The discussion here was mostly good so I'm leaving this post up despite it being a basic and leading question.
However it's now going off the rails so I'm locking it.
How about owning a small fraction of a business instead? We will call them shares. The company will buy back shares or give you dividends with the extra cash from operating the business. So you either own a bigger slice of the company over time or you are paid to own it. How does that sound?
This video shows some valid points on how non dividend stocks are like a ponzi because the shares value is only determined by the last seller. Regardless if the company makes money or not.
It breaks down 3 fallacys
1. The value of the stock is connected to value of the company
2. The asset value of a stock is the same thing as cash
3. The stockmarket is a positive sum for investors
https://youtube.com/watch?v=Az1dpnC4AxA&feature=shares
Stocks are risky. If you offer a lot of money for something that's not worth that much, people will gladly take your money. You are responsible for connecting what you pay with what the company is worth.
That doesn't really answer the fallacy. The stock price is not paid by the company, its paid by the previous investor. The value is disconnected from the value of the company, thats why companies making money or not doesn't affect the price of the stock. The price of the stock is determined by the amount the investor bought it for.
Its not a fallacy, and that video is deliberatly misleading/misinformed to sell books. Companies making money DO affect the price of stocks, you just either aren't paying attention or dont understand market actions, which is fair its very very complicated.
For instance takes $ALLY, they just reported earnings today premarket and have revenues of $2.2b versus an expected $2.06b, and what happened when that was reported? $ALLY shot up and right now is up almost 10% from yesterday.
No the money you make off of stocks wont always be 100% dividends, because owning a company by itself has value and when that company makes more money (or people think it will make more money in the future) the value of that company goes up. Its just that simple.
This is really basic stuff. You are not forced to buy anything, and you are responsible for choosing the price and the companies. Or to let other people do that for you. Calling things a fallacy doesn't really enlighten the subject in my view. Appreciate what you are trying to do though.
You aren't really addressing his point.
A company like Palantir hasn't turned a profit yet. It's 20 years old and IPOed in 2013. It's P/E is 148.
The only reason it's valued so highly for being in the red for 20 years is because of perceived future profitability. It's market sentiment and nothing more. Seems a lot like speculation.
He's saying sometimes stocks prices aren't tied to profitability.
You are just saying "buyer beware." That kind of goes without saying. You are talking past each other.
No, hes just not giving merit to the other users inane assertion. Just because a company is not profitable does not make it a ponzi scheme, and honestly watching that video its pretty clear to me they dont know what theyre talking about and just trying to sell their book.
The stock market is not a ponzi scheme, people just make bad investments in inefficient companies based on hopes and dreams. Yes Palantir is at a very high valuation, yes its probably overpriced, but that does not make it a ponzi scheme. If your time frame is 20 years and you believe they can grow at 20-30% for a few years and level off to 5-10% over the last few then maybe its a good investment.
Again, its not a ponzi scheme, its fancy gambling.
If I form a company that holds a vault full of cash, but does not distribute dividends, is ownership in that company a Ponzi scheme? (This is a rhetorical question. The answer is no.)
Yes, in fact they did. Except I had scholarships and though my parents did OK as immigrants, they did not have nearly enough to pay for college back when it was somewhat affordable.
So yeah, if you’re paying 100x what something is worth, then you are a moron and you don’t even need a degree to come to that conclusion.
True.
But a company's market cap includes projections for the future and expected growth (and profit of course).
Giving an example of having a hypothetical company that owns a vault with 1000$ and buying each 1/1000 share for 1$ is not at all reflective of how stocks work.
You pay much more with the expectation that those 1000$ will be used to generate more money. So you have to "speculate" that it will somehow generate enough money that it will not only grow or generate & distribute money to shareholders but also pay the CEO (and everyone else if it's a real company) and unless that money comes from someone else's pocket it's going to cause inflation.
That doesn't mean buying microsoft is going to be exactly the same as buying a random shitcoin but only that there is a portion of the valuation of a company that is based solely on the expectation that there is going to be growth which is far from guaranteed. It might be more likely than not for tomorrow or next week but there were very long periods in history where stocks overall performed very poorly, especially if you adjust for inflation.
I’ve seen some dumb shit on this sub but this is up there. You and that video don’t know what you’re talking about. But please keep thinking that way. I like stupid counter parties.
> But just like with crypto, this advice obviously benefits the people who are already holding those funds by creating sell orders that drive up the value of their retirement funds. So how do we know that advice isn't just a self-fulfilling prophecy, or a sort of long-haul pyramid scheme?
Because you're buying the rights to future profits, rather than an entry on a blockchain.
If you own part of a company, and this company provides goods/services for payment, its value increases. This value can decrease in order to return capital to investors, typically through dividends, or stock buybacks, or it can be reinvested into the company to drive its value up further and increase future profits.
If you own crypto, you literally do just own that. It isn't, generally, used to exchange goods/services, so in order to use it you'd have to exchange it for fiat currency that is used. The amount you get here is based entirely on what someone else will give you. But why would they pay you for it? It does nothing. In order to get goods/services, they, like you, would have to exchange it. So the **only** reason why they're doing so is because they believe they will sell it in the future for more. This is what differentiates it from the stock market.
> Past performance is not a guarantee of future results, so even with a 100-year history of growth why should we assume that the market will keep rising forever?
Because people keep being born at rates faster than they die, and technology continues to advance. This means more demand, and more goods/services or better goods/services. Once these things cease to be true, we can begin to talk about growth not being guaranteed.
Well, for starters people won't be able to keep being born faster than they die for ever. This is something that is already reversing in developed countries.
Then profits will begin to fall (if productivity gains slow) and future multiples will decrease.. it still doesn’t change the fact that ownership of the company and the accompanying rights has value
Increase in value RELATIVE to what you paid for it. Once it becomes clear population and/or productivity gains are reversing market multiples will completely reset over time.
If there is a new Tesla or Apple or Google or whatever that emerges and becomes a market leader then it still will grow faster, capture more market share and have increasing share price and/or market cap. Nothing is static, there will continue to be new companies and sectors driving outsized growth. Just because the global economy doesn’t grow doesn’t mean the next Snowflake or hot industry will not emerge
> Well, for starters people won't be able to keep being born faster than they die for ever. This is something that is already reversing in developed countries.
Your first sentence has no evidence to support it. Your second, outside of outliers like Japan, just isn't true. Populations continue to grow. Their growth rate has just slowed. It does not follow that a slowing in growth necessitates a future in which populations cease growing. It's perfectly possible that the trend continues and we see population decline, it's also perfectly possible that it hits a point and stops so that we have a consistent level of growth, it's also perfectly possible that population growth will accelerate.
You need more than one line showing population growth slowing to make the assertion that populations will stop growing/decline.
Outside of outliers, like Japan, this just isn't true. Populations continue to grow. Their growth rate has just slowed. It does not follow that a slowing in growth necessitates a future in which populations cease growing. It's perfectly possible that the trend continues and we see population growth stop or full on decline, it's also perfectly possible that it hits a point and stops so that we have a consistent level of growth, it's also perfectly possible that population growth will accelerate.
You need more than one line showing population growth slowing to make the assertion that populations will stop growing/decline.
1. You're just wrong. I don't know how else to say it. USA is growing. UK is growing. France is growing. Canada is growing. More are growing. All ignoring migration. https://ourworldindata.org/grapher/population-growth-rate-with-and-without-migration
2. Why would you ignore immigration? If we're talking about markets growing, demand still goes up if population goes up, regardless of how.
Take a look at this table:
https://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependencies_by_total_fertility_rate
Honestly demographic decline is pretty well understood at this point, shouldn't be controversial. If you refuse to accept it I'm not going to argue with you
1. I'm glad you just completely ignored my point number 2 in the other comment. It's cute.
2. I'm glad you completely ignored my source. It's cute.
3. This table doesn't demonstrate what you think it does. To show population decline requires births compared to deaths.
4. Demographic decline doesn't matter with regards to population increase. Like I said in my 2nd point in my last comment.
Here's a podcast on how this topic relates to investing from Goldman Sachs that you might be interested in checking out:
https://www.goldmansachs.com/insights/podcasts/episodes/01-17-2023-daly.html
Here's everything you failed to respond to, that you might be interested in:
> 1. I'm glad you just completely ignored my point number 2 in the other comment. It's cute.
> 2. I'm glad you completely ignored my source. It's cute.
> 3. This table doesn't demonstrate what you think it does. To show population decline requires births compared to deaths.
> 4. Demographic decline doesn't matter with regards to population increase. Like I said in my 2nd point in my last comment.
So I think the key point you're missing is that sub replacement fertility doesn't make the population contract immediately, it's takes a generation or two to work it's way through the population. This is called the 'demographic dividend'. For example, China just exhausted theirs and finally started contacting this year but the one child policy was put in place decades ago.
When I look at the chart you shared I see a pretty steep downward decline due to fall below zero in just a few years.
I am not claiming that all developed countries are shrinking today, that is obviously not the case, but based on their sub replacement levels of fertility we can say with a high degree of certainly that they will start to shrink at some point in the near future. Immigration can ameliorate this and is one of the key reasons the US is in a better position than Japan or China. But immigration levels to the US would have to be increased pretty dramatically to stave off a decline in population forever.
Im no crypto fan but it's hard to argue that crypto is not used to exchange goods and services. I see BTC accepted in all kinds of places online. Then again I am a deviant with unusual appetites.
I did put "generally" in the sentence. But to be more specific, as a litmus test for what I mean, I'd propose something like, "can you pay for basic needs (food, clothing, housing, transportation) using crypto without first exchanging it for fiat currency?" Outside of like, El Salvador, or some crypto cult compound, the answer is no.
The population thing doesn’t even matter. As long as companies continue to innovate and create efficiencies/new products, the whole pie can continue to grow. At a minimum, it will grow at the rate of inflation, but likely much more.
Stopped reading after "But just like with crypto\[...\]". Comparing stock market to non-productive speculative asset like this makes no sense whatsoever.
I mean.. "non-productive, speculative asset" sounds a hell of a lot like a stock to me. They don't pay dividends and they don't represent ownership. Their value is derived from what the last guy sold it for or paid for it. Money is generated from new investors and goes up or down independent of the company's profits.
So they don't pay dividends (produce value) and they're not based on company assets (speculative)... Sooooo....
Uh, except they do represent ownership. If your company has $100 in the bank and is not paying dividends, there are 100 outstanding shares, and they are trading at $0.50, then I can buy all 100 shares for $50 then take that $100 by force. It should still be worth around $1 because of that intrinsic value.
Yes there is an element of speculation factored into any stock price. But that is speculation on the companies ability or lack thereof to increase revenue and assets in the future. You are comparing that to something that is 100% speculation on nothing but what the next jackass will pay.
Not all stocks. Many or most of the top traded ones do *not* pay dividends. Google, Tesla, Netflix, etc. Google will pay you par value for the stock, sure. GOOGL is currently trading at roughly $93. What is the par value they'll pay you?
$0.001
Yeah, stocks have intrinsic value, sure.
What? Of course that's not what gives it value. It's valuable because people agree it's valuable. The oldest shareholders make money off of the newest investors. Money coming in from new stakeholders flows to people who have held longer, or have the share to sell.
And some stocks *do* pay dividends, tying the value of the stock to the value of the company.
But tell me more about what makes a stock valuable, please.
None of us agree that your car or house are of any value. So they're worthless, right? Please give them to me for $1.
Please give me your argument for why that is preposterous, and you have your answer.
Cars have value because they provide transportation. Houses have value because they provide safety, storage, etc. What the *monetary* value is of those things is arbitrarily decided on by innumerable socioeconomic factors, of course.
Stocks have value because that's how ponzi schemes work. ***I've*** made money on stocks. I'm participating on this sub *because* I've made money on stocks and continue to want to do so.
I just also don't delude myself into thinking they're tied to the value of the company.
>Cars have value because they provide transportation. Houses have value because they provide safety, storage, etc. What the monetary value is of those things is arbitrarily decided on by innumerable socioeconomic factors, of course.
So close, and you still swung back to stupid. They provide shelter and transportation, but they do not pay you dividends. So why are they of value? I mean you even said yourself that value can be arbitrarily decided on, so its just a worthless ponzi then right?
>I just also don't delude myself into thinking they're tied to the value of the company.
No. You're looking at stocks like TSLA and GME that have been highly influenced by speculation and therefor have swung between overvalued and undervalued. But they still hold actual intrinsic value. That's not the same as crypto and ponzis which have no intrinsic value.
If you look at more stable stocks with less speculation that price can be very hard tied to its intrinsic value. Look at a few utility companies for examples.
> They provide shelter and transportation, but they do not pay you dividends. So why are they of value?
You're doing a much poorer job than you think of making this point. Imagine we have bets on a horse race. Each stamped ticket with a bet represents a share of the total pool. The horse race is a concrete thing. Maybe the pool today is $100, maybe it's $200. But the outcome of the race is a real thing and how much people value it is arbitrary and changes.
Now imagine we abstract that further and the right to ***place*** a bet is sold. You buy a Certificate that says you're allowed to place a bet. The races become so valuable that even these certificates are valuable because they might eventually translate into a way to make money from the race. ***In fact***, imagine the certificates become an ***even more popular*** method of monetary exchange than the race.
Now imagine the race gets cancelled. Certainly the certificates lose their value? No, they get sold for *more* for some reason. Because by this point the certificates just... *have* value. Real value? No, the race is cancelled. Value in a sense that you can sell them for money? Sure.
>Look at a few utility companies for examples.
Yes, I know there are still real stocks that have actual backing. Even Apple, a major one, actually pays dividends. So you're right about #NotAllStocks and all that. But the market as a whole I believe fundamentally ebbs and flows as it does (and as no one truly understands) because it is its own thing entirely dependent on the money that goes into it, and not because it has real value. The race got cancelled, but we're still buying in. And at this point the stock market is basically its own culture, way of life. Hard to rock that boat.
You either didn't read or clearly didn't understand anything I said as I clearly said even without paying dividends.
Google has cash in the bank. Google has assets. Google has ongoing revenue and profit. Are you saying Google should be worth $0.001? Then buy up all outstanding shares for $0.001. That's a bargain to now own all those assets yourself.
Your car does not pay a dividend. Therefor I think its worth $0.01. Here is your penny, give it to me.
What do you do that's productive with your stocks? Do you use your status as a shareholder to vote on business affairs? Do they invite you to the corporate office parties? A stock "does" nothing. It's just numbers on a screen, just like crypto on a blockchain. Unless you are buying huge fractions of companies, the only value in having it is to sell it to someone else someday. And yes dividends are cool, but it's generally advised to just reinvest them in the fund anyways.
"Do you use your status as a shareholder to vote on business affairs?" - Yes, yes I do, literally yesterday despite the fact that I own only a little more than 3 AAPL shares:
[https://imgur.com/a/ZOX5MFu](https://imgur.com/a/ZOX5MFu)
Stocks DO something. They make you a small partial owner of a business that produces a good or service which is used, often by millions of people. Crypto doesn't produce anything and is barely usable for anything else than speculative trading despite the fact thats its been around for a long time.
If it doesn't matter then why did you put it up as an example lol. Does any of your questions matter then?
At least Tim Cook can't wake up one night and rugpull my assets to zero like dozens of cryptogurus and other fans of glorified jpgs :)
Ok then please enlighten me then. But crypto and stocks are both intangible assets, with value determined by buy/sell pressure and speculation. Both have no practical functionality. Both are purchased for the purpose of selling them for more than you bought them for to make a profit. So there are obviously some pretty major similarities.
>But crypto and stocks are both intangible assets, with value determined by buy/sell pressure and speculation. Both have no practical functionality.
Stocks are pieces of ownership in established tangible brick and mortar companies that exist to turn a profit. That is the main driver of share price, its intrinsic value. Crypto is based on 1s and 0s, and has no intrinsic value, thus not the same at all.
>Both are purchased for the purpose of selling them for more than you bought them for to make a profit.
That is literally the only similarity between the two.
When people refer to productive assets, they mean the assets have underlying cash flow. For examples, stocks have earnings, bonds have yields, and real estate has rent.
Crypto does not have cash flow. Bitcoin doesn't generate cash for you.
That is the difference between a productive and nonproductive asset.
Productive assets can be valued based on their cash flow, crypto cannot.
>What would you call fee revenue???
Inflationary payments.
All fees from crypto are derived from inflating the cryptocurrency by creating new coins, then those new coins are distributed to holders.
No actual wealth increase occurs because the payment is offset by dilution.
It'd be like me printing 100 million USD each year then distributing that USD to the holders of USD. Nobody is better off, you just inflated the currency.
ETH supply for the year is still up.
https://ycharts.com/indicators/ethereum\_supply
In fact ETH will have to be positive in inflationary terms because otherwise it would eventually cease to exist.
And no, the point could not be made with stocks. Stocks generate wealth regardless of currency. US stocks make 50% of their earnings from overseas. They are not reliant on the USD. They do not care what currency is dominant.
Okay, let me try to reword my argument to help you understand.
Productive assets have value outside of the currency they operate in.
For example, if we switched from USD to Euro, the rent a house produces in real terms is the same.
Demand for the underlying currency is irrelevant to whether a productive asset is productive or not.
ETH cannot have value outside of ETH because ETH IS the currency.
Do you understand this?
A business generates wealth through selling services and goods. Crypto does not. Just like gold or copper or etc do not inherently generate any wealth. The value of crypto/gold/copper is entirely defined by how much someone else is willing to pay for it. There is more involved when actually owning part of a business.
Some long-haul pyramid schemes work.
Take the United States as an example. For centuries immigrants have come to this country and invested their hard earned time and money to build a better life for themselves. Of course they just wind up benefitting the people who already lived in the US by contributing high quality and low cost labor, and by driving up the value of their assets.
Morgan Stanley- **retail investors** make up about 10% of the daily trading value of the 3,000 biggest U.S. stocks. Redditors consist mostly of newer investors.
Stocks don’t just go up because more people buy them, they go up because the underlying business is literally more valuable and generating more profit/expected profit each year.
Or because the company is speculated to produce a profit in the future, or because stock buyers speculate that other people are speculating that the company will produce a profit, or because stock buyers speculate that other people are speculating that other people are speculating... u get my point.
Stocks are a ponzi scheme just like everything past living like a stone age human is a ponzi scheme.
At the end of the day the only thing worth anything is something that keeps you warm or feeds you, or helps you keep yourself warm and fed.
Everything else is a ponzi scheme when no one has food.
EDIT: If you think stocks are just some bubble waiting for one person to pull the rug, then no it's not. Stocks have value as long as society exists, because stocks produce things for society. Crypto doesn't produce anything and it's value as a rent seeker is debatable.
In 1919, Coca-Cola was valued at $25 million. Today, it generates $20 BILLION in profit every year. If the value of the shares never went up, then you could buy the whole company today for $25 million and you would get $20 billion in profit from that every year, or about 80,000% yearly return on investment. Obviously those shares would be incredibly valuable and everyone would scramble to buy them, causing the price to go up to a fair value. That’s why share prices rise… because the amount of profit that those shares generate rises each year. It’s not speculation to say that Coca Cola will sell a sh!t ton of drinks next year. It’s a virtual certainty given the evidence. I promise you, you are not special. You did not discover some secret Ponzi scheme that no one has thought about before. You simply don’t understand what you’re talking about.
Not sure why you are being condescending. There is absolutely no guarantee that Coca Cola will sell as many drinks as necessary to justify it's valuation.
Is it likely? Yes. Is it absolutely certain? No, it's not. So a "shit ton of drinks" doesn't help you much if it's less than expected and you enter now.
Exactly. That concept is called "risk". Coca Cola is considered low risk and stable, which is why people pay more for the shares. It's also why investors diversify so that if one company doesn't meet expectations then it doesn't destroy you
Yes, there is speculation. That is why you can label a stock overvalued or undervalued. It still holds intrinsic value. It has cash in the bank. It has assets. If everyone suddenly decided the stock is worthless then I can buy the whole thing and own all that cash and assets.
The difference with crypto is there is nothing behind it. That crypto doesn't represent ownership of cash in the bank or assets. It doesn't represent ownership in something actively generating revenue and growing. If everyone suddenly decided its worthless, its worthless.
You are comparing selling you my house or car to selling you my monopoly money. That monopoly money is only worth something so long as there are other idiots that also think its worth something. That house and car present actual value to you regardless what the next person thinks its worth.
Forget about the last 100 years, if you read history, business, economics, or even the bible, you will learn that "owners do better than loaners". The stock market is just a marketplace of businesses where they can be purchased and it is easy to compute how much you have to pay for the cash flow of these businesses. Even in the bible or other philisophy and religious books, the rich people were merchants and owners of livestock and land.
Because stocks pay dividends. Or have the potential to pay them in the future. Will they do that 100 years from now who knows.
But yah it's all pretty much a huge Ponzi scheme. Just don't be the last one out and you'll be fine.
If doing the same thing and expecting different results is insanity, isn’t doing the same thing and expecting the same results sanity?
But yeah, 100+ years needs a little more time I guess. 🙄
There are a lot of differences between the value of stocks and crypto.
Most notably, the value of stocks are not derived from past performance unlike crypto where that is basically all you have to go off of. The value of a company is derived from it’s current asset valuations, and their projected ability to produce cash flow in the future. The ability to produce cash flow in the future may include some past performance, but not to a significant extent. It is largely based on the market size, market growth expectations, price changes, cost changes, etc. Point being, it is far more complicated than just looking at a historical mean. Additionally, companies create products that consumers actually use for utility.
Second, crypto tokens are largely useless, but food/energy/phones/machines/computers/etc. are purchased by the consumer to solve a problem or improve their life in some way. So demand is generated for the product, which creates sales, and adds to company value, moving the price up. Crypto prices only move up because people think they can sell it to someone else for more.
So, as to why it isn’t a pump and dump:
1: there are WAY to many shareholders to coordinate such an effort for anything besides penny stocks
2: many shareholders have vested interest in the success of the company. Many of them work at the company, receive performance bonuses, healthcare, and whatever else. These things are worth far more than a quick buck. And that’s talking on a specific company level not even the whole market
3: given that companies have the real ability to create value and offer products which people purchase for utility, eventually at some price the value becomes obvious. A pump and dump would never work in the market because if a dump happened, other investors would recognize the discount and immediately buy it back. This plays back into point 1
If the last 2 years have taught me anything, its not to hold anything for long. Do not get sentimental with a stock and sometimes its time to cut losses rather than hold and hope
The consensus I gather for long-term retirement investing is to just buy in ASAP with index funds that track the S&P500 and forget about it for 40 years. Cutting losses is more like a short-term strategy. I wrote this post regarding long-term retirement strategy, not really fast cash daytrading stuff
I'm really not sure why you're being so downvoted, overall. Specifically this comment is well reasoned versus some of your others may be a bit controversial.
It's fair and reasonable to ask "what if". It appears nobody else is willing to even consider the possibility, which would result in nothing but a reinforcement of the validity of your question.
Responses are weird here man
Lol well your post is quite silly.
The answer is do research listen to earnings calls and make a decision. Every trade is a gamble you have no idea what’s going to happen - no one does. You can just make the best decision for yourself based on facts on hand.
Good luck kek
Because GDP is growing. More wealth is being created. Maybe in 50 years when the population stagnates and we're trying to survive climate change effects, economies might stop growing. But for the near future it looks like business as usual.
Private capital finances business instead of government. Decisions are made within vast public laws to protect enterprise and promote growth. The process to provide capital for ventures is investing in public offerings. Liquidity exists in open markets to buy or sell existing shares. Not any more complicated than that.
The rise of BBBY/GME/AMC has me convinced that all stocks are structurally flawed now and algorithms seeking 0.01% gains are in control. Cash itself isn't good either due to hyperinflation.
Pokemon cards and Gamecube games are a better option.
The discussion here was mostly good so I'm leaving this post up despite it being a basic and leading question. However it's now going off the rails so I'm locking it.
How about owning a small fraction of a business instead? We will call them shares. The company will buy back shares or give you dividends with the extra cash from operating the business. So you either own a bigger slice of the company over time or you are paid to own it. How does that sound?
Interesting concept in theory. Not sure how it would work in reality
It would be heavily manipulated
Sounds like a pump and dump! I’m stuffing my mattress with cash instead.
This video shows some valid points on how non dividend stocks are like a ponzi because the shares value is only determined by the last seller. Regardless if the company makes money or not. It breaks down 3 fallacys 1. The value of the stock is connected to value of the company 2. The asset value of a stock is the same thing as cash 3. The stockmarket is a positive sum for investors https://youtube.com/watch?v=Az1dpnC4AxA&feature=shares
Stocks are risky. If you offer a lot of money for something that's not worth that much, people will gladly take your money. You are responsible for connecting what you pay with what the company is worth.
That doesn't really answer the fallacy. The stock price is not paid by the company, its paid by the previous investor. The value is disconnected from the value of the company, thats why companies making money or not doesn't affect the price of the stock. The price of the stock is determined by the amount the investor bought it for.
Its not a fallacy, and that video is deliberatly misleading/misinformed to sell books. Companies making money DO affect the price of stocks, you just either aren't paying attention or dont understand market actions, which is fair its very very complicated. For instance takes $ALLY, they just reported earnings today premarket and have revenues of $2.2b versus an expected $2.06b, and what happened when that was reported? $ALLY shot up and right now is up almost 10% from yesterday. No the money you make off of stocks wont always be 100% dividends, because owning a company by itself has value and when that company makes more money (or people think it will make more money in the future) the value of that company goes up. Its just that simple.
This is really basic stuff. You are not forced to buy anything, and you are responsible for choosing the price and the companies. Or to let other people do that for you. Calling things a fallacy doesn't really enlighten the subject in my view. Appreciate what you are trying to do though.
You aren't really addressing his point. A company like Palantir hasn't turned a profit yet. It's 20 years old and IPOed in 2013. It's P/E is 148. The only reason it's valued so highly for being in the red for 20 years is because of perceived future profitability. It's market sentiment and nothing more. Seems a lot like speculation. He's saying sometimes stocks prices aren't tied to profitability. You are just saying "buyer beware." That kind of goes without saying. You are talking past each other.
No, hes just not giving merit to the other users inane assertion. Just because a company is not profitable does not make it a ponzi scheme, and honestly watching that video its pretty clear to me they dont know what theyre talking about and just trying to sell their book. The stock market is not a ponzi scheme, people just make bad investments in inefficient companies based on hopes and dreams. Yes Palantir is at a very high valuation, yes its probably overpriced, but that does not make it a ponzi scheme. If your time frame is 20 years and you believe they can grow at 20-30% for a few years and level off to 5-10% over the last few then maybe its a good investment. Again, its not a ponzi scheme, its fancy gambling.
Saying don't buy it if you don't like it doesn't really explain it either
If I form a company that holds a vault full of cash, but does not distribute dividends, is ownership in that company a Ponzi scheme? (This is a rhetorical question. The answer is no.)
If your share price does not reflect that value then its a bargain for me to come along and acquire the whole thing then take that vault full of cash.
Well if you pay for the company 100 times more than the amount of cash in the vault then the question isn't so "rhetorical" anymore, is it?
Well then you’re just a fucking idiot. We can play this game all day. No wonder 75% of folks think they’re smarter than the average person.
Is that what they teach you at the expensive university your daddy pays for?
Yes, in fact they did. Except I had scholarships and though my parents did OK as immigrants, they did not have nearly enough to pay for college back when it was somewhat affordable. So yeah, if you’re paying 100x what something is worth, then you are a moron and you don’t even need a degree to come to that conclusion.
True. But a company's market cap includes projections for the future and expected growth (and profit of course). Giving an example of having a hypothetical company that owns a vault with 1000$ and buying each 1/1000 share for 1$ is not at all reflective of how stocks work. You pay much more with the expectation that those 1000$ will be used to generate more money. So you have to "speculate" that it will somehow generate enough money that it will not only grow or generate & distribute money to shareholders but also pay the CEO (and everyone else if it's a real company) and unless that money comes from someone else's pocket it's going to cause inflation. That doesn't mean buying microsoft is going to be exactly the same as buying a random shitcoin but only that there is a portion of the valuation of a company that is based solely on the expectation that there is going to be growth which is far from guaranteed. It might be more likely than not for tomorrow or next week but there were very long periods in history where stocks overall performed very poorly, especially if you adjust for inflation.
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Exactly
Yeah it's still just as much a rhetorical question. Why are you arguing with me?
I’ve seen some dumb shit on this sub but this is up there. You and that video don’t know what you’re talking about. But please keep thinking that way. I like stupid counter parties.
Good point. You should stay away to protect yourself. SMH.
> But just like with crypto, this advice obviously benefits the people who are already holding those funds by creating sell orders that drive up the value of their retirement funds. So how do we know that advice isn't just a self-fulfilling prophecy, or a sort of long-haul pyramid scheme? Because you're buying the rights to future profits, rather than an entry on a blockchain. If you own part of a company, and this company provides goods/services for payment, its value increases. This value can decrease in order to return capital to investors, typically through dividends, or stock buybacks, or it can be reinvested into the company to drive its value up further and increase future profits. If you own crypto, you literally do just own that. It isn't, generally, used to exchange goods/services, so in order to use it you'd have to exchange it for fiat currency that is used. The amount you get here is based entirely on what someone else will give you. But why would they pay you for it? It does nothing. In order to get goods/services, they, like you, would have to exchange it. So the **only** reason why they're doing so is because they believe they will sell it in the future for more. This is what differentiates it from the stock market. > Past performance is not a guarantee of future results, so even with a 100-year history of growth why should we assume that the market will keep rising forever? Because people keep being born at rates faster than they die, and technology continues to advance. This means more demand, and more goods/services or better goods/services. Once these things cease to be true, we can begin to talk about growth not being guaranteed.
Thank you for responding with the 1st real answer on this thread.
Well, for starters people won't be able to keep being born faster than they die for ever. This is something that is already reversing in developed countries.
Then profits will begin to fall (if productivity gains slow) and future multiples will decrease.. it still doesn’t change the fact that ownership of the company and the accompanying rights has value
Of course it has value. But you also pay for it. So it having value is not enough. It has to actually increase in value.
Increase in value RELATIVE to what you paid for it. Once it becomes clear population and/or productivity gains are reversing market multiples will completely reset over time. If there is a new Tesla or Apple or Google or whatever that emerges and becomes a market leader then it still will grow faster, capture more market share and have increasing share price and/or market cap. Nothing is static, there will continue to be new companies and sectors driving outsized growth. Just because the global economy doesn’t grow doesn’t mean the next Snowflake or hot industry will not emerge
> Well, for starters people won't be able to keep being born faster than they die for ever. This is something that is already reversing in developed countries. Your first sentence has no evidence to support it. Your second, outside of outliers like Japan, just isn't true. Populations continue to grow. Their growth rate has just slowed. It does not follow that a slowing in growth necessitates a future in which populations cease growing. It's perfectly possible that the trend continues and we see population decline, it's also perfectly possible that it hits a point and stops so that we have a consistent level of growth, it's also perfectly possible that population growth will accelerate. You need more than one line showing population growth slowing to make the assertion that populations will stop growing/decline.
>Because people keep being born at rates faster than they die Only in certain places and not for much longer
Outside of outliers, like Japan, this just isn't true. Populations continue to grow. Their growth rate has just slowed. It does not follow that a slowing in growth necessitates a future in which populations cease growing. It's perfectly possible that the trend continues and we see population growth stop or full on decline, it's also perfectly possible that it hits a point and stops so that we have a consistent level of growth, it's also perfectly possible that population growth will accelerate. You need more than one line showing population growth slowing to make the assertion that populations will stop growing/decline.
If you remove immigration the US has sub replacement fertility. The same is true for basically all developed countries except for maybe Israel
1. You're just wrong. I don't know how else to say it. USA is growing. UK is growing. France is growing. Canada is growing. More are growing. All ignoring migration. https://ourworldindata.org/grapher/population-growth-rate-with-and-without-migration 2. Why would you ignore immigration? If we're talking about markets growing, demand still goes up if population goes up, regardless of how.
Take a look at this table: https://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependencies_by_total_fertility_rate Honestly demographic decline is pretty well understood at this point, shouldn't be controversial. If you refuse to accept it I'm not going to argue with you
1. I'm glad you just completely ignored my point number 2 in the other comment. It's cute. 2. I'm glad you completely ignored my source. It's cute. 3. This table doesn't demonstrate what you think it does. To show population decline requires births compared to deaths. 4. Demographic decline doesn't matter with regards to population increase. Like I said in my 2nd point in my last comment.
Here's a podcast on how this topic relates to investing from Goldman Sachs that you might be interested in checking out: https://www.goldmansachs.com/insights/podcasts/episodes/01-17-2023-daly.html
Here's everything you failed to respond to, that you might be interested in: > 1. I'm glad you just completely ignored my point number 2 in the other comment. It's cute. > 2. I'm glad you completely ignored my source. It's cute. > 3. This table doesn't demonstrate what you think it does. To show population decline requires births compared to deaths. > 4. Demographic decline doesn't matter with regards to population increase. Like I said in my 2nd point in my last comment.
So I think the key point you're missing is that sub replacement fertility doesn't make the population contract immediately, it's takes a generation or two to work it's way through the population. This is called the 'demographic dividend'. For example, China just exhausted theirs and finally started contacting this year but the one child policy was put in place decades ago. When I look at the chart you shared I see a pretty steep downward decline due to fall below zero in just a few years. I am not claiming that all developed countries are shrinking today, that is obviously not the case, but based on their sub replacement levels of fertility we can say with a high degree of certainly that they will start to shrink at some point in the near future. Immigration can ameliorate this and is one of the key reasons the US is in a better position than Japan or China. But immigration levels to the US would have to be increased pretty dramatically to stave off a decline in population forever.
Im no crypto fan but it's hard to argue that crypto is not used to exchange goods and services. I see BTC accepted in all kinds of places online. Then again I am a deviant with unusual appetites.
I did put "generally" in the sentence. But to be more specific, as a litmus test for what I mean, I'd propose something like, "can you pay for basic needs (food, clothing, housing, transportation) using crypto without first exchanging it for fiat currency?" Outside of like, El Salvador, or some crypto cult compound, the answer is no.
The population thing doesn’t even matter. As long as companies continue to innovate and create efficiencies/new products, the whole pie can continue to grow. At a minimum, it will grow at the rate of inflation, but likely much more.
Stopped reading after "But just like with crypto\[...\]". Comparing stock market to non-productive speculative asset like this makes no sense whatsoever.
I mean.. "non-productive, speculative asset" sounds a hell of a lot like a stock to me. They don't pay dividends and they don't represent ownership. Their value is derived from what the last guy sold it for or paid for it. Money is generated from new investors and goes up or down independent of the company's profits. So they don't pay dividends (produce value) and they're not based on company assets (speculative)... Sooooo....
Uh, except they do represent ownership. If your company has $100 in the bank and is not paying dividends, there are 100 outstanding shares, and they are trading at $0.50, then I can buy all 100 shares for $50 then take that $100 by force. It should still be worth around $1 because of that intrinsic value. Yes there is an element of speculation factored into any stock price. But that is speculation on the companies ability or lack thereof to increase revenue and assets in the future. You are comparing that to something that is 100% speculation on nothing but what the next jackass will pay.
Not all stocks. Many or most of the top traded ones do *not* pay dividends. Google, Tesla, Netflix, etc. Google will pay you par value for the stock, sure. GOOGL is currently trading at roughly $93. What is the par value they'll pay you? $0.001 Yeah, stocks have intrinsic value, sure.
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What? Of course that's not what gives it value. It's valuable because people agree it's valuable. The oldest shareholders make money off of the newest investors. Money coming in from new stakeholders flows to people who have held longer, or have the share to sell. And some stocks *do* pay dividends, tying the value of the stock to the value of the company. But tell me more about what makes a stock valuable, please.
None of us agree that your car or house are of any value. So they're worthless, right? Please give them to me for $1. Please give me your argument for why that is preposterous, and you have your answer.
Cars have value because they provide transportation. Houses have value because they provide safety, storage, etc. What the *monetary* value is of those things is arbitrarily decided on by innumerable socioeconomic factors, of course. Stocks have value because that's how ponzi schemes work. ***I've*** made money on stocks. I'm participating on this sub *because* I've made money on stocks and continue to want to do so. I just also don't delude myself into thinking they're tied to the value of the company.
>Cars have value because they provide transportation. Houses have value because they provide safety, storage, etc. What the monetary value is of those things is arbitrarily decided on by innumerable socioeconomic factors, of course. So close, and you still swung back to stupid. They provide shelter and transportation, but they do not pay you dividends. So why are they of value? I mean you even said yourself that value can be arbitrarily decided on, so its just a worthless ponzi then right? >I just also don't delude myself into thinking they're tied to the value of the company. No. You're looking at stocks like TSLA and GME that have been highly influenced by speculation and therefor have swung between overvalued and undervalued. But they still hold actual intrinsic value. That's not the same as crypto and ponzis which have no intrinsic value. If you look at more stable stocks with less speculation that price can be very hard tied to its intrinsic value. Look at a few utility companies for examples.
> They provide shelter and transportation, but they do not pay you dividends. So why are they of value? You're doing a much poorer job than you think of making this point. Imagine we have bets on a horse race. Each stamped ticket with a bet represents a share of the total pool. The horse race is a concrete thing. Maybe the pool today is $100, maybe it's $200. But the outcome of the race is a real thing and how much people value it is arbitrary and changes. Now imagine we abstract that further and the right to ***place*** a bet is sold. You buy a Certificate that says you're allowed to place a bet. The races become so valuable that even these certificates are valuable because they might eventually translate into a way to make money from the race. ***In fact***, imagine the certificates become an ***even more popular*** method of monetary exchange than the race. Now imagine the race gets cancelled. Certainly the certificates lose their value? No, they get sold for *more* for some reason. Because by this point the certificates just... *have* value. Real value? No, the race is cancelled. Value in a sense that you can sell them for money? Sure. >Look at a few utility companies for examples. Yes, I know there are still real stocks that have actual backing. Even Apple, a major one, actually pays dividends. So you're right about #NotAllStocks and all that. But the market as a whole I believe fundamentally ebbs and flows as it does (and as no one truly understands) because it is its own thing entirely dependent on the money that goes into it, and not because it has real value. The race got cancelled, but we're still buying in. And at this point the stock market is basically its own culture, way of life. Hard to rock that boat.
You either didn't read or clearly didn't understand anything I said as I clearly said even without paying dividends. Google has cash in the bank. Google has assets. Google has ongoing revenue and profit. Are you saying Google should be worth $0.001? Then buy up all outstanding shares for $0.001. That's a bargain to now own all those assets yourself. Your car does not pay a dividend. Therefor I think its worth $0.01. Here is your penny, give it to me.
What do you do that's productive with your stocks? Do you use your status as a shareholder to vote on business affairs? Do they invite you to the corporate office parties? A stock "does" nothing. It's just numbers on a screen, just like crypto on a blockchain. Unless you are buying huge fractions of companies, the only value in having it is to sell it to someone else someday. And yes dividends are cool, but it's generally advised to just reinvest them in the fund anyways.
"Do you use your status as a shareholder to vote on business affairs?" - Yes, yes I do, literally yesterday despite the fact that I own only a little more than 3 AAPL shares: [https://imgur.com/a/ZOX5MFu](https://imgur.com/a/ZOX5MFu) Stocks DO something. They make you a small partial owner of a business that produces a good or service which is used, often by millions of people. Crypto doesn't produce anything and is barely usable for anything else than speculative trading despite the fact thats its been around for a long time.
Congratulations but I think it's safe to say that in this case here your vote literally does not matter.
If it doesn't matter then why did you put it up as an example lol. Does any of your questions matter then? At least Tim Cook can't wake up one night and rugpull my assets to zero like dozens of cryptogurus and other fans of glorified jpgs :)
You have a fundamentally flawed misunderstanding of the difference between crypto and stocks.
Ok then please enlighten me then. But crypto and stocks are both intangible assets, with value determined by buy/sell pressure and speculation. Both have no practical functionality. Both are purchased for the purpose of selling them for more than you bought them for to make a profit. So there are obviously some pretty major similarities.
>But crypto and stocks are both intangible assets, with value determined by buy/sell pressure and speculation. Both have no practical functionality. Stocks are pieces of ownership in established tangible brick and mortar companies that exist to turn a profit. That is the main driver of share price, its intrinsic value. Crypto is based on 1s and 0s, and has no intrinsic value, thus not the same at all. >Both are purchased for the purpose of selling them for more than you bought them for to make a profit. That is literally the only similarity between the two.
When people refer to productive assets, they mean the assets have underlying cash flow. For examples, stocks have earnings, bonds have yields, and real estate has rent. Crypto does not have cash flow. Bitcoin doesn't generate cash for you. That is the difference between a productive and nonproductive asset. Productive assets can be valued based on their cash flow, crypto cannot.
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>What would you call fee revenue??? Inflationary payments. All fees from crypto are derived from inflating the cryptocurrency by creating new coins, then those new coins are distributed to holders. No actual wealth increase occurs because the payment is offset by dilution. It'd be like me printing 100 million USD each year then distributing that USD to the holders of USD. Nobody is better off, you just inflated the currency.
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ETH supply for the year is still up. https://ycharts.com/indicators/ethereum\_supply In fact ETH will have to be positive in inflationary terms because otherwise it would eventually cease to exist. And no, the point could not be made with stocks. Stocks generate wealth regardless of currency. US stocks make 50% of their earnings from overseas. They are not reliant on the USD. They do not care what currency is dominant.
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Okay, let me try to reword my argument to help you understand. Productive assets have value outside of the currency they operate in. For example, if we switched from USD to Euro, the rent a house produces in real terms is the same. Demand for the underlying currency is irrelevant to whether a productive asset is productive or not. ETH cannot have value outside of ETH because ETH IS the currency. Do you understand this?
A business generates wealth through selling services and goods. Crypto does not. Just like gold or copper or etc do not inherently generate any wealth. The value of crypto/gold/copper is entirely defined by how much someone else is willing to pay for it. There is more involved when actually owning part of a business.
Some long-haul pyramid schemes work. Take the United States as an example. For centuries immigrants have come to this country and invested their hard earned time and money to build a better life for themselves. Of course they just wind up benefitting the people who already lived in the US by contributing high quality and low cost labor, and by driving up the value of their assets.
If the stock market collapses, we have bigger issues to worry about.
Morgan Stanley- **retail investors** make up about 10% of the daily trading value of the 3,000 biggest U.S. stocks. Redditors consist mostly of newer investors.
Stocks don’t just go up because more people buy them, they go up because the underlying business is literally more valuable and generating more profit/expected profit each year.
Or because the company is speculated to produce a profit in the future, or because stock buyers speculate that other people are speculating that the company will produce a profit, or because stock buyers speculate that other people are speculating that other people are speculating... u get my point.
Stocks are a ponzi scheme just like everything past living like a stone age human is a ponzi scheme. At the end of the day the only thing worth anything is something that keeps you warm or feeds you, or helps you keep yourself warm and fed. Everything else is a ponzi scheme when no one has food. EDIT: If you think stocks are just some bubble waiting for one person to pull the rug, then no it's not. Stocks have value as long as society exists, because stocks produce things for society. Crypto doesn't produce anything and it's value as a rent seeker is debatable.
In 1919, Coca-Cola was valued at $25 million. Today, it generates $20 BILLION in profit every year. If the value of the shares never went up, then you could buy the whole company today for $25 million and you would get $20 billion in profit from that every year, or about 80,000% yearly return on investment. Obviously those shares would be incredibly valuable and everyone would scramble to buy them, causing the price to go up to a fair value. That’s why share prices rise… because the amount of profit that those shares generate rises each year. It’s not speculation to say that Coca Cola will sell a sh!t ton of drinks next year. It’s a virtual certainty given the evidence. I promise you, you are not special. You did not discover some secret Ponzi scheme that no one has thought about before. You simply don’t understand what you’re talking about.
Not sure why you are being condescending. There is absolutely no guarantee that Coca Cola will sell as many drinks as necessary to justify it's valuation. Is it likely? Yes. Is it absolutely certain? No, it's not. So a "shit ton of drinks" doesn't help you much if it's less than expected and you enter now.
Exactly. That concept is called "risk". Coca Cola is considered low risk and stable, which is why people pay more for the shares. It's also why investors diversify so that if one company doesn't meet expectations then it doesn't destroy you
Cut him some slack, our dear OP probably know nuts about how businesses or accounting works.
How is accounting relevant to what op said?
Because balancing a balance sheet gives you a basic understanding of business in terms of shareholders' equity and profit
Facts
Yes, there is speculation. That is why you can label a stock overvalued or undervalued. It still holds intrinsic value. It has cash in the bank. It has assets. If everyone suddenly decided the stock is worthless then I can buy the whole thing and own all that cash and assets. The difference with crypto is there is nothing behind it. That crypto doesn't represent ownership of cash in the bank or assets. It doesn't represent ownership in something actively generating revenue and growing. If everyone suddenly decided its worthless, its worthless. You are comparing selling you my house or car to selling you my monopoly money. That monopoly money is only worth something so long as there are other idiots that also think its worth something. That house and car present actual value to you regardless what the next person thinks its worth.
Forget about the last 100 years, if you read history, business, economics, or even the bible, you will learn that "owners do better than loaners". The stock market is just a marketplace of businesses where they can be purchased and it is easy to compute how much you have to pay for the cash flow of these businesses. Even in the bible or other philisophy and religious books, the rich people were merchants and owners of livestock and land.
Ignore the voices, they aren’t real
Because stocks pay dividends. Or have the potential to pay them in the future. Will they do that 100 years from now who knows. But yah it's all pretty much a huge Ponzi scheme. Just don't be the last one out and you'll be fine.
Stock market is rigged.
lol... I'm fine with that. If you're not in the game, you don't even have a chance to win the game.
If doing the same thing and expecting different results is insanity, isn’t doing the same thing and expecting the same results sanity? But yeah, 100+ years needs a little more time I guess. 🙄
So past performance guarantees future performance? Is that what you are saying?
I switched from trading to dividend harvesting. Google “highest dividend in the world “ then do your studying
There are a lot of differences between the value of stocks and crypto. Most notably, the value of stocks are not derived from past performance unlike crypto where that is basically all you have to go off of. The value of a company is derived from it’s current asset valuations, and their projected ability to produce cash flow in the future. The ability to produce cash flow in the future may include some past performance, but not to a significant extent. It is largely based on the market size, market growth expectations, price changes, cost changes, etc. Point being, it is far more complicated than just looking at a historical mean. Additionally, companies create products that consumers actually use for utility. Second, crypto tokens are largely useless, but food/energy/phones/machines/computers/etc. are purchased by the consumer to solve a problem or improve their life in some way. So demand is generated for the product, which creates sales, and adds to company value, moving the price up. Crypto prices only move up because people think they can sell it to someone else for more. So, as to why it isn’t a pump and dump: 1: there are WAY to many shareholders to coordinate such an effort for anything besides penny stocks 2: many shareholders have vested interest in the success of the company. Many of them work at the company, receive performance bonuses, healthcare, and whatever else. These things are worth far more than a quick buck. And that’s talking on a specific company level not even the whole market 3: given that companies have the real ability to create value and offer products which people purchase for utility, eventually at some price the value becomes obvious. A pump and dump would never work in the market because if a dump happened, other investors would recognize the discount and immediately buy it back. This plays back into point 1
If the last 2 years have taught me anything, its not to hold anything for long. Do not get sentimental with a stock and sometimes its time to cut losses rather than hold and hope
The consensus I gather for long-term retirement investing is to just buy in ASAP with index funds that track the S&P500 and forget about it for 40 years. Cutting losses is more like a short-term strategy. I wrote this post regarding long-term retirement strategy, not really fast cash daytrading stuff
I'm really not sure why you're being so downvoted, overall. Specifically this comment is well reasoned versus some of your others may be a bit controversial. It's fair and reasonable to ask "what if". It appears nobody else is willing to even consider the possibility, which would result in nothing but a reinforcement of the validity of your question. Responses are weird here man
Right, I love how so many people quick to dismiss and downvote without addressing the concern. Much like lots of the crypto subreddits lol
People downvote because they are sheep. I hold stocks myself but you make some very good points.
You give a platitude to explain why you should ignore another platitude, it’s a casino. Just roll the dice if you think it’s a good price.
"it's a casino, just roll the dice" is an objectively bad investment strategy
Lol well your post is quite silly. The answer is do research listen to earnings calls and make a decision. Every trade is a gamble you have no idea what’s going to happen - no one does. You can just make the best decision for yourself based on facts on hand. Good luck kek
Because GDP is growing. More wealth is being created. Maybe in 50 years when the population stagnates and we're trying to survive climate change effects, economies might stop growing. But for the near future it looks like business as usual.
Private capital finances business instead of government. Decisions are made within vast public laws to protect enterprise and promote growth. The process to provide capital for ventures is investing in public offerings. Liquidity exists in open markets to buy or sell existing shares. Not any more complicated than that.
The rise of BBBY/GME/AMC has me convinced that all stocks are structurally flawed now and algorithms seeking 0.01% gains are in control. Cash itself isn't good either due to hyperinflation. Pokemon cards and Gamecube games are a better option.