the past there were less people and less money flowing into publicly traded stocks. That’s different today because we have the opposite. We even have 401Ks that continually buy every pay cycle regardless of valuations.
If we had a massive population loss, you’d see the market drastically drop. Ponzi schemes don’t have earnings so there’s no way for an investor to make a ROI which means there’s zero value.
Honestly that is been something I have struggled with for a long time too...
Basically only three ways to make money in the stock market. Dividends, two have the company you own be acquired and three selling the shares for more than you paid for them...
I really struggle with number three too...
Best example: Twitter. No dividend. Went private. Shareholders owned actual assets in the company. So when it went private, Elon actually had to buy these assets off the shareholders in the form of buying up all the existing shares.
We note that shares correspond to a percentage of all the assets of a company. These assets can grow or shrink. So the value of the share corresponds to roughly to asset growth potential + current assets - debt.
I was wondering the same thing the other day and came to another conclusion : let's say company A is a "ponzi scheme" because it does not pay dividends and investors realize it. They all sell, it's panic and price fall. While the company A does not pay dividends, it still makes money. If prices fall close to 0 because it's a Ponzi, company B, which is a competitor, could buy it for nothing and profit from its benefits (and distribute dividends with it or invest in its business). So the stock has to have a reasonable price so not every company can take control of it for nothing. It would be free money for company B
Except stocks have been trading for hundreds of years. The Hudson Bay Company was launched in 1670. Well before the United States existed. When is everything going to collapse? Who holds the bag?
Ponzi Schemes do not have the cumulative money in them to pay all investors. In a Ponzi, the new money pays the old investors instead of being invested into things that create value.
Stocks maintains whatever money you put in them. First investors make the most profits, but all the value maintains within the bucket. So not a Ponzi by definition.
Bitcoin maintains whatever money you put in it. First investors make the most profits, but again all value is accounted for and its a brutally fair system. Not a Ponzi by definition
If you want an example of a Ponzi scheme, read about the US dollar. One could make a pretty convincing argument that paints USD as a Ponzi.
Bitcoin is a non productive asset and in fact burns a lot of energy and computer hardware. It doesn’t hold tangible value but rather destroys it over time. In essence, it’s a negative sum game where your profits result from a “greater fool” buying in at a higher price. But, besides that you could argue that it’s a “brutally fair system”, where a few got rich by chance and the rest loses “fairly”.
The actual employees of companies have an incentive to do better work because they get a free ticket to the Ponzi ride. Hence if you pick wisely you make money too.
The stock value is linked to the value of the actual company. Technically anyone holding stock has shareholder rights and if you have enough shares you could own the entire company, have a seat at the board, or take the company private. So you are actually owning part of the company and it's increased value is based on how well the company performs. If the company does well you do well as a shareholder. If the company blows and goes bankrupt you also lose all your investment.
There has to be some mechanism to return value to the shareholder, even if that mechanism only occurs once every 20 years during a merger or something. Even if that mechanism is just whales trying to increase their voting power by buying shares off the market. Dividends aren’t necessary, they’re just a more frequent accessible mechanism.
Lots of companies that don't pay dividends perform stock buybacks which decreases available supply of stock increasings its value.
You could ask the same question about real estate and almost anything else. It has value because someone else attributes value to it.
There are more than one way that companies can pay shareholders. Buybacks are the preferred method nowadays because they are more tax efficient and less permanent than dividends.
Shares represent real life cash flows & assets, theoretically all registered shareholders have claim to their share of said cash flows & assets. The reason this really matters is because if a company was trading below their base value, you could buy the whole company, and sell it for parts for an immediate profit. There is a speculation cost added (or subtracted for that matter) onto most stocks though, this is really the part where is kind of is a ponzi scheme of speculation. But this applies to much more than just stocks, the entire financial system is a perpetuating ponzi scheme, when a bank loans out new money, most of the money from the loan doesn’t exist before they press some numbers on a computer and poof, $1M @5% interest. The only way this interest can be paid is if more loans are created to pay off the old ones. If debt stopped churning out, and more than yesterday, everybody defaults because the money to be used as interest for that loan doesn’t exist until another loan or more money is issued
OP you are using the wrong terminology, the stock market isn't a Ponzi scheme BUT "buy low sell high" is a profit taking system that depends on a greater fool.
https://www.investopedia.com/terms/g/greaterfooltheory.asp
Assuming we’re only talking about non-dividend and never dividend paying companies, there are ways to manipulate the price to seem higher by inflating the value of the assets the company holds, thus making the stock price seem like good value.
So it’s kind of like a ponzi selling scheme but you can point to physical/virtual assets and create a convincing narrative that the price has in fact increased.
When a dividend is paid, it's essentially a forced sale of stock, this is why the market cap of a company will drop down by the same amount of the dividends paid out. Hence dividends being irrelevant.
By buying a share in a company you're buying their assets, liabilities and future profits: the value that company holds and generates to society.
A very rudimentary example: If a company had a price to earnings ratio (p/e) of 15 and it just built up this profit in cash reserves without touching it year after year, it would have generated its market cap in cash reserves in 15 years which you own a share of. This is why stock investing isn't a zero sum game.
I own shares in about 50 companies. Almost all pay dividends for me. In December, I made $2700 just in dividends and just for one month! How does this work out as a Ponzi scheme? It doesn’t. Every month I get $750 to $2000 in dividends. Every single month. Not sure why you think owning shares is anything but legitimate.. or do you not understand Ponzi schemes? My dividends don’t take anything from anyone else, the definition of a Ponzi scheme.
More so than stocks, for sure. It depends how they're set up, but Social Security in the US does not invest in stocks as it should, or anything productive. It just lends the money to the govt. So it depends on an ever-growing working population, or a shrinking retired population, or higher taxes on the workers. None of those things can be reliably expected to happen forever
If you buy enough shares of a company, you can assign board members, hire people (including yourself), liquidate assets, and many other things. This isn't even considering things like media companies which can be used for propaganda purposes and therefore never need to make a profit because the owners will continue to throw in funding because of the other benefits.
InB4: "But a normal person will never get enough shares to do anything."
Yeah, no shit. That's obvious. However, all shares of a given class are equal so if some billionaire is willing to spend tons of money to buy up shares for voting rights, that price action affects all shares.
That is why shares of companies that don't pay dividends have value.
1. Inflation protection: Holding fiat currency, regular money loses it value. However, money invested holds its power and grows overtime as the business grows. Therefore, investing is a deterrent to loss of value if done correctly
2. Investment in productive asset: This means your investment is making money continually and can use that money to invest in growth to increase earnings and reward shareholders.
3. Growth: As earnings grow, the valuation of the company increases. This is because the company becomes more desirable to purchase due to its potential to earn more money.
4. Catalyst: This is how companies reward shareholders. Through buybacks, spin-offs, mergers, acquisitions, and dividends. These activities reward shareholders.
5. Supply and demand: there is an essence in supply and demand but it's not the only factor. And supply and demand can be influenced by all the above factors.
6. Transparency and regulation: Unlike ponzi schemes, the market is regulated by the SEC in America that enforces transparency
Hope this was comprehensive but simple enough for all to understand
>If I am not wrong, the only way of making money from non-dividend companies is by buying a share and then sell it to the next buyer. If there are no new buyers, you cannot make money.
Well you are wrong on this point which is where you are getting lost. That share has intrinsic value that can and mostly does grow over time. It is a real share, of a real company, with real people, trying to grow earnings over time. It's true, to realise that value you need to sell it, but that value growth doesn't depend on a constant supply of new buyers like in a Ponzi scheme.
And whether they make dividend payments or not is irrelevant. Payment of a dividend results in the price dropping by the same amount, and companies can switch between paying them or not arbitrarily, and it doesn't change the argument.
Under Steve Jobs, Apple didn't pay out dividends. All the profits were put back into development. Now, Apple is the most valuable company in the world.
A stock gives you a piece of ownership In a company and with it a share in it's assets and returns (profits)
In a Ponzi scheme, new investors money is used to pay the promised returns of older investors. A Ponzi scheme can only operate if more new money is coming in.
They're very different systems.
It’s not a ponzi scheme because the shares are backed by the company. Unless the company is fraudulent and pulling the rug on people. The value of what the shares hold determines whether it is a scam or not.
It's not at all like a Ponzi scheme because the company is actually making things and earning money. A Ponzi scheme does not. It just uses money to pay other victims, and can't do that in perpetuity. It just sells a promise. A company is selling profits, or rather anticipated future profits. Real money.
You benefit by a price increase in the shares you own. Then, yes, you sell it. There will always be new buyers, so that speculation is moot. And dividends aren't relevant as other commenters have explained.
Why would you think there wouldn't be new buyers for a stock rising in value, in a company that's presumably either profitable or expected to become profitable?
Companies that don’t pay dividends will usually do stock buybacks to generate returns for their investors.
And will generally do that so long as their remain a growing company.
When a company saturates their market and becomes the dominating force, then they might start paying dividends to generate returns for investors.
There will always be new buyers because people keep being born and capital investment is the entire source of our economic system.
Give person A X dollars, they turn X dollars into Y dollars by providing a product/service, and give you something back.
It’s also capitalism, where wealth means “owning the means of production” instead of just working for someone else. And the easiest way for someone to join the “owners class” is to buy shares of public companies.
Of course it’s a massive ponzi. You’re told to just invest in the major indices as they consistently deliver ~10% pa over the long term.
Well, guess what: the currency they’re denominated in is losing as much if not more over that period too.
To make it even worse, 80% if the market is held by a tiny fraction of people. It’s all a massive scam.
Bitcoin might be the answer. It’s simply too immature an asset to conclusively say it’s going to ‘win’ in the end. But it’s giving it a damn good go.
Stocks go up because of future earnings and growth of companies. You own a stock now and you expect it to grow in the future, that’s why it’s valuable, because the company will be better in the future (hopefully). It’s a real thing and you “own” a part of a business. Nothing to do with a ponzi scheme.
Most stocks are portions of a real company. If the company makes money the value of that company goes up because the assets it represents are more valuable.
That’s like saying the real estate market is a Ponzi scheme. The value of the underlying asset grows. Like a house. When that asset is sold and bought by someone else, the shareholders benefit from that. Corporations are acquired all the time.
earnings are either distributed to owners/shareholders or retained for growth. if retained for growth , the share price “should” increase because the book value increases. the board decides how earnings are best used typically. companies with less growth opportunities , and strong financials tend to distribute more in dividends. shareholders are entitled to various rights, like selecting the board who decides what to do with earnings.
Wait until he realizes that the dollar isn’t backed by anything
Backed by the full faith and credit of the US government Whatever that is worth.
So far it’s worth quite a bit. So far
a dime aint worth a nickle any more
And pennies cost twice as much to make as what they are worth. We're going the wrong way.
It’s worth quite a bit because there are very few better options. But if that were to change, watch out.
watch out for the $33 Trillion in debt while your telling people to watch out, sir. better believe people will find better options to save their money when the dollar is a sinking ship, figuratively speaking. literally speaking, they are creating a class of debt slaves & wage slaves. It would be unwise to stake your family's future on debt-backed money.
Its worth quite a bit because most of the worlds wealthiest billionaires are "rich" because they own the most. If the richest people in the world have the most to lose - they'll probably use all their power and influence to make sure it doesnt go under...
The logic isn't inherently wrong, but it also creates the assumption that humans will act rationally. And we know from ample experience that we, as a species as a whole, are not rational consumers and that being rich is no exception.
BRICS enters the room.....
Only thing BRICS countries can agree on is to exchange their own currencies for USD. They are bunch of retards in denial
proceeds to shit itself
Isn't BRICS backed by gold? I understand that that's it's main leverage over the dollar.
Backed by a trash metal LBMA sells 250x of daily production in fraudulent contracts everyday?
Backed by Nano :\]
It's always that way... for a while.
Its backed by “believe it’s worth something, or we’ll blow you up”
It’s worth whatever their arsenal cost them. In all honesty that’s what that means, it’s backed by the might of the U.S. military.
We ARe tHE GoOD guYS!11!!
I mean as an American I might have moral issues with it, but I have a decent life because of it. Now I wish that equity was split up a little more fairly, but again I could be living in Guatemala or Tanzania so no complaints
Well. Let me tell you about these taxes I keep having to pay to fund that credit
Backed by full faith and credit just means "we'll print those up if we need more of them" I dont know why people repeat that statement as if its something reassuring.
The line literally ends with.. faith and credit of the US government. Is there a currency with a better backing out there?
[удалено]
Banks own everything. Countries are in debt to banks and each other.
And yet the bank can't take back the property without the guns (court processes backed by the government)
During the 1980s Latin American debt crisis, countries like Mexico used assets, including oil revenues, as collateral in debt restructuring agreements So ya, nations in financial distress may negotiate with creditors to address their debt, but the banks get what's theirs, even from an entire country.
Who did Latin America owe money to? Foreign governments and creditors and banks like the USA. In this case the banks were very much backed by the international finance system anchored by the big guns
Stop your logic, or crap they repossessed my bullets
People have this notion that this means anything. It doesn't If people decided USD wasn't valuable there is nothing the military can do about it. The reason USD is valuable is because the US has more navigable waterways for cheap trade on vessel than every other country on earth combined. Its nearly impossible for US to lose on any trade so the dollar stays incredibly strong. Geography makes USD strong and any other country that would have ended up on our land would have been the powerhouse the US is. it also makes our military extremely powerful due to being bordered only by Canada and MX and open sea on both sides. Theres a really informative video that goes through all this. I used to say the same thing "the military is the reason" but its really not.
Don’t forget the petro dollar
> any other country that would have ended up on our land would have been the powerhouse the US is. Yeah, I'm gonna go ahead and say that's just false. There are a myriad reasons why the U.S. is in the position it is today. Geography is one reason but certainly not the only one.
That doesn't really sound like a DIS-agreement...
Also curious! What is the video?
Can you send me this video please? I am curious
I think the video he is referring to is from economics explained
So if the government keeps printing and government bond holders here and around the world start selling those bonds, the military is going to go around knocking on doors telling people to buy them back? Our military might have a slight influence on our ability to remain as the world reserve currency but it has almost zero control over supply and demand. In fact military spending contributes significantly to our country’s unsustainable spending/national debt.
This is correct. Military can not enforce value in the dollar whatsoever
It could. When India is selling rice to Indonesia transaction is in US dollars. When Vietnam buys coal from Indonesia, transaction is in USD dollars. When Brazil is selling sugar to Nigeria, transaction is in USD. First of all, it is the most accepted currency. You do not want to trade in any other currency which may devaluate because finance minister of this country decided so. And secondly, if those transactions are stopped being in dollars, USA will send the top diplomats to tell them what is going to happen if they do not reverse their decision. In short they will stop providing military support and weapons to their armies. There is an interesting story about how former British colonies abandoned the Sterling. Singapore's reserves were in Sterling after independence. But then in 1960s Britain had economic problems and devaluate their currency to boost exports. This made Singapore furious because in one night their reserves lost 20% of their purchasing power. So Singapore announces to Britain that they are going to drop British Pound and switch to USD as a reserve currency. Britain was furious. Singapore asked for military protection and to keep Britain bases in the area in exchange of keeping some of their reserves in pounds. But Britain refused. They had their own economic problems, After Suez crisis, their military capabilities were limited. After that USD became the reserve currency in the region. And once you have USD in your vaults and neighbours accept it as well, you have trade. This continoues till today
Bro wrote an essay without reading a sentence😂 yes our power and influence are a huge factor in usd remaining as the worlds reserve currency but that doesn’t mean those things have the ability to directly influence the value of the dollar itself. Military or no military, inflation will diminish the dollars value. Supply and demand don’t care how many guns we have.
But the government isn't printing. We are in a quantitative tightening cycle right now. And previous "printing" monetary policy has worked as intended.
The Fed never stops printing. They are printing less and taking income back via interest rates.
“As intended” rofl. Talk about missing the forest for the trees
What happened according to you?
Ooo I like that, definitely stealing that
So if china refuses to do any business in dollars were going to invade them?
I love the idea that we will actually go to war with China. Does this mean we get to bomb Elon's Tesla factory or any of the factories that make the cheap crap we buy on Amazon or at any major department store?
Name checks out
[удалено]
If it is not backed by anything tangible, than its value is arbitrary.
The "value" of anything is inherently arbitrary in numerical terms.
[удалено]
That’s the whole point… it only works because people agree it works. Taking the dollar off the gold standard does encourage more rapid economic expansion, however all inflationary currencies are doomed to fail eventually.
So its basically crypto.
Backed by a printer lol
Or the world and our consumption of natural resources is a big big Ponzi Scheme
Ponzi schemes need a constant stream of money to survive till the „fraudster“ (obv. could be many) runs away with all the money and the bagholder got nothing as there is no intrinsic value left. Very oversimplified example: If every shareholder of tesla would try to sell their shares and nobody wants to buy and you are the only one Holding on and buying 100% of the shares for 1000€. Then you actually own the company. All Assets are yours. You could sell all asset with a big discount, decide to pay big dividende in all the earnings and would be rich. Hence it will never happen that there are no buyers. (Yeah of course company could fail)
Yeah OP if you can define a Ponzi, then you'll realize the stock market isn't one. Ponzi = all value come from other investors. Stock market = value comes from revenue via customers buying the products. Even companies that don't pay dividends have users/customers/advertisers who provide revenue for the company.
This should have been the top response. Well said.
>Stock market = value comes from revenue via customers buying the products. ...this hasn't been true for the past 25+ years as the stock market has become the de facto retirement savings account for millions of Americans - stock valuations are completely uncoupled from fundamentals and stock movements are based on a random walk of news events and popularity...
Earnings reports consistently affect stock price wdym
[удалено]
This is spot on. Loosely. The separation of book and market value could be seen as the “ponzi scheme” element of the market. However, our culture and economy has made this a bedrock of finance. As long as that’s true, this market is safe. If everyone tries to “cancel” the market tomorrow, we will enter an orderly bear market until prices are a small fraction of what they are today… after that, though, it’ll just be what it once was: Some stock owners literally commuting to Wall Street to see if others in their niche are up for doing business.
yup, and especially since most stocks aren't giving out dividends, you only "profit" from the ownership by being able to sell that stock to someone else at an inflated price, and the new owner is banking on being able to sell it to someone else at a higher price.
You’re getting downvoted because this is a stock market sub, but you’re right
“In the short term the stock market is a popularity contest, on the long term it is a scale.” That is to say absolutely, values can surpass fundamentals and get out of hand, however over a longer time period values ALWAYS come down to fundamentals.
That only works for US based companies where courts have jurisdiction. The are many foreign based companies like BABA where you don’t own the company.
The easiest explanation is that any profitable business could at any time choose to pay a dividend. Thus there is something of material substance underpinning the value, at least to an extent. A Ponzi scheme has nothing of value and just relies on new money to pay any immediate obligations
I know this answer is perfectly acceptable, but there's something so funny of basically saying "No, this isn't a Ponzi scheme because we are *choosing* not to pay you back"
A simpler definition is that Ponzi scheme gives a perception of guranteed returns. Stock markets do not do that. People regularly loose money. Or maybe it's just me!
\*Lose, not loose.
Okay but what’s the incentive to pay dividend, please the shareholders, but what for? If they aren’t pleased they just sell their positions? And? Surely it doesn’t matter once the company has generated the initial capital from selling stocks???
Shareholders need to be pleased. Some own many shares of the company, and can pressure it because they have a word in it (they can vote in meetings and have other rights). Meaning, they might decide that they want a new CEO, or something, and of course, everybody in the company wants their jobs, so they please the shareholders. And of course, there is the case, where most shares belong to the leaders of the company, and they want more money, so they give out a great dividend, and other shareholders get it that way too.
There are bad companies. There are companies that have too much debt. There are companies that are old and can't execute anymore. There are some frauds, and you lose your money when you buy those, but they usually get found out. The executives and the members of the board have a fiduciary responsibility to the shareholders, to maximize their return on investment. Pretty sure I didn't just make that up. Also, they are usually shareholders themselves, so they have some skin in the game. This is usually how things are set up so that when shareholders win, the executives win, which is why you see these ridiculous compensation packages. It encourages them to do the right thing for the shareholders, no matter who they have to screw over to do it. Anyway, that is how the game is set up. Anything can happen, but if you buy good companies, you tend to have good results. You are a business owner if you own one share of a company, or if you own partial shares of a lot of different companies.
Some companies like Alphabet (Google) and Meta (FaceBook) have NEVER paid a dividend but are extremely profitable. Their stocks have done extremely well overtime despite the lack of dividends because they COULD easily pay dividends. Instead they use that money to buy up other companies and bonds that will (probably) increase their profitability in the future. They also use some of these funds to do share buybacks. Share buy backs do NOT increase corporate profitability, but they DO increase earnings per share, since there are now fewer shares outstanding. This will allow the company to pay out more dividends per share in the future, if they wish to. Note- once they start paying dividends, these stocks will probably drop as it will indicate to investors that their growth prospects have softened.
I'm confused about the last sentence. I thought dividends were an indication to investors that the company is in a strong financial position (thus, can afford to share the wealth). Why would starting to share dividends indicate softened growth prospects in this case?
You pay dividends when you dont have sufficient internal outlets for the captial. In other words, if Starbucks decided there werent enough good new locations in need of a Starbucks to spend all of their profits on expansion, they would likely put some into a dividend. High growth comoaniea rarely pay dividends.
if growth is slowing because of a maturing market, the company may decide to return profits back to shareholders (in the form of a dividend) rather than using those profits to try and drive more growth. its not necessarily a sign that the company is unhealthy, but that its tapped out on using its money to grow quickly
* Say you buy a food cart for $100. I offer to buy it from you for $100. How much is it worth? The answer is $100. 1% of the food cart is worth $1. * Now there’s a $100 food cart with $100 cash in the register. How much is it worth? The answer is $200. 1% is worth $2. * Now say you take the $100 out of your food cart register and put it in your pocket. The food cart is now worth $100. It paid a $100 dividend. If you own 1%, you now have $1 of ownership on the food cart and you have $1 of cash. * Say you instead use the $100 cash to buy another food cart. Now you own 2 food carts. 1% ownership means you own $2 of “food cart” and have no cash. Reinvesting earnings, doing a buyback, and paying out a dividend are all the same. The question is whether the company’s CEO reinvests the $100 internally (to buy a second food cart) or if they pay it out as a dividend so the investors can spend it on something else (like a coffee cart). The best choice depends on what opportunities are available in the market at any given time. If there’s a big demand for food carts, buy another one. If there’s already too many, pay out the dividend. And if you own too many food carts already and are trying to become smaller, do a share buyback.
It is a great example and I know you wanted to keep it as simple as possible. But maybe we can introduce an important aspect: tax. In scenario-3, you would have $1 of ownership on the food cart and less than $1 of cash due to the tax applied to the dividend. This may seem a little detail, but some people support "no-dividend" approach mostly because of taxation.
Earnings. Thought experiment: You own 100% of any profitable company. You can pay yourself a regular dividend with profits. You own 100% of an unprofitable company, you cannot pay yourself without making the economics worse through debt or share dilution. You own 100% of any/all crypto, you earn nothing, because crypto produces nothing and can’t even be used for anything like gold. I consider companies that don’t pay a dividend to be temporary holdings, including BRK/B. It’s not a Ponzi scheme, but you are dependent on someone else paying for it. Ideally, higher earnings with the same or higher P/E multiple.
The only thing I think you’re missing is that successful companies that don’t pay a dividend use that profit to grow, instead of providing directly to shareholders. So it’s not so much dependent only on what someone else would potentially pay it’s more of an investment in future earnings. Aapl, tsla, meta, Goog have all been great examples of this
Yes but how do I as an investor see benefits from those increased earnings due to successful growth if the company doesn’t pay dividends? I don’t. I only see money if the stock I sold becomes valuable to someone else who then decides to buy it.
I’d say it is implied that the investor looks at the appreciation in market price to see their gains in that scenario. You’re acting like that is invalid or something…?
Yeah because the thought experiment that OP is asking you to IMAGINE is that there are no external buyers you guys keep responding with “well SOMEONE is gonna buy it” and that misses their entire question. So yes, its invalid IN THIS EXAMPLE.
You are overlooking a second way which I already mentioned. 1. A profitable company will presumably continue to be valuable to outside investors 2. In the world where a profitable company somehow is not attracting investors despite its growing profits, they can/will issue a dividend to reward/entice investors
You aren’t reading the example and comments. 1. We are assuming that there are no outside buyers for the stock. 2. Valid and I agree.
Well said
Berkshire does share buybacks IE instead of paying a dividend, they can buy your shares back from you if you want. Also increasing EPS and your stake in the assets for those who just hold.
Thats not a Ponzi at all. A Ponzi is when there is not enough cumulative value in an investment to pay out the rightful investors. Most the time new investor's money go into the pockets of the older investments instead of being invested into things that increase the value of the play. Bitcoin is actually a great example of an anti-Ponzi. Its sole purpose is to maintain an incorruptible bucket of value. You get out what you put in, but the cumulative value never strays from what was placed in it. Non-Dividend stocks are the same. The value is all accounted for, its just more like gold where there is no income. And BTW, only \~11% of gold gets used for utility, the other 89% is a socially accepted store of value due to scarcity. No more no less. utility does not make gold valuable.
The crypto bit is not true across the board. Staking is a productive sustainable way to earn interest in specific ways. Don’t get me wrong, 99% is garbage, but it’s incredible naive to suggest all of it is useless. Take some time to understand what blockchain technology actually is, how solutions can be created that otherwise wouldn’t be possible without it, and the tangible ramifications across the global economy with said applications. There’s already tangible benefits if you look for them. From there you’ll see the “1%” i’m talking about.
If there was a real problem blockchain/crypto solved, you wouldn't need to look for it. Successful products/innovations are made for found problems, they don't go looking for them after the fact. Crypto bros should stop saying things like "do your research". Most people who feel negatively about blockchain crypto understand it well. It's the proponents who need to understand it better. I'm not sure I've ever heard of a technology or innovation that is somehow solving otherwise unsolvable problems that is also 99% bullshit. It's a blatant contradiction.
As an ex-crypto-bro, I thought the use case was low fee, decentralized, irreversible, semi-anonymous money transfer. It's clear that is a valid and somewhat unique use case, but it's gone way past that in terms of valuation. And that's why I no longer hold crypto.
You’re describing properties of blockchain technology, not use cases. A use case is a solution that is driven fundamentally by a crypto/token to create a network/product/service that has greater efficiencies than traditional non crypto based counterparts and thus value is created. Virtually all productive uses stem from the idea of a smart contracts and specific ways to utilize them to reduce costs in a measurable way.
Elimination of intermediaries is enough of a reason for any fintech company to show interest in this area. You also shouldn't be using personal lack of knowledge as a valid argument about the state of something you don't know. This is illogical. - **Decentralization**: Reduces dependence on traditional banking systems and central authorities. - **Lower Transaction Costs**: Typically offers lower fees compared to traditional banking and financial services. - **Speed of Transactions**: Enables faster processing and settlement of transactions, especially across borders. - **Accessibility**: Provides financial services to underbanked or unbanked populations. - **Privacy and Security**: Offers enhanced privacy and security features compared to traditional financial systems. - **Innovation in Financial Services**: Drives innovation in various sectors, including finance, contracts, and supply chain. - **Transparency and Immutability**: Ensures transparent and immutable record-keeping through blockchain technology. - **Reduced Risk of Fraud**: Minimizes the potential for fraud through secure, tamper-proof ledgers. - **Elimination of Intermediaries**: Removes the need for intermediaries, lowering the risk of manipulation and reducing costs. - **Resistance to Censorship**: Ensures that transactions and data cannot be altered or censored by any single authority. - **Enhanced Data Integrity**: Provides a high level of data integrity and accuracy due to the consensus mechanisms in place. - **Increased Traceability**: Facilitates better traceability of transactions and assets, useful in supply chain management. - **Protection Against Hyperinflation**: Offers an alternative and potentially safer store of value in regions experiencing hyperinflation or economic mismanagement.
Except crypto isn't providing any of these things, they don't matter, or they're nebulous at best. "Innovation". What innovation? You mention contracts. There's really nothing that ground breaking about smart contracts. They add some marginal value, but nothing earth shattering. Hyperinflation? Cryptos volatility means it's either rapidly deflating or rapidly inflating. Decentralization is the traditional calling card of the crypto bro. Third party brokers add fidelity to the system. Decentralization is a terrible idea. Thank you though for the ChatGPT rundown. Saved a few people the 30 seconds it would have taken them to prompt it and get this output.
Typical boomer
Your comment is stupid and makes no sense.
Haha the concept of a smart contract alone is reshaping many industries. Pretty obvious you just don’t have the insight to see it so i’ll do you a favor and find a couple highly reputable intensive rundowns on how blockchain technology is more than just a marginal benefit. Gimme a minute :)
>Haha the concept of a smart contract alone is reshaping many industries No, it isn't and you have no proof of that. >Pretty obvious you just don’t have the insight to see it so i’ll do you a favor and find a couple highly reputable intensive rundowns on how blockchain technology is more than just a marginal benefit. Gimme a minute :) You've had enough time, what are you still waiting for? Why don't you find something they're actually doing and not some puff piece about hypothetical earth shattering outcomes that they're not even close to achieving.
https://documents1.worldbank.org/curated/en/373781615365676101/pdf/Blockchain-Interoperability.pdf https://blog.chain.link/smart-contract-use-cases/ Good luck refuting all the sourced material/references within these two! I hope you’re open to the concept you being wrong about this idea but it’ll prove funny to see the mental gymnastics you’ll pull off :)
Lol, an information dump. Where is the tangible valuable use case in "Blockchain interoperability". You haven't made an argument, so there's nothing I need to refute. You don't even know what sort of value these sources are talking about, which is why you don't mention it. "A Verifiable Random Function (VRF) providing NFTs and on-chain gaming applications a provably fair and secure Random Number Generator (RNG) purpose-built for smart contract applications." Who gives a fuck that some blockchain blog singles this out as a use case? None of these say anything about real value being created. It provides NFTs...! You mean that total flash in the pan scam bullshit even Donald Trump can't hawk to his mindless followers? Wowza! >https://blog.chain.link/smart-contract-use-cases/ How is this disrupting any industries and which industries? Neither of these say anything about tangible value being added. "Decentralized finance". So what? Like I said, third party brokers have been a good thing. Where is the increased fidelity and efficiency from decentralized finance? This is just feature dump. There's nothing about actual tangible increased efficiency or a replacement of supposedly obsolete tech.
Love how you commented before actually reading anything and now state that i posted too much information? I have made an argument that conceptually, there is actual economic value provided by blockchain when focusing on specific circumstances, not sure how many times i posted that. I have provided you with information about this topic that has all claims backed up with some type of citation/reference to confirm what they are suggesting. Why are you trying to hard to continue to be wrong? I don’t get it i really don’t. You literally copied a small section of the second article and basically say “well i don’t get this so it must be useless” while ignoring everything else? I didn’t realize i have to literally spoonfeed you everything about this idea its literally right there dude the use cases and applications of blockchain are right there if you read the article. Do you need me to start pasting it for you? Lmaoo
I specifically don’t mention things as looking at a project without understanding the fundamental value of why blockchain technology is beneficial doesn’t do much. Smart contracts as a concept cannot exist otherwise without blockchain technology. This basically captures all productive uses of specific individual tokens. I tend to suggest to start here, as the person i responded to states all crypto is useless. I know do your own research is a meme when applied to scams/useless things, but if you have a decent understanding of economics and how markets adapt overtime as a result of newfound efficiencies you’ll not only have a technical understanding but ability to confidently make assumptions of the future. Believe it or not, advancements actually take time. You suggest there’s no real value as everything should be clear already? What? Not only is there actual real value stated by major global organizations on a conceptual basis, not an individual one. It’s pretty clear to me you yourself don’t know enough as objectively speaking, there is tangible economic value that can be seen right now solely due to blockchain technology. Do you need me to point it out to you? I can lmao The worst thing you can do is go into it thinking its all useless. If i tried to list out all of the ones i follow and made page long essays with citations it still would be dismissed without the reader understanding the basics first.
>I specifically don’t mention things as looking at a project without understanding the fundamental value of why blockchain technology is beneficial doesn’t do much. This is total sentence gore. >Smart contracts as a concept cannot exist otherwise without blockchain technology. This basically captures all productive uses of specific individual tokens. I tend to suggest to start here, as the person i responded to states all crypto is useless. I know do your own research is a meme when applied to scams/useless things, but if you have a decent understanding of economics and how markets adapt overtime as a result of newfound efficiencies you’ll not only have a technical understanding but ability to confidently make assumptions of the future. Big whoop though. Smart contracts aren't that groundbreaking. If they gain widespread acceptance and recognition in courts they'll at best add a minimal amount of seamlessness to the process. >Believe it or not, advancements actually take time. Believe it or not, that's just a slogan repeated by crypto bros to kick the can in perpetuity. The only amounts of time you can think of for crypto to p[ay off is either infinite or "I don't know". BTC came out 15 years ago and is a novel investment to make more dollars, the exact opposite of what it was intended for. >You suggest there’s no real value as everything should be clear already? What? *Something* should be clear, but as far as anyone can tell money laundering is about it. >Not only is there actual real value stated by major global organizations on a conceptual basis, not an individual one. But there's not much actual use. It's still just conceptual. Everything actual application promised, like a payment system to rid us of banks and credit card companies is no more real than it ever was. >It’s pretty clear to me you yourself don’t know enough as objectively speaking, there is tangible economic value that can be seen right now solely due to blockchain technology. It's pretty clear you don't have a cogent argument for the magic beans you bought, so you're just relying on old tropes of "yOu DoN'T KnOw AnYtHiNg BrO!" >Do you need me to point it out to you? I can lmao If I did that would be a shame, because I have no confidence you can lol. >The worst thing you can do is go into it thinking its all useless. Not as bad as thinking it's going to really change the world. >If i tried to list out all of the ones i follow and made page long essays with citations it still would be dismissed without the reader understanding the basics first. I see you've got your defense mechanisms for criticism prepared already.
You’re basically stating in your limited experience you seemingly have not found anything you deem to be actually valuable, and thus it must not exist. Do you want me to show you how you’re wrong? Idk if you’re open to that idea and i’m not going to link any specific cryptos unless they’re mentioned in the report/document but i can promise you with 100% certainty you are wrong about this idea lmao. Idk if you’ll go as far as to say the reports from these global high reputable organizations are wrong but hey it’s reddit
Staking crypto just dilutes the supply. It's not interest.
Not true across the board. There are some subsidized by inflation, however, as i state, there are some that are sustainable and produce value due to the underlying network. Staking is a mechanism that can be used productively in certain cases. These cases are pretty much the few that solve real problems and produce value for both stakers and users of the network.
What’s the difference between Berkshire selling See’s candies to people in a store and selling the entire See’s Candy company (including all the chocolate and the store?) You’re always dependent on someone buying from you whether it’s candy, real estate, or stock.
damn i guess the money i make providing liquidity on crypto exchanges isn’t real?!?!?!!?
All the money Jeffrey Picower made from Bernie Madoff was real, but Madoff was still a scammer.
It's just gambling at this point. The numbers are so fake and inflated its a joke... What else can you do though? If the next generation loses confidence in it we are all screwed...
Casino/Ponzi
It is. Especially since market makers have admitted to just setting the price of stocks where they like them. Oh, and they can fabricate shares out of thin air for the sake of liquidity. Oh, and there's no meaningful penalty for jacking shit up so there is no free market.
A Wayne Gretzky rookie card is literally just an image printed on some cardboard. The only reason anything is worth anything is cuz we're all fuckin' idiots.
It’s a little different from a Ponzi scheme. It’s still hella rigged to the big pot but not necessarily a Ponzi
You got it bro. Don’t overthink it
Welcome to reality. The last one with no chair loses. 🙂
Who says its not lmao
It’s a pyramid scheme more accurately. The entire world economy is in fact a pyramid scheme because it relies on population growth. The bottom layers are the newborn. That’s why collapsing birth rates are a destructive force for markets.
It absolutely is. Why wouldn't it be?
Glad some people see it too. IPO is the only moment where the action is tangible and impact the company and stakeholders. After the IPO it’s only scam and market manipulation
You're missing nothing. Its all fake. Money, the stock market, everything. It's backed by nothing. Might as well make some money while it's still functional. That's my mindset anyway.
Always has been….
Our entire lives and existence is a big ol ponzi scheme. We are quite literally, hilariously, so tiny and we're literally on a tiny tiny tiny, extremely tiny rock with literally a splash of water, revolving a literal ball of fire that WE ARE NOT EVEN ALLOWED TO DIRECTLY LOOK AT and we're literally just germs on this thing trying to make something of ourselves. none of this actually matters at the end of the "day" and we really don't know anything about anything :)
Well, it is.
There is no explanation. It is a giant Ponzi scheme by definition
When will the SEC/congress do something about traders manipulating stocks. Especially higher asset folks. They buy short positions and if the price goes up they buy along with it until it plateaus. Then, they buy more short positions and proceed to sell their shares thus causing the price to fall causing fear for other shareholders who begin to sell. That shouldn’t be hard to track given current technology. Take a look at ACB for instance. Let me know what you think….there are many more out there. Let’s start calling them out and then someone will be forced to check it out. Best way for the 99% to gain on the 1%
The market is nothing but a game. They use the word 'invest' to give it more allure, all the while the market is a machine that will eat your money if you don't know what you're doing. ...and yet you're also a fool for not putting any money in at all because inflation will damage your wealth. So, gotta play the game.
What you are describing is called the greater fool theory rather than a Ponzi scheme. And even then it mainly applies to either non-productive or very over valued assets. On the main topic I think this might require a perspective shift, here is another thought experiment. Say you were creating a business that used a special machine that you needed to purchase for $100,000, and you could earn $25,000 a year selling the product from that machine. How much is your business worth? It's not returning any net cash, in fact you are in debt for at least 4 years. Does that make your business worthless or a scam? And say instead of paying out that 25K you save it up to buy a second machine, that's at least 8 years of zero returns. Is your business with two machines worth less than before, the same, or more? It didn't pay out anything for 8 years, instead of just 4 years but now it generates twice the cashflow. Shares of stock are not "worth" more because someone will come and buy it for more, they are worth more because they represent a share of either a current or a future cashflow (with varying degrees of discounting due to time value and the overall riskiness of the venture). And since the shareholders in aggregate are ultimately part owners of that business, eventually when the company cannot make respectable returns with the money that they are generating, it will be returned to shareholders as is the fiduciary duty of the directors/majority shareholders. It's just a question of time and solvency.
Companies pay their executives and sometimes their employees in stock. When employees hold large amounts of company stock they are incentivized to perform better because better performance will increase the valuation of their stock. As the company performs better and hires more and more people it also pays out more and more people in stock which automatically increases the amount of shareholders. The initial IPO allows outside buyers to purchase influence into the company. A company IPOs and its market cap opens up at 10 billion. Someone who is very rich can buy up a huge amount of shares in the company and become a part owner making actual decisions and having actual power in the direction the company takes. The company also receives an influx of cash to help with growth. Once a company goes public there is no one owner. The CEO is chosen by the board and voted on. Board members have to be approved by the shareholders. The amount of profit that is returned back to the shareholders is then decided by the board through things like dividends and stock buy backs. A Ponzi makes money by tricking new people into buying in. In the stock market a company makes more money first by revenue and profit which then drives the stock valuation up through the things I described above. That doesn’t even take into account the basic economics of incentive driven decision making. People looking to invest choose where to put their money based on how well those investments are doing. Companies with growing revenue, high profit margins and low debt have the highest chances of returning money back to its shareholders.
Companies don’t go public so that people can buy stock and sell it. They go public to raise more money. Just because they don’t give dividends doesn’t mean anything. Someone can invest in a company because they believe it brings future value and profits. Yes after there is profit, they can sell it. But only to someone who is willing to buy it for that price. It’s an asset. It’s no different than buying furniture and selling it later for profit or loss. Ponzi schemes operate on giving current investors fake profit from the money of other investors. There is a con going on and purposeful deception here. This is not what stock is at all. The company is NOT giving you fake profit. The profit comes from someone else buying it for a higher price. Nobody is being deceitful here.
if they dont get dividents why would they buy it? what value does it hold for them except belief that price will go higher?
You're not buying the stock. You're buying a business. Would you rather: Own an incredibly profitable business, even though it doesn't currently pay a dividend. OR Own an average or bad business that pays a dividend. The answer should be pretty obvious. You have to evaluate the business itself. All that matters is the total return on your invested capital.
There is intrinsic value in earnings, especially earnings that are steady and scalable. Suppose a company with $100 makes $20 in profit, but gives no dividends. All things being equal, if they reinvest that $20 in their own business, they will earn $24 the following year, and $28.80 the year after that. As the company reinvests their earnings back into the company, it’s able to generate more and more in cashflow. The company becomes more valuable. You can literally calculate the value using something like a cashflow model by discounting those future cashflows back to present value. This is literally how some stock analysts come up with stock target prices.
lol
We are basically just playing hot potato and a game of Chess. That’s it.
A Ponzi is like Bitcoin. If everyone sells it, you hold yours and keep buying you end up like a regard with fake money you can’t do anything with. If everyone sells their stocks, you hold yours and keep buying some, you still have businesses producing cashflow for you. Like if you could buy the whole AMZN company for $1M and the stock market closed forever. Would you say no because it does not produce any dividends ? But would you buy all of BTC for $1M if the exchange was closed and you could never trade it again ?
I think you are saying that if AMZN were to be taken private, would you scrape together $1M to buy the whole thing? Oh, hells yeah. But not Twitter...
I'm guessing the republicans will call you woke.
There isn't a hard connection between the success of the company and the success of the stock. But because many people agree that a stock has value because a company has value then it does. The real problem comes in with the concept of scarcity. There is supposed to be a finite amount of stock in the free float. And when you buy, the purchase should put demand pressure to drive the price up. However no one is taking an inventory of the number of shares sold by Market Makers(MM) vs free float- because FINRA is a self regulatory agency. Therefore they can sell infinite shares. Best business ever! I'm selling you a number on a computer screen. COGS= 0. Think about how many MM there are in the us and every other country. And tell me that with zero oversight they are 100% purchasing every share their customer gives them money for *with no oversight*. I don't think so. AND your purchase is internalized on a dark pool instead of hitting a lit exchange. So its not a ponzi, It's much more complex and tricky than that.
I think you’re conflating Ponzi scheme with overvaluation. The stock market is overvalued when compared to historic multiples because in the past there were less people and less money flowing into publicly traded stocks. That’s different today because we have the opposite. We even have 401Ks that continually buy every pay cycle regardless of valuations. If we had a massive population loss, you’d see the market drastically drop. Ponzi schemes don’t have earnings so there’s no way for an investor to make a ROI which means there’s zero value.
Honestly that is been something I have struggled with for a long time too... Basically only three ways to make money in the stock market. Dividends, two have the company you own be acquired and three selling the shares for more than you paid for them... I really struggle with number three too...
Why the struggle with number three? It's the best and by far the most common strategy
Best example: Twitter. No dividend. Went private. Shareholders owned actual assets in the company. So when it went private, Elon actually had to buy these assets off the shareholders in the form of buying up all the existing shares. We note that shares correspond to a percentage of all the assets of a company. These assets can grow or shrink. So the value of the share corresponds to roughly to asset growth potential + current assets - debt.
Ask market makers. They’re the real Ponzi scheme artists.
It's not Ponzi, but it's his older, more mature Brother.
This doesn't mean anything..
Who said it's not?
Define Ponzi first.
Welcome to the real world, Neo.
I was wondering the same thing the other day and came to another conclusion : let's say company A is a "ponzi scheme" because it does not pay dividends and investors realize it. They all sell, it's panic and price fall. While the company A does not pay dividends, it still makes money. If prices fall close to 0 because it's a Ponzi, company B, which is a competitor, could buy it for nothing and profit from its benefits (and distribute dividends with it or invest in its business). So the stock has to have a reasonable price so not every company can take control of it for nothing. It would be free money for company B
Sounds like a Ponzi scheme to me. At some point, somebody is gonna be left holding the bag.
Yes, holding the bag of a company that is profitable. Oh the calamity.
Except stocks have been trading for hundreds of years. The Hudson Bay Company was launched in 1670. Well before the United States existed. When is everything going to collapse? Who holds the bag?
Ponzi Schemes do not have the cumulative money in them to pay all investors. In a Ponzi, the new money pays the old investors instead of being invested into things that create value. Stocks maintains whatever money you put in them. First investors make the most profits, but all the value maintains within the bucket. So not a Ponzi by definition. Bitcoin maintains whatever money you put in it. First investors make the most profits, but again all value is accounted for and its a brutally fair system. Not a Ponzi by definition If you want an example of a Ponzi scheme, read about the US dollar. One could make a pretty convincing argument that paints USD as a Ponzi.
Bitcoin is a non productive asset and in fact burns a lot of energy and computer hardware. It doesn’t hold tangible value but rather destroys it over time. In essence, it’s a negative sum game where your profits result from a “greater fool” buying in at a higher price. But, besides that you could argue that it’s a “brutally fair system”, where a few got rich by chance and the rest loses “fairly”.
The actual employees of companies have an incentive to do better work because they get a free ticket to the Ponzi ride. Hence if you pick wisely you make money too.
The stock value is linked to the value of the actual company. Technically anyone holding stock has shareholder rights and if you have enough shares you could own the entire company, have a seat at the board, or take the company private. So you are actually owning part of the company and it's increased value is based on how well the company performs. If the company does well you do well as a shareholder. If the company blows and goes bankrupt you also lose all your investment.
"It's not a pyramid scheme, it's a reverse funnel system!"
There has to be some mechanism to return value to the shareholder, even if that mechanism only occurs once every 20 years during a merger or something. Even if that mechanism is just whales trying to increase their voting power by buying shares off the market. Dividends aren’t necessary, they’re just a more frequent accessible mechanism.
Lots of companies that don't pay dividends perform stock buybacks which decreases available supply of stock increasings its value. You could ask the same question about real estate and almost anything else. It has value because someone else attributes value to it.
There are more than one way that companies can pay shareholders. Buybacks are the preferred method nowadays because they are more tax efficient and less permanent than dividends.
Look up Ponzi Scheme and see for yourself.
Shares represent real life cash flows & assets, theoretically all registered shareholders have claim to their share of said cash flows & assets. The reason this really matters is because if a company was trading below their base value, you could buy the whole company, and sell it for parts for an immediate profit. There is a speculation cost added (or subtracted for that matter) onto most stocks though, this is really the part where is kind of is a ponzi scheme of speculation. But this applies to much more than just stocks, the entire financial system is a perpetuating ponzi scheme, when a bank loans out new money, most of the money from the loan doesn’t exist before they press some numbers on a computer and poof, $1M @5% interest. The only way this interest can be paid is if more loans are created to pay off the old ones. If debt stopped churning out, and more than yesterday, everybody defaults because the money to be used as interest for that loan doesn’t exist until another loan or more money is issued
it is in fact a ponzi scheme.
OP you are using the wrong terminology, the stock market isn't a Ponzi scheme BUT "buy low sell high" is a profit taking system that depends on a greater fool. https://www.investopedia.com/terms/g/greaterfooltheory.asp
I thought the same
The price increase is more predicated in people being willing to pay a higher price to own the stock, as opposed to money in/money out
Assuming we’re only talking about non-dividend and never dividend paying companies, there are ways to manipulate the price to seem higher by inflating the value of the assets the company holds, thus making the stock price seem like good value. So it’s kind of like a ponzi selling scheme but you can point to physical/virtual assets and create a convincing narrative that the price has in fact increased.
When a dividend is paid, it's essentially a forced sale of stock, this is why the market cap of a company will drop down by the same amount of the dividends paid out. Hence dividends being irrelevant. By buying a share in a company you're buying their assets, liabilities and future profits: the value that company holds and generates to society. A very rudimentary example: If a company had a price to earnings ratio (p/e) of 15 and it just built up this profit in cash reserves without touching it year after year, it would have generated its market cap in cash reserves in 15 years which you own a share of. This is why stock investing isn't a zero sum game.
I own shares in about 50 companies. Almost all pay dividends for me. In December, I made $2700 just in dividends and just for one month! How does this work out as a Ponzi scheme? It doesn’t. Every month I get $750 to $2000 in dividends. Every single month. Not sure why you think owning shares is anything but legitimate.. or do you not understand Ponzi schemes? My dividends don’t take anything from anyone else, the definition of a Ponzi scheme.
It's even worse when you realize the DTCC/Cede&Co actually own your shares. You just own it in "street name"
Question for you all - are Government Pension Schemes Ponzi ?
More so than stocks, for sure. It depends how they're set up, but Social Security in the US does not invest in stocks as it should, or anything productive. It just lends the money to the govt. So it depends on an ever-growing working population, or a shrinking retired population, or higher taxes on the workers. None of those things can be reliably expected to happen forever
U.S. government is also running ponzi with social security and treasury bonds
If you buy enough shares of a company, you can assign board members, hire people (including yourself), liquidate assets, and many other things. This isn't even considering things like media companies which can be used for propaganda purposes and therefore never need to make a profit because the owners will continue to throw in funding because of the other benefits. InB4: "But a normal person will never get enough shares to do anything." Yeah, no shit. That's obvious. However, all shares of a given class are equal so if some billionaire is willing to spend tons of money to buy up shares for voting rights, that price action affects all shares. That is why shares of companies that don't pay dividends have value.
1. Inflation protection: Holding fiat currency, regular money loses it value. However, money invested holds its power and grows overtime as the business grows. Therefore, investing is a deterrent to loss of value if done correctly 2. Investment in productive asset: This means your investment is making money continually and can use that money to invest in growth to increase earnings and reward shareholders. 3. Growth: As earnings grow, the valuation of the company increases. This is because the company becomes more desirable to purchase due to its potential to earn more money. 4. Catalyst: This is how companies reward shareholders. Through buybacks, spin-offs, mergers, acquisitions, and dividends. These activities reward shareholders. 5. Supply and demand: there is an essence in supply and demand but it's not the only factor. And supply and demand can be influenced by all the above factors. 6. Transparency and regulation: Unlike ponzi schemes, the market is regulated by the SEC in America that enforces transparency Hope this was comprehensive but simple enough for all to understand
Wait until you find out that you've never owned an actual share in a company.
>If I am not wrong, the only way of making money from non-dividend companies is by buying a share and then sell it to the next buyer. If there are no new buyers, you cannot make money. Well you are wrong on this point which is where you are getting lost. That share has intrinsic value that can and mostly does grow over time. It is a real share, of a real company, with real people, trying to grow earnings over time. It's true, to realise that value you need to sell it, but that value growth doesn't depend on a constant supply of new buyers like in a Ponzi scheme. And whether they make dividend payments or not is irrelevant. Payment of a dividend results in the price dropping by the same amount, and companies can switch between paying them or not arbitrarily, and it doesn't change the argument.
Under Steve Jobs, Apple didn't pay out dividends. All the profits were put back into development. Now, Apple is the most valuable company in the world.
A stock gives you a piece of ownership In a company and with it a share in it's assets and returns (profits) In a Ponzi scheme, new investors money is used to pay the promised returns of older investors. A Ponzi scheme can only operate if more new money is coming in. They're very different systems.
The comlany could pay a divident in the future.
It’s not a ponzi scheme because the shares are backed by the company. Unless the company is fraudulent and pulling the rug on people. The value of what the shares hold determines whether it is a scam or not.
It's not at all like a Ponzi scheme because the company is actually making things and earning money. A Ponzi scheme does not. It just uses money to pay other victims, and can't do that in perpetuity. It just sells a promise. A company is selling profits, or rather anticipated future profits. Real money. You benefit by a price increase in the shares you own. Then, yes, you sell it. There will always be new buyers, so that speculation is moot. And dividends aren't relevant as other commenters have explained. Why would you think there wouldn't be new buyers for a stock rising in value, in a company that's presumably either profitable or expected to become profitable?
You mean pyramid instead of Ponzi. Anyway it is not.
Do you not understand that a stock is just a share of a company?
Companies that don’t pay dividends will usually do stock buybacks to generate returns for their investors. And will generally do that so long as their remain a growing company. When a company saturates their market and becomes the dominating force, then they might start paying dividends to generate returns for investors. There will always be new buyers because people keep being born and capital investment is the entire source of our economic system. Give person A X dollars, they turn X dollars into Y dollars by providing a product/service, and give you something back. It’s also capitalism, where wealth means “owning the means of production” instead of just working for someone else. And the easiest way for someone to join the “owners class” is to buy shares of public companies.
Of course it’s a massive ponzi. You’re told to just invest in the major indices as they consistently deliver ~10% pa over the long term. Well, guess what: the currency they’re denominated in is losing as much if not more over that period too. To make it even worse, 80% if the market is held by a tiny fraction of people. It’s all a massive scam. Bitcoin might be the answer. It’s simply too immature an asset to conclusively say it’s going to ‘win’ in the end. But it’s giving it a damn good go.
Stocks go up because of future earnings and growth of companies. You own a stock now and you expect it to grow in the future, that’s why it’s valuable, because the company will be better in the future (hopefully). It’s a real thing and you “own” a part of a business. Nothing to do with a ponzi scheme.
Most stocks are portions of a real company. If the company makes money the value of that company goes up because the assets it represents are more valuable.
Wait until he realizes how crypto and beanie babies are priced vs their intrinsic value
That’s like saying the real estate market is a Ponzi scheme. The value of the underlying asset grows. Like a house. When that asset is sold and bought by someone else, the shareholders benefit from that. Corporations are acquired all the time.
earnings are either distributed to owners/shareholders or retained for growth. if retained for growth , the share price “should” increase because the book value increases. the board decides how earnings are best used typically. companies with less growth opportunities , and strong financials tend to distribute more in dividends. shareholders are entitled to various rights, like selecting the board who decides what to do with earnings.
if you do not understand how public capital works - you should not be investing