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Comment by crimsonalucard | Hacker News Reader

This is also flawed. A stock typically has no utility because the share percentage is so small the only thing you can do with it is sell it to the next fool who wants to start the cycle over again. Do not make the mistake of thinking that a thing has utility because we "think" or "believe" it has utility. The usefulness of a product is more tied to the physical world then it is to our opinions.

The act of trading stocks offers no utility to the world and therefore a huge portion of the stock market also offers zero utility to the world.

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> The act of trading stocks offers no utility to the world

Try to think a little about what you’re saying. Suppose you were to shut down all stock markets worldwide. What do you think would happen? Do you not realize you’ve made the world a poorer place by forbidding people from trading equity?

Lets take a look at what a stock market is. Shares can be represented by a paper certificate that offers people no utility. I cannot use my 0.0000001% share to do anything other than sell it to another person. For the majority of players in the stock market it is the sole reason for buying shares and the sole reason for selling. I may have voting rights but it doesn't mean much in the larger context, ultimately the reasoning remains the same.

So the entire stock market consists of people trading paper. It is a game of people trying to buy paper at a low price and sell it at a higher price. HFT is people taking computers into this game.

Now lets look at a market that produces true utility. I am a farmer and I grow apples. You are a farmer who grows oranges. I want oranges you want apples, so we exchange products with genuine utility as we both can eat the products and both enjoy and sustain ourselves.

The only time where utility is created in a stock market is during an IPO when stocks are issued. All other transactions after that are typically a waste of energy and resources. If I could redirect all that compute capacity used for HFT towards protein folding we'd actually be creating utility rather than tossing it into the void.

> I cannot use my 0.0000001% share to do anything other than sell it to another person.

You can borrow against it (it's called "margin"). People do it all the time.

The utility of a stock market is providing a nearly frictionless method of moving capital to its most efficient use.

It's as great an invention as money is - suppose you want a toaster, but the toaster company doesn't want apples. Good luck setting up an n-way barter with the orange farmer and several other people to try and get a toaster.

A simpler answer is if the stock market had no utility nobody would trade stocks. But they do, millions do. Are they all fools, or have you made a mistake?

That is what I am saying. The movement of capital in the stock market has no meaningful form of utility. You move it because you want to buy paper at a lower price and sell it at a higher price. It's similar to the utility generated by a casino. This is very different from the way people use money. The movement of cash is usually done in the name of purchasing something that has actual physical utility. The movement of stocks especially HFT has no utility. I don't buy tesla stocks because I can actually do anything with it. I buy tesla stocks for the sole purpose of gambling.. to sell a share to someone else who wants to make the same gambling play. The entire market consists of these entities with essentially the same strategy. No production of goods is involved...

>You can borrow against it (it's called "margin"). People do it all the time.

You can borrow against cash as well. Though usually when you borrow against cash you're buying a house to live in rather than borrowing more useless paper stocks to sell at higher prices. Basically you are borrowing money to use at a casino when you use margins. Imagine an entire economy built around casinos. Would that economy be productive? No. The exchange of money in casinos intrinsically does not involve the creation or exchange of goods. Where would all of our GDP go if an economy consisted of only casinos? It would go to shit. Same if the economy consisted of only stock markets. But if the economy consisted of only farms...? well, food has utility.

The infrastructure surrounding casinos is similar to the server farms mining bitcoin and polluting the air. It's a questionable use of capital.

>A simpler answer is if the stock market had no utility nobody would trade stocks. But they do, millions do. Are they all fools, or have you made a mistake?

Do not underestimate the power of human stupidity. Let's say I have an scheme for making money. I'm going to print out a bunch of useless paper and start selling that paper for 100x what its worth. Then I have another idea... as little as it is, paper actually has some value so I can optimize this scheme by making a digital platform for selling these pieces of paper as pieces of encrypted information. I call the first piece the genesis block.... aka bitcoin.

Make no mistake, the utility of a bitcoin is equivalent to the utility of a counterfeit dollar and their origins are identical: both were created out of thin air. You have to be pretty dumb to buy a piece of paper at 100x the price let alone an abstract digital representation of that paper (bitcoin). Yet people do buy bitcoin and they do make money off of it. It's collective stupidity that allows an individual to profit... from a broader perspective, however, no actual utility is generated off of the mining of bitcoin just like how no utility is generated over the exchange of stocks.

> That is what I am saying. The movement of capital in the stock market has no meaningful form of utility.

I know that's what you're saying. And you are utterly wrong.

> Do not underestimate the power of human stupidity.

I.e. you're smarter than everyone in the financial markets. If you're right, you'd get a Nobel Prize in economics. But I suppose the Nobel committee is too stupid to do that, too :-)

> I'm going to print out a bunch of useless paper and start selling that paper for 100x what its worth.

Go right ahead and do that. There's no law against it. Please post back how that works out.

Would you please stop using this account to get involved in low-quality arguments and flamewars? HN comments need to be more civil and substantive than what you've been doing here, regardless of how right you are or wrong others are.

https://news.ycombinator.com/newsguidelines.html

> A stock typically has no utility because the share percentage is so small the only thing you can do with it is sell it to the next fool who wants to start the cycle over again.

It's quite clear you don't understand finance from that comment alone. Buying and selling stocks allows you to allocate your capital as you see fit. Capital markets provide companies with liquidity and allow investors to partake in the upside. They reward well-run companies and punished mismanagement. They are a net positive for society.

>Buying and selling stocks allows you to allocate your capital as you see fit.

There is an intrinsic difference between the normal flow of money in a basic economy vs. the stock market. Namely it is the: allocation of capital for the sole purpose of selling it at a higher cost and buying at a lower cost. This is entirely different from allocating capital to create a factory, or buy food, etc.. etc.. The net effect of a market that trades stocks like this is negative due to the infrastructure required to maintain it. It's similar to how a casino can be viewed as a net negative to society.

HFT is the perfect example of this. Trades made in nanoseconds with no physical meaning other than trying to outplay another automated gambler.

> They reward well-run companies and punished mismanagement.

Wouldn't it be better for the workers who produce the actual GDP to participate in the upside rather than some rich dude who contributes none of the work? This is the primary driver behind wealth inequality. You would know that if you understood economics.

>hey reward well-run companies and punished mismanagement.

Any business owner will be rewarded regardless of whether it was owned by a billion shareholders or by a few. Incentive, punishment and rewards are not the result of "capital markets" it exists regardless of whether or not a company IPO'd.

I'm sorry but you're simply factually incorrect.

I am sorry but your comment is a "shallow dismissal." Please see this guideline when posting in HN:

"Please don't post shallow dismissals, especially of other people's work. A good critical comment teaches us something." -https://news.ycombinator.com/newsguidelines.html

You will need to explain which part of my comment is factually incorrect and why to keep within the guidelines. Thank you.

You may believe it has no utility, but the stock market was a great invention in finance, and no country has been able to economically prosper without one ever since.

I shouldn't say absolutely no utility. I mean to say after an IPO every transaction or trade of a stock share generates ZERO utility.

Here's a picture of a country that has no stock market that prospers:

https://upload.wikimedia.org/wikipedia/commons/thumb/4/48/Vi...

Do you believe the companies operating in Monaco are not traded on a stock exchange?

The country itself has no stock exchange.

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