Redditors are right about the unfairness of the market
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If I buy a few shares from someone, I could be buying them from someone who is up on that investment and wants to cash in on their profit. If that stock continues to do well, everyone wins. I make money, the person I bought the shares from makes money.
Who cares how much the other person made, I'm focused on myself. If someone does a good job, and opens their expertise to the public - like Cathie Woods and her ETFs - even more people can benefit. No one is hurt by her success.
Of course people lose money, but that's not always and only because someone else is then making money from your loss.
Everyone knows nearly every hedgefund does worse in the long run. Maybe they have 2-7 incredible years. Years 8 - 12 though aren't likely to go so well and they'll end up closing up shop. Only the top 20-50 hedgefunds likely consistently outperform a market index fund. The other few hundred are running on luck or just doing poorly anyway.
Despite the issues of insider trading in this article, individuals are still able to do remarkably well by buying VTSAX (or whatever index/mutual/etf fund you like best) consistently over a long period of time.
No, it's by definition a zero sum game. Fundamentally, owning shares in a company grants you rights to a fraction of all future company earnings.
For any given stock transaction:
- there's an agreed upon price, $X
- there's a true value, $Y, which equates to the net present value of all future company earnings that the transacted shares give you access to
- if $X > $Y, the buyer is the loser in the transaction and the seller is the winner
- if $Y > $x, the buyer is the winner; the seller the loser
You may not know what $Y is in any given transaction, but the value certainly exists. And, therefore, a winner and loser exists in every transaction (even if you don't know who it is).
Furthermore, the "amount" won in a transaction is always equal to the "amount" lost by the counter party. This value exchange is abs($Y-$x).
If all individual transactions are zero sum, it should be obvious that the sum of all individual transactions are zero sum.
As you call out in your examples, it's possible for individual (and groups of) participants to come out ahead. But, this is certainly at the expense of other participants in the transaction chain.
> $Y is the net present value of all future earnings.
First of all, ‘future earnings’ is a time-dependent probability distribution and this means that the outcome is not certain at the time of transaction. For example, we can imagine that a particular stock has a 50% chance of tripling in value after 10 years and a 50% chance of going bankrupt. What is the current value of this stock $Y.
Even in this contrived case it seems like different people could value this stock differently today even knowing the probability exactly. Some investors need a reliable fixed income from their investments but don’t care much about growth (for example some retirees). They might not like this risk. Other investors want to increase their capital and are willing to risk volatility and losses.
There are some cases where there is a clear zero sum game (pump and dump schemes for example), but I don’t think this is true for most transactions.
By that definition there is no market where they are two winners. But clearly the economy grows and two parties in a transaction can walk away with more than the invested.
“Winner” is someone who made money. You can easily have two “winners” by that definition.
No, my definition of winner (in a transaction) is someone who gives less than what they receive.
> By that definition there is no market where they are two winners.
No, transactions can be positive sum if the goods & services being traded are valued differently by the buyer and seller.
For example, if it costs me $2 for materials & $8 in labor to knit sweaters, I value each sweater at $10. Someone else who is using the sweater to stay warm, may value that sweater at $30. If we transact at $20, that's a positive sum transaction.
However, equity markets are different because the "product" that's being traded (NPV of future company cash flows) isn't valued differently by various parties. That is, if the NPV of future company cash flows is $100, there's no party that will pay more than $100 for it.
This invariance in valuation is the feature that gives rise to the zero sum nature of equity markets.
No it doesn't! Owning shares in a company doesn't give you rights to a fraction of all the future earnings of the company. What kinds of shares have you been buying? All owning shares in a company gives you is the ability to sell those shares to someone else. There's some kind of nominal "voting rights" and in relatively rare cases there might be some amount of dividends you can get from owning the shares, but the value of the shares is very rarely derived from the voting rights conferred on the owner or the expected dividends to be received.
It's useful to think about this in terms of a company's tangible assets because it provides a lower bound on the price of a share (assuming the company has no debt). If the Apple share price ever dropped so low that the sum of all the shares was worth less than $200 billion, a savvy investor could just snap up all the shares and effectively purchase 200 billion dollars at a discount.
Any premium on the price of a share beyond the company's assets comes from either the dividends that you expect to be paid out as a result of owning that stock, or from an expectation that the company's assets will grow in the future (so that share will entitle you to part ownership of $300 billion instead of $200 billion, for example).
AFAIK dividends aren't an inherit property to a stock (it's a "class" of stock) so that's not fully satisfactory, and it's not guaranteed either (a board "chooses" to give out dividend, for reasons/amounts unclear to me).
It's also very unclear how I would take my part ownership of $300B, and translate it to $20 in my pocket, except by passing the buck to some other investor.
The only scenario I can think of is the risk of sufficient ownership to take over the company, at which point you could pay yourself wage or force buybacks, but then stocks are entirely worthless until someone holds less than 51% -- and even then, zuckerberg famously screws that equation too. So under this description, there's still no way to actually translate my FB stock into USD, without FB doing a buyback (which would be pointless, because there's no risk of control-loss anyways), until zuckerberg dies.
what is "real" value?
If it's cash, then you can either sell the stock itself, to somebody else, which can repeat infinitely as long as the company is a going concern. There's no end - because there's no end to the profits of a company that continue to produce profits.
Of course, it might end one day, but it would be the last bag holder who purchased a dying company (imagine if apple became what IBM is today). But that's got nothing to do with the structure and ownership of stocks, but that the company's performance declined.
A sheep can be used to produce $20 USD, and traders who never see the sheep are simply trading on speculation (how much value the sheep can be extracted for today, how much it might be extracted for tomorrow, how badly will extractors want it, etc). The traders bounce the sheep around willy-nilly but eventually the sheep has a simple answer to “why does anyone value this object in the first place?” — because it can be used to extract more wealth than it costs.
My poop can be speculatively traded infinitely as long it continues to exist. Anything can — it doesn’t matter the subject. But at some point, someone must actually want my poop for non-speculative trading it to have a value to speculate on.
The question that keeps being bypassed is: who is actually in the position to do something productive with an FB stock?
Note: I’m assuming that stocks don’t draw their value from the ether — no one wants stocks as art, at least no more than USD
facebook itself is doing something productive (as measured by their profit).
The stock of facebook is a pre-requisite for facebook to exist (in the productive form). The stock is not a commodity (like a sheep), which have intrinsic value.
For facebook to produce value, they needed initial capital injection. This capital cannot exist if the stock, and the subsequent trading, doesn't exist.
But if you imagined no stock market existed (you remove the middlemen), then is there any reason for anyone to want stock? That is, at the end of all this stock trading, who actually wants to have an FB stock? It doesn’t appear to me to be the public, or FB itself, or any particular investor. Everyone wants to hold stock, in order to get rid of it later (earning on the arbitrage) — but no one apparently wants it in the first place (it grants no power, potential earnings, and doesn’t really represent anything meaningful AFAICT); this is why the only thing to do with a crashed stock is to wipe your ass with it -- stocks are meaningless without their backing company -- but I'm currently not finding a way to claim that stocks are meaningful even when their company exists!
Currency could be said to be in the same boat, but at least till the gold standard died, at the end of the day USD could be said to be minimally wanted by the Feds — mapping to gold — producing that base value you could further justify trading and speculating on. I suppose I don’t understand what justifies a base value for USD post-gold standard either (it was bootstrapped, and now is self sufficient? Or perhaps because we all assume the feds will always a assign value to it)
Furthermore, because there’s no one who wants a stock in the end, there seems to be no reason for the value of a stock to rise/fall based on company successful — no more reason than my trash should.
AFAICT, its just a happens-to-be — by the powers of god, luck and collective will, stocks have arbitrarily been selected to move with company performance, despite there being no real relationship between the two (the only people who want it more are people who intend to sell it to others who want it more — but you follow the chain through and you can’t find anyone who wants it for any other reason).
And I really want to be convinced “a collective fiction” is not the answer (stocks exist because stocks hold value because stocks exist. Stock value tracks company success, because company success tracks stock value, because stock value tracks company success).
I don't say this as like a really angry person shouting as a sky hoping it'll all stop. It just goes to show how as a group, we can make our expectations real by all expecting the same thing.
It seems like it's a similar collective fiction to the one that gives money its value, but a fiction that provides far less social utility than money.
Random thought: owning stocks gives you two things: voting rights and dividends. Take the dividends away, and you're left with voting rights. Those are typically pretty much worthless unless you own a billionaire's amount of shares (and sometimes not even then, if some other billionaire has super-voting shares). The collective fiction that small shareholdings have value without dividends mainly serves to create buy-in for a system that creates greater fools for those people.
And to your second point, it's true - even billionaires don't profit directly from owning stock in public companies. They profit from that stock by selling it to other billionaires or institutions. Billionaires make money from owning stocks in public companies in more or less the same way as retail traders. Billionaires who own private companies though, that's a whole other thing. If you own a private company in part or in whole, it is possible to just take the company's profits and pay them directly to yourself. But owning and selling stocks is so profitable that I think for the most part billionaires don't bother with private companies - that's why they always want companies they've invested in to IPO. That's when they cash out. Anyway thanks for posting!
https://www.streetinsider.com/Dividends/S%26P+500+Companies+...
The only part that's not zero sum are the dividends that are paid out.
It's kind of all a big Ponzi scheme, just with some dividends thrown in. Well, not counting only paid out dividends, but also dividends that are speculated to be paid out some time in the future.
Realistically, how are those things in any way accessible to a regular shareholder without dividends? Even if a company liquidates, by that point it's probably racked up so much debt that the shareholders get nothing.
I'm by no means an economic historian, but my impression is people used to value stocks as a claim on future dividends. Then many companies stopped paying them, but people still pretend like they still do.
But isn't that only true if they sell the shares back to the company in a buyback (which is essentially a dividend)? Otherwise, they're just accessing the proverbial greater fool's assets.
How should the growth of the bank account affect the price of my shares? Under the model of stock pricing you described, the price wouldn't increase and it would take a fool to buy them from me for more than $250. But the bank account of which I own 25% of the shares has doubled in value, so it wouldn't make sense to me that the share price wouldn't change.
Just now, with this comment, I've started a "bank" and I'm granting you. JohnPrine, an account with a balance of $1,000,000. However, the terms are you can never, ever withdraw or transfer that money under any circumstance. How much does this new account add to your net worth?
I'm a multi-millionaire and successful businessman, but what does that matter? You can't take the money out regardless if it's backed by anything or not.
> What rights and privileges are granted over your bank by owning a portion of this account?
You get to vote in a meaningless election.
Stock markets have worked for 400 years. Don't you think that makes it less likely that they're ponzi schemes?
Legal agreements can take many forms, and the legal agreement for the account says no withdrawals ever. When you have ownership of a share of stock, you're also denied access to the underlying assets. If you buy one share of Microsoft, can you take them to court to demand access to that share's worth of assets?
if you owed me some money, can i chop up a part of your kidney to sell?
the ridiculous notion that you are entitled to use or own an asset directly partially just because you own the shares partially is a misunderstanding of the legal structure of share ownership.
You do not own any assets of the underlying company of the shares you hold. You merely own the company itself.
It's like trying to claim a piece of america (or your country) because you are a citizen of that country.
As a thought experiment, do you think that your ownership of a company is also meaningless if there are only 2 shareholders? What about 3 shareholders? At what point does breaking a company up into fractional shares become a ponzi scheme?
So? How valuable is "legal ownership" over an asset if that doesn't actually entitle you to anything besides a certificate of ownership?
In practical terms, non-dividend-paying stock actually looks a lot like an NFT, unless you've amassed enough voting control to actually matter.
If your fraction is high enough, you could have full legal control. But since it's very dispersed, there would be a discount on the value of that legal ownership.
But the fact that you still own it is worth something, and that is exactly what the share price is indicating.
Depends on what being a shareholder entitles me to do. If I can't vote and don't have a realistic expectation of getting dividends and have no other rights, then yess, that "ownership" seems pretty meaningless to me even if there are only two shareholders.
If you have voting rights, you can give an actual answer to the question: At the point were the fractions are small enough that the vote doesn't have any practical influence anymore.
… at the moment.
Microsoft didn't pay didn't dividends… until they did. Apple paid dividends, stopped, then started again. If you knew about where they'd go, would you object to buying them before they started paying out?
Amazon hasn't ever paid dividends, but would you object to owning AMZN? Especially if you purchased it in (say) 2011.
Total Returns = Capital Appreciation (CA) + Dividends (D)
For most people saving for retirement is the primary thing that they're putting away money for. For that you want the biggest pile of money you can get for when you hit 65 (or whenever). Whether you can get pile with just CA (like with AMZN), or with CA+D, is irrelevant at the end of the day.
It's not that dividends are not important—they can be a (big) component of TR—but fetishizing them like there's no other way to build your retirement pile is short sighted.
AMZN may eventually pay out dividends, but until then you can own a piece of a company growing by creating value, and be part of the ride of rising value (represented, loosely, by a rising stock price).
you could, but other shareholders might not want it withdrawn. So you have to argue and hash it out with other shareholders.
So the currency being held by the company is not worth exactly the same as currency held in your own bank account (of which you have full control over).
But it doesn't mean those currency is worthless.
But tragically, the IRS will tax JohnPrine on that "income" of $1M he can never get his hands on.
As share prices go up, more people may take notice and realize that company is and has the potential to continually create more and more value and want in.
Once a company stops delivering on that premise, people again take notice and begin to sell. Maybe they sell to others who disagree and believe that there is still value to be created in the future.
Sometimes it’s even very difficult to buy or sell shares for companies because it’s hard to find someone willing to buy shares your selling or someone willing to sell shares you want to buy. There is risk.
Different people value companies in different ways and have different ideas on how to measure it.
It’s not in any way a ponzi scheme.
> Once a company stops delivering on that premise, people again take notice and begin to sell. Maybe they sell to others who disagree and believe that there is still value to be created in the future.
The exact same thing is true of a Ponzi scheme.
If Joe's Farm sells corn and Jane's Lumberyard sells wood, you could invest in either, which they would use to expand, resulting in more corn and more lumber and therefore value was created. Meanwhile, if you invest in Jim's Useless Objects you'll end up with only more useless objects that have no real value to anyone. Jim's running a Ponzi Scheme.
> resulting in more corn and more lumber and therefore value was created.
> Maybe they sell to others who disagree and believe that there is still value to be created in the future.
The first paragraph implies "value" is an objective quantity while the second one implies "value" is subjective to a particular investor. Both can't be true at the same time.
We can all have different believes about future creation of value, but if value is objective then some of those believes will simply turn out to be wrong. The problem is that we need someone to have incorrect believes so we can sell to them - at which point, it's again just a ponzi scheme.
this is the subjective, aka, speculative value.
> resulting in more corn and more lumber
this is the objective value - it's already realized (aka, this is the profits the company have made).
> Both can't be true at the same time.
They are different things, and certainly can be true at the same time.
> The problem is that we need someone to have incorrect believes so we can sell to them
no, we need someone who would speculate that the future value would be higher than today's value, but it's not a ponzi scheme because the company is constantly creating value (as it's profitable currently).
Ponzi scheme requires that there's no underlying value being generated, and that all current profits paid out from new investors.
In a ponzi scheme, money is just moved from new investors to old investors without any value creation. It's impossible to sustain which is why the only interesting question is how long can a ponzi scheme keep going. That's one aspect why Madoff's ponzi scheme was so incredible. It went on for nearly 2 decades (~17 years)!
It's why pyramid schemes are ponzi schemes, they rely on continuously recruiting new people who invest and funnel money up. Once you're in one your goal is to recruit as many people as possible so you're not at the bottom and begin getting money flowing up to you.
Companies (public and private) go bust all the time and do a lot more than move money around. In fact, a company only gets money from its shares through a traditional IPO.
The public markets are second hand markets. If I buy a share of Apple stock, Apple doesn't get another ~$142 (approx its current share price). The person from whom I'm buying the shares gets it.
The only way the company can directly get cash from its stock is by issuing and then selling new stock. Stock fundamentally is a currency the company can control just as the Fed and Treasury control the Dollar. It's an asset which also means companies can take out loans against stock they have as collateral (or they could just sell any extra shares they have to the market).
All of this is also what makes bankruptcy very interesting. A lot of people are owed money, various types of investors, employees etc. Who gets paid, and how much is always the question. Some people by legal right have higher priority than others. Judges play a role in adjudicating this too.
TLDR: Companies are obviously not ponzi schemes. The stock market is just a way for people to benefit from companies' success.
Now there are many reasons why buying and selling pressure fluctuates. But those don't directly influence price. It's only buying and selling.
But they don't. They make "potential" money as in "if I sold now, I'd have $x more than before I bought the stock". But if all stock holders actually sold, the price would quickly plummet.
So it's not possible to actually realize the full valuation as cash without literally printing money somewhere.
I think it's important not to conflate actual and potential value. Otherwise you could also argue that lottery tickets are a great investment because you can instantly turn a few dollars into a million.
This is not a downside, clearly (economically speaking) we are much richer compared to few centuries ago, that came out of nowhere.
One purpose of insider trading rules is to ensure a sense of equity. Being an officer in a public corporation, investment banker, accountant, or anyone else privy to material non-public information is a position of privilege and trust. It's not fair to everyone else if folks with insider information can freely cash in on that information at will. To further see that this is so, consider if there are no insider trading rules - - - in this case, why would anyone pursue a legitimate career as a developer or doctor or lawyer when there is so much more money to be made from exploiting insider information in the marketplace? Clearly that would not be a good kind of society to live in.
In other words, it's win/lose, not win/win once you extend the timeline and compare what it would look like had the trade not had happened.
So when you make money in the stock market, where does the money come from?
When you buy a company, you own a piece of it. The price of a stock theoretically reflects how much profit you expect the company to earn.
In a simple scenario, the company keeps all of its profits in a bank somewhere. The company's value then goes up because you own a share of that money. You'd expect the price to go up to reflect that increased value. You would sell it at a higher price, and it would be a positive-sum game.
In reality it's more complicated. Most companies would re-invest that money so that they'll make even more money in the future. The stock price will reflect how well you expect the company to grow and earn more. It's still a positive-sum game, just with more uncertainty.
It's even more complicated than that, for a lot of reasons. But at the core, it's a positive-sum game, not a zero-sum game.
(At least until the point where people are throwing so much money at the stock market that the prices have nothing to do with a reasonable assessment of uncertainty. And there's a decent chance that this is true today. But long term, such irrational exuberance tends to crash, and over enough time the two mostly cancel out.)
More seriously I think the key lots of people miss is that when you buy shares of a company, you don't have dollars anymore. You have shares. Shares are a currency controlled by the company that can issue them (just as the govt can issue dollars). Shares are assets just like a dollar. Also like a dollar, those assets can appreciate or depreciate in value over time.
As the company does well, more people will want to invest. People want to invest in a successful company since it means the company will have more profits to give out and more money to continue growing and succeeding to eventually distribute. Most of the time companies go down this second path.
As more people invest, fewer shares are available. Demand has gone up, and supply has gone down. Each share is now worth more. But you still have the same number of shares.
The reverse is equally true. If a public company does poorly, people will begin to sell. As people sell, demand goes down, supply goes up. Each share is worth less than what it was. But you still have the same number of shares. Their purchasing power has just decreased just as the dollar's purchasing power decreases with inflation.
[0]https://www.youtube.com/watch?v=NmFo-LKHGY0 - poof its gone.
Last time I checked, stock exchanges did not have licenses to print money.
> If that stock continues to do well, everyone wins. I make money, the person I bought the shares from makes money.
No, the person you bought the stock from made money before the stock went up. You might make money if you decide to sell before the stock goes down again.
-There are regulations on paper only and VERY rarely is monitoring conducted because of the firms asserting "confidentiality" to not share data
-Regulators are fully aware of illegal practices such as literally creating fake shares from thin air which has been illegal for over a decade and yet, THERE IS NO WAY to know if this is happening or has happened in the past year. The data is not public[1]
-Even when such blatant illegal behavior amounting to billions of dollars , the penalties are mostly fines and no one goes to jail
-Court filings indicate suspicious sales of specific securities by insiders at Citadel before they restricted retail sales. Contrast this with you, as an employee of a FAANG tech firm, trade stock on inside information and you're looking at prison time.
[1] https://www.reddit.com/r/GME/comments/m9bfp0/naked_short_sel...
With uMatrix and uBlock I can read the article, but get the subscription thing at the end of it.
(Hi CW! It's Fraggy :))
And I just realized why I didn’t get those: Bypass Paywalls Clean [0] removed the subscription nag and all the popups.
[0]: https://addons.mozilla.org/en-US/firefox/addon/bypass-paywal...
Or as the old saying goes, steal a million dollars and you go to jail, steal a billion dollars and they name a business school after you.
Blanket banning stock trading has a lot of downsides. Its an important part of everyone's financial wellbeing - esp if you are wealthy or powerful. I left my job in financial industry primarily because of this.
Quis custodiet ipsos custodes?
From the article, judges aren't even properly recusing themselves.
Saying a congressperson or a judge should be allowed to trade stocks simply because it affects their well being is an argument that appears rather frail. I would be surprised if there is anyone in those positions of power either elected or appointed who would be considered to be even slightly financially disadvantaged. If they want to be wealthy, let them go back to work as attorneys or whatever profession they came from.
I don't agree with that in all cases. I have a friend who is a teacher and admits teaching is a great job for him (2nd grade) and he doesn't know what he would do otherwise. Probably some type of physical work. He is a great guy, but just isn't that sharp. He is punctual and dependable, but not real good at thinking on his feet. He makes about $82k teaching (20+ years experience in a reasonably affordable area) and I can't think of another job that would pay him that well, give him the summer off, great healthcare and a pension.
I know a few more teachers and perhaps it is the group of people I hang out with, but they all are closer to him than to some person making a sacrifice for the good of society.
But FWIW my experience is not like yours. I am a college professor and have seen many students over the years go into teaching, either at the secondary or elementary level (specifically, math teaching). When I meet with them to discuss what they want to do, almost all express that when they think about careers, their interest in teaching is because it is a reasonable career with reasonable pay, yes, but just as important to them is the sense of doing good, of directly helping people. (I have less experience with people in the services but what experience I do have is in the same direction.)
Doesn’t this describe most people that do well in large organizations?
But should it be?
It seems to me this is part of the problem: the outsized role the stock market plays in our financial system today.
The wishful image of financial autonomy and chances of personal and business development through a public market seems to provide too much cognitive dissonance when confronted with the realities of how bloated, speculative, manipulated, and self-fulfilling stock markets have become.
It's like telling someone who's put their entire live saving into bitcoin that it's a pyramid scheme. I mean any other idea would probably die on here, once it's been shown that it's success is coupled to NP=P being true.(https://arxiv.org/abs/1002.2284)
E.g. if you work at the fed you buy a 3x treasury index fund if you know rates will be lowered, or short 3x treasury index if you know rates will be raised.
If you are a judge or legislator and you get to say if 30% charge on app stores is reasonable, this affects 20% of the Nasdaq 100 index. So you buy/sell that over a 24 hour period.
Disallow them from being directly involved in investment decisions. Make them hand their money over to someone who will make investments on their behalf with influence limited to broad things like risk profile and the term they want returns over.
Alternatively, implement a minimum holding period. It's much harder to trade on insider info if there must be a long period of time from purchase to sale. One place where I worked wouldn't let us sell until at least 3 months after we purchased any shares.
- no more options/shares for employees;
- significant insider buying/holding is generally considered a positive signal, alignment of incentives, etc. would need replacing with a more complicated compensation agreement linking bonuses to average share price over the year or something.
Slightly less obvious one is that you still have inside information on the index fund, not just that your company might itself be a significant constituent, but inside knowledge of the industry, what's happening to a common supplier, etc.
And by 'index fund' you probably actually mean/want 'significantly diverse pool of shares', an index can be small. Nothing (other than it being silly) stops it being just TSLA or whatever either, 'My Favourite 1' can be an index of my 1 favourite shares, and you can create a fund that tracks it. Obviously that's silly and doesn't happen to that extent, but it might if you incentivised it by making 'index fund' the rule.
Not saying I really agree, they typically offer a premium (which is just like rolling a dividend into it) and it would seem highly unusual to have a company that seemed growth/non-growth according to whether you had inside information.
I suppose there might be examples like AMC or GameStop (not that, inside information wouldn't have helped you there!) that seemed on the outside to be dying, they absolutely should return or value to shareholders and cease operations; but actually they had ambitious plans to revitalise etc...
a company acts in the interest of its shareholders.
If you're saying that a majority shareholder hides this info from the rest of the shareholders, triggers a buy back under a false pretense, then realize that growth (making the share worth more), then that's just financial fraud.
If a company has an opportunity for growth, this information is unlikely to be private to the shareholders, and thus, the buyback would price in that possibility (discounted by the success rate and risk). So the scenario, where a company buys back shares (from current shareholders), then somehow improves it's performance/growth suddenly, is not likely.
Now that said, stock buybacks on their own are not necessarily a "bad" thing, and if a company has no uses for a bunch of cash on hand then giving it to shareholders via buybacks can make sense rather than hold on to it. But I do think it's a fair complaint that if we're "giving" a company money in the form of tax breaks and they're using it to do stock buybacks (effectively saying they have no real use for it, as you mentioned) then it's unclear the tax breaks are actually useful to begin with. If they weren't allowed to use that money to do stock buybacks then they would have had to find some other use in the company for it (though in reality, since budgets are pretty flexible it wouldn't be too hard to get around that kind of requirement...)
A better approach would be to cut corporate income taxes to zero. But make it revenue neutral by increasing taxes on shareholders, bondholders, and highly paid employees.
And so you delve into a subjective area. Part of me feels that there is a literal 'passing of the buck' where the company sort of dilutes and distributes sort of, societal investment responsibility, which is where even my own philosophy solicits an internal eyeroll.
The problem I have with buybacks is that I agree it is frequently a signal that 'a company has no uses for a bunch of cash on hand'. But does society suffer when businesses are so wed to capital efficiency? Does society benefit from corporate investment, period? Are earnest investments beneficial to society even if they don't work out?
Basically, how does the money distributed from buybacks impact society, and could that be improved?
I'm not sure if this is exactly what you're getting at, but I think there's an argument to be made that companies are a bit too comfortable with simply giving cash back to shareholders rather than using it to improve their position, I think effectively the interests of the company and the interests of the shareholders aren't aligned in this situation. When you give it to shareholders in the form of buybacks, there's no guarantee you'll ever be getting it back, and like we saw in 2020 the times you most want to have a lot of cash are the same times investors aren't really interested in buying your stock.
> Basically, how does the money distributed from buybacks impact society, and could that be improved?
This one is somewhat easier to answer, because the majority of stocks are owned by the wealthy (a quick google suggests the top 1% own 40% of stocks, and bottom 80% only own ~7% of stocks). How they then use that money is a different matter, which would depend on a lot of other stuff and the economy at the time.
That's a terrible incentive.
Anyone who thinks they're "joining forces" to trade stocks is just the mark for a pump and dump. There is no honor among thieves.
The injustice of modern markets can be explained with an analogy:
Imagine that you don't have much money and you open a coffee shop; assume that it's your only stream of income... Now imagine that a few years later, a multi-millionaire opens up a coffee shop right next to yours as a passion project. The multi-millionaire has many other streams of passive income. They see your coffee shop is doing well and they feel hurt by this. So the multi-millionaire decides to start buying even higher quality coffee beans, buying more expensive coffee machines, they start dropping the prices too and advertising all over social media; now they make a loss but it doesn't matter to them, their net worth is still increasingly rapidly thanks to their other sources of income; now all the customers are going to his coffee shop instead of yours. You are forced to close your coffee shop. The multi-millionaire is pleased with himself; all his friends congratulate him. Is there anything this guy can't do? no wonder he is a multi-millionaire! Once you're out of business, he can start dropping coffee quality to even lower than before and raising prices, you're now forced to work for one of his companies as corporate livestock; as corporate livestock you add negative value to society (you're now a cog in the money laundering machine) but you're getting paid more than what you did when you were adding value to society.
Many of the multi-millionaire's other businesses benefit from government contracts, grants, 0% interest loans, reserve bank bailouts, international capital flight, undetected money laundering schemes, market manipulation by political insiders, etc... The multi-millionaire's edge in the coffee business was founded entirely on them having an unfair advantage in other industries. If there are enough multi-millionaires and wealth inequality is high, all industries will be smothered out of existence by big finance who will always have the upper hand thanks to their access to easy money; all industries and society will be worse off. It's no different from feudalism.
Hence we see the explosion of corp/concentrated ownership of real estate and exploding rents (just up to the level you can afford to live with the rest of your income but not much else). Money printing means it’s a great time as a millionaire to buy lots of property, and as an average person to sell whatever excess non-residential property you have for huge amounts. Hence cities slowly become unaffordable/within the very limits of affordability for most citizens.
Is that why the parent is downvoted?
Can you explain this bit more? Why are you adding negative value?
First Pepsi Vs Coke. Both Pepsi and Coke make a product that takes no more than 10 cents to create, ship, and put into stores. And yet their prices are many times more than that. Capitalism says that a perfectly free market will eventually reach a point to where there are no profits. Why is it that in a very mature field such as soda, there is still massive profits?
In order to get where they are they had to make deals, certain restaurants are only allowed to have one of them. They need logistics agreements. They need massive billion dollar factories. Those factories are working at way below capacity. Most of their value derives from these political aspects.
In every market there are only 2 things you need to keep track of. Costs and Values. Values - Costs are the surplus. Who gets the surplus is negotiated between the average participants. In a buyer's market, where there are many suppliers all fighting to sell, the price is close to the costs, and most of the surplus goes to customers. In a seller's market, the price is close to the value. Soda is a seller's market.
What if it were a buyer's market? What would happen if Pepsi dropped their prices to $0.10? Coke would have to follow suit, and they would end up with no profits. They know they can't bankrupt Coke doing so, as they each have equivalent infrastructure, so there is no need for them to slash their prices. Same deal with Coke. They are in a stable equilibrium. It is in the best interest of each company to split the market and reap the margins.
Now let's take Uber and Lyft. We just saw the war phase explained through coffee shops above happen with them, and they are now solidifying into a relationship similar to Coke and Pepsi. Let's take a look at Uber
1. Uber is losing money.
2. Their drivers are making less than minimum wage after taking into account car depreciation.
3. Their investors are losing money.
4. Their customers are mad at the rising prices.
What the heck is going on?! Everyone is losing! Just because you win a market does not mean that the market is worth having. Taxis in big cities makes sense. Taxis occasionally but you know will be expensive makes sense. Uber tried to push this low cost system where you use their system much more than we should be relying on. And it simply doesn't make sense. Costs - Values is negative! In 5 years we will be back to where we started, exact same use cases of Taxis, except with Uber and Lyft with near monopoly Coke and Pepsi margins.
> First Pepsi Vs Coke. Both Pepsi and Coke make a product that takes no more than 10 cents to create, ship, and put into stores.
I’m sorry this is so patently false on it’s face that the rest of your argument doesn’t make any sense. It also fundamentally misunderstands how a market works and especially what the current system is.
The 2nd example is a little better but also just fails the sniff test, where I live right now, taxis are battling Uber/Lyft exactly because there were real pain points with taxis and the old system (that btw was also a monopoly, only blessed by the gov) that weren’t being addressed and the taxi companies in my city got their act together and decided to compete instead of attempting to hold us hostage to a broken gov-enforced monopoly system.
I also don’t think you really explained how it’s negative value, unless you’re simply making a personal subjective value judgement. If that’s the case, please don’t present it as objective fact, it’s dishonest.
I wasn't the original poster.
It's not very constructive to post that someone is wrong, and not explain why they are wrong. How wrong are they? Nope, just "sniff test". Working from first principles is the only way to get across to someone your mental model, but doing so in a comment is impossible. It would take an entire series of books to fully explain. There are skipped steps, and conversations are about narrowing exactly where we have a mental model difference.
Switching from one government granted monopoly to a duopoly is not progress. We need competition to force buyer's markets.
Yea I saw that after I replied but left it bec you seem to agree with them but didn’t actually explain what they meant.
> It's not very constructive to post that someone is wrong, and not explain why they are wrong. How wrong are they
You’re right. I should have been clearer. You told an substantiated lie, that’s why you are wrong. Not asking for first principles, just honesty.
> Switching from one government granted monopoly to a duopoly is not progress. We need competition to force buyer's markets.
Agreed. But the previous model was neither accurate nor a free market so using it as an example of a free market doesn’t work, and is dishonest.
But really we’re getting way off track. I’d like to know how starting a new job where you’re getting paid more and ostensibly are productive is adding negative value.
If this is your first time in the city, and you don't have any information from friends about the quality of random shops, your going to pick Starbucks. This is the value of a brand. And while they are still competing, everything is all good.
But 5 years later once all of those individual coffee shops have gone out of business, you're left with just Starbucks and Dunkin Donuts. And they don't compete on price. Quality drops.
Each of those 25 shops were doing their own creative thing. They were trying out all sorts of innovations. Some worked, others didn't. Now we have no innovation. The big shops are conservative and move at glacial pace.
As a worker you were helping drive those innovations. You were testing stuff out. Now working at BigCo, you follow orders. You do what the machine tells you to do. If you're working for Uber, you pick people up, follow the route, and drop people off.
---
Here's this question asked on quora: How much does soda cost?[0] This is in no way an authoritative source, but it's a neutral third-party that can at least end the slander that you are operating against me.
The answer they give is that it's fair to say that basically the water and sugar is free, cost is right around $0.10, and after shipping it's about a quarter. So was I wrong by 250%? No, because they don't only offer cans of soda. Most of the soda they sell is at restaurants and all they need to ship is the dry stuff. I figure the $0.10 average is right on the money.
[0]: https://www.quora.com/How-much-does-it-cost-to-manufacture-3...
The problem has nothing to do with capitalism. The problem is with money, which is created from thin air and distributed to the rich and powerful, and to those who defend this unfair system.
The real truth is in understanding that this is fundamentally unstoppable within our economic mode of production. No ammount of regulation or de-regulation will prevent a system based on individual profit accumulation from becoming corrupt. You can stop individuals, but the economic incentive will still be there, waiting. Profit means leverage and economic freedom means using that leverage. It's a feature not a bug.
Its all corruption and exploitation masquerading as economic freedom and individual freedom, always has been. Liberalism and Convervativism are just the cultural views that carry the ideological justifications for their exploitation (be them progressive, regressive, static or mixed).
Really, if we were in their position we'd be doing the same. Which leads into why it is important to fundamentally transform our society.
Also, why are government employees accused of malfeasance allowed to quit and not get prosecuted? Why is that even a thing?
It's an endless cycle that needs to be broken, shipped jobs overseas, shrank our already pathetic safety net, gutted middle America, pushed 2 wars and emptied our treasury. Vote out the incumbent every election cycle for 10+ years, and maybe it will fix it.
These flaws are not bugs, these are part of the design. It was never meant to be democracy for the many, it was only democracy for the wealthy. Like the greco-roman model.
We need working class democracy, which builds worker oriented hierarchies from neighborhoods upwards. No far away senators that """""represent"""" you. You elect neighbors to represent the interests of the community majority. From neighborhoods to districts, to regions and states. Everyone closely accountable to their base. With full economic transparency, available to all in a public ledger system.
But this implies the elimination of private property over socially productive assets. You can't own something if it serves other people. It's not about giving up your house or you car. It's about not owning a pharmaceutical company. Or power line distributions. Or farms.
Private property of social assets produces the profit motive and is the root of all economic exploitation
Your favorite economic mode of production has the exact same potential for corruption and exploitation if not more. Wealth isn't the only form of capital. Societies that tried to forcefully eliminate wealth inequality have always ended up with an economy of exchanging favors behind closed doors. This is what gave rise to Guanxi in China, which is why there is so much corruption there. Even after the markers opened up the social capital obligations remained, so the Guanxi economy is self sustaining.
Do you not believe those "safety" measures can be implemented into a mode of production?
If the monopoly on force is dissolved and the private property of socially productive assets is dissolved. Will it not be in the interest of everyone to organize and stop that corruption and exploitation?
What I don't see presented is any evidence for your claims, just a random set of "these guys are even worse so my not quite so please stop criticizing the problems with my bad choice"... it's not a counter, it's deflection.
> More regulators and more central power is likely to increase the risk that the regulators become cheaters.
"Recent events suggest their [Redditors] suspicion that the decks are stacked against them is justified – which is a terrible look for capitalism."
Insiders profiting from private knowledge is hardly unique to capitalism. I think the author should check out China over the last 20 years to see truly stunning examples of insider profiteering. Feels more like the author wants to fill out their 2021 finance article bingo card than make a real connection here.
"[Insiders] also increased their buying and selling in the gaps between audit reports being produced for company boards and being made publicly available, and exploited rules governing scheduled trading schedules for profit."
I mean - insiders are required to schedule their trading activities ahead of time. There are whole groups of people who's trading strategies revolve around reading those disclosures and make the same trades.
And of course a little bit of the 2021 media's favorite tactic: "guilty until proven innocent"
"And while they said the trades were within the central bank’s rules, both are being scrutinized further. “We’re looking carefully at the trading that was done to make sure that it’s in compliance with our rules and with the law,” Fed Chairman Jerome Powell told the Senate Banking Committee."
So wait, no concrete evidence their trades were against the rules, but Bloomberg will publish this hit piece anyways.
"And the growing prevalence of the fastest-growing companies staying off public markets and funding their expansion instead with private capital keeps them out of the portfolios of retail buyers, further stoking suspicion that the covenant between capitalism and society is asymmetrical and biased against individual investors."
What....? Loads of IPOs this year. And for those that are still private, or eschewing the public markets for whatever reason: no private company has an obligation to give Joe Retail Investor the ability to buy and sell shares of the entity.
Bloomberg has really become a joke.
Don't fall for it. It's just rich people and politicians taking money from less rich people.
If you want to double your money, fold it over and put it in your pocket (and buy real things that appreciate over time).
How do rich people make money in the stock market if it's a "scam?" And how do politicians use the stock market to take money from anyone? (usually they use taxes to do this) What about index funds, which usually have proven returns and require no special knowledge?
Well not politicians quite, but IMHO western bond buying is driving up asset values and fundamentally increasing economic stratification. PCE is a trash measure. It's like our monetary policy says "make sure workers keep working, make sure their feedstuffs stay cheap, and don't worry whether they have a meaningful opportunity to acquire ownership of the economy."
Definitions:
scam (verb): to obtain (something, such as money) by a scam
scam (noun): a fraudulent or deceptive act or operation
together: to obtain (something, such as money) by a fraudulent or deceptive act or operation
Rich/powerful people obtain money and influence by fraudulent or deceptive operations, via the stock markets, from less powerful people, by convincing them that they should participate in said market, either as small investors or indirectly by having their banks, insurance, and pension invest into the stock market.
The rules, and conditions on the stock market are in such a way that they reward power and wealth with further power and wealth. E.g. being able to invest into better locations, infrastructure and connections for HFT, being able to hire better analysts and more mathematicians, invest into satellite data and machine learning to track cars in parking lots to estimate the results of earnings calls, pay lawyers and lobbyists to change influence politics and change laws.
> And how do politicians use the stock market to take money from anyone?
Insider knowledge.
> How do rich people make money in the stock market if it's a "scam?"
They have an army of traders and their job is to buy and sell non stop, taking advantage of smaller players who think the game is fair, until a profit appears.
> What about index funds, which usually have proven returns and require no special knowledge?
Why don't everyone buy into index funds then (genuine question) ?
They should, unless they have an “edge” over others, such as inside information or analysis that others did not do or did incorrectly, such as checking satellite photos of parking lots (in days prior to delivery).
If you do not have an edge, then you are simply gambling. But I would say craps is more fun. Low cost index funds like VOO are just true inflation protected securities over 5+ year timeframe, in my opinion, because you know the US federal government is going to pull out all the stops to prevent its biggest organizations from collapsing.
I'm still not sure in what form this "taking advantage" happens. I think the stock market provides unique opportunities in how one can start small and grow with additional capital, knowledge or time when it becomes available.
> Why don't everyone buy into index funds then (genuine question) ?
For a variety of reasons: some find it boring, some think they can beat the index, some get stock grants and stick to what's familiar, some buy stocks that they hear about (because their friends do), etc. Even those who (mostly) buy into index funds may invest a chunk of their portfolio into riskier assets.
There's actually been a bunch of articles over the last year or two talking about how the large number of passive investors in index funds is causing an issue for price discovery of individual stocks.
And everyone doesn't do it because some people are ok with taking more risk for more return.
The Fed with its policies that drop the Velocity of money naturally leads to asset price inflation. Even worse, as there are now more money being put into buybacks than there are into IPO's, the stock market is a deflationary asset class. Just because there is only a few places to risk your money and not devalue it, does not mean that those places aren't scams.
This has worked really well for so many people. Its boring, there's nothing sexy about it but you will retire with a decent chunk of cheddar.
You'll never do well trying to trade individual stocks. Even the pros screw that up constantly. There's a huge industry trying to convince you to trade, but that's so they can make commissions and make $$$ on flow.
Be a boring investor and find an exciting hobby instead.
This. Too many people think that investing and trading are the same thing, they are almost opposites.
A lot of people (including me) spent a lot of time reading, operating, spending time on investing.
There are a few bits of value here, and some profits to make. But it seems to me that learning, crafting, sharing is way more beneficial long term.
Even if you win, you're never shielded from inflation, being conned buying a car, a house...
In a way wisdom and relationships appear more important.
Does anybody agree ?
It seems to me that inflation is integral to success of the system. That is to say, without inflation, far fewer people would "win".
Wouldn't it also be: without inflation, the people not playing wouldn't "lose"?
I can understand where you’re coming from if you’re referring to trendy/hot individual stocks that jump all over the place, but for diversified investing in an index, that’s simply not true.
It has nothing to do with a cassino. It's not a zero sum game. It generates value from profits, it makes the general market more liquid, pricing assets. Not everybody is day/swing trading with futures.
> rich people taking money from poor people
That's a pretty strong affirmation, do you have sources with backtests? otherwise, well, it's enough to have 01 consistent counter-example. Of course, if you day trade, you'll give your money to whoever knew how to properly price an asset first. But that's just being unwise.
The article bases its theses on the fact that there is insider trading - and its variations - which is a failure on the judicial system, not markets in general .
That's the deal. That's what's for sale.
You want to blame HFTs or whatever? Bah. Worst case you're losing a fraction of a percent of your initial purchase. You've got absolutely nothing on the old-school commissions you'd pay twenty years ago.
Oh, wait. I know how it's a "scam". "Double your money", you say.
It's a "scam" because people went in thinking "buy sell buy sell momentum trade profit profit profit DOUBLE MY MONEY THEN AGAIN AND AGAIN FREE MONEY FREE MONEY" and it turns out there wasn't free money, that the money was in fact very expensive, that you had to assume Risk, that people who make money on it do a ton of Research to mitigate the risk, that you were competing with billion-dollar systems for doing research and managing risk and getting that money. Maybe you even went in thinking "TO THE MOON" and were surprised when your GME stopped trading because your broker was impaired by pre-existing contracts and couldn't make it happen and elected to use the options which they put in the fine-print they asked you to read and you didn't.
Well, boo hoo. Don't play games with your money, don't play games with your food, buy the product that's for sale like a normal responsible investor, and you'll be fine. Or play games, treat it like a casino, but then don't be surprised when you get the casino experience.
Because the stock you buy may not have been actually bought by your broker. Which is the entire point of the GME saga which you completely misunderstand. A stock has no business being shorted over 100% in a market that is not a scam.
Major firms can get away with crimes like naked shorting and no one can do anything about it except the regulators and they turn a blind eye or impose hilariously low fines.
> A stock has no business being shorted over 100% in a market that is not a scam.
I'm not sure this is a strong argument for a scam, but is a strong intuitive argument for correcting a problem with how the stock market functions.
And everyone whined and whined and whined about "different rules for hedge funds!!!" Of course the big players pay the big fees to put their millions of dollars on the exchange directly, and have to do many things to limit the exchange's risk, like comply with rules and get audited and post collateral — oh, hey, that's what Robinhood didn't have enough of to execute your trade; maybe we're playing by the same rules after all...
The entire issue is a fund was allowed to short shares they did not have. An illegal act unless you are powerful enough. That is the origin and cause of the entire story.
No one disagrees that Robin Hood is garbage. But them being that is not the main issue at all.
RH having collateral is something entirely different from the shares you have suppose to have been owning being nothing but an IOU
Has this ever been demonstrated?
If I lend $1 to friend A, and friend A lends that same $1 to friend B, then the total debt obligation is $2 (A & B both owe $1 to someone else) i.e. 200% of the original dollar. In the case of person A, that both owes $1 and is owed $1, which effectively cancels out, no new dollar was created and they become a middleman in the chain of debt obligations.
The primary implication of shorting >100% of float is the settlement time and capital required to close out that chain of loans and return the share to the original lender.
I hear some hedge funds owed stock, and held "synthetic" stock, in the form of options, but did not hold the stock itself. Maybe some funds didn't even hold those! Let's assume all of this is truer than true and put it beyond dispute.
It sounds a little dodgy, possibly a violation of contracts, possibly illegal. It also sounds like they lost a fair amount of money acquiring stock to cover their obligations, and it sounds like some retail investors were able to make money from the processes related to their need for this stock.
So let's put this in perspective.
If all of this is such a scam, tell me: who are the victims of this "scam?" Who precisely thought they owned stock, and found out that they did not in fact own stock, and lost some or all of their money? Does this person or legal entity actually exist? Where can we read a story of their woes as their stock evaporated?
And if this is such a scam, how common is all this? We are discussing a very broad claim: "The stock market is a scam.... Don't fall for it." What saliency does the Gamestop story have to this claim? Tell me, sir: if I am an average investor, and I am investing $10,000 in the market, in the statistically average way that people invest, how many of these dollars will I expect to lose to a scam such as this one? On average?
I hold that the answer is probably somewhere between $0.00 and $0.00. Oh, there are some very real scams and fraud out there on the market, but they tend to be more like Enron, or some firm like Theranos (except public) — not "failure to deliver shares" risk. And they're still a tiny risk to any index fund owner.
The stock did get bought by your broker. That's why gme's stock skyrocketed and brokers didn't want to trade it. A short interest over 100% doesn't imply naked shorting. If you're borrowing a stock, you can lend it out to someone else. It's like a sublease. There are two leases for a single apartment.
Perhaps cryptos have become so successful over time because this type of manipulation is harder to pull off but that doesn’t make cryptos safer either.
If it wasn’t for the high inflation rate I would not touch the market even with a 10 foot pole.
can you elaborate on this? What tactics were used, and how did they "suppress the price action"? Moreover, how do they compare with "let's screw over hedge funds by driving up the price of a stock!"? AFAIK buying up stocks in a shorted company isn't illegal, but intentionally doing so to cause a short squeeze is, eg.
>In 2012, the U.S. Securities and Exchange Commission charged Philip Falcone with market manipulation in relation to a short squeeze on a series of high-yield bonds issued by MAAX Holdings. After hearing that a firm was shorting the bonds, Falcone purchased the entire issue of bonds. He also lent the bonds to the short-sellers, and then bought them back when the traders sold them. As a result, his total exposure exceeded the entire issue of the MAAX bonds. Falcone then stopped lending the bonds, so that short-sellers could not liquidate their positions anymore. The price of the bonds rose dramatically.[16][17] The short-sellers could only liquidate their positions by contacting Falcone directly.[17]
This also implies that those pesky, cheating buyer were long over 200% of hte stock.
A stock has no business being bought over 200% in a market that is not a scam.
Why is no one looking at that pesky wall street bets crowd for market manipulation:)
Pro-tip, if you're framing this as a hard binary, you're probably either the scammer or the sucker.
Rich people and politicians are absolutely skimming off the top in various legal and illegal ways, but they skim off less than economic growth adds.
There is no infinite grown in this universe. Especially not exponential growth.
Even if you assume that we'll reach space at some point and infinitely expand into the universe. Resources available to that civilisation will grow at most cubically (based on the fact that our universe has 3 dimensions).
That growth is not caused by magic, the reason why you'd still get a return of investment is because that growth has been fuelled in an unsustainable way with externalised costs.
So for the "small long term investor" the pyramid ends at enslaved children in Bangladesh sewing shirts and shoes, overfished oceans, pollution, and climate-change.
Pensioners and small investors get scammed by the rich and powerful above them, the kid in Bangladesh, the Somalian fisherman, the person dying during a hurricane, flood, or heatwave, got scammed by everybody else above them.
Somebody gets scammed when there is a continuous indefinite return from a single investment.
The growth of economies doesn't rest solely on forcing enslaved Bangladeshi youth to make t-shirts, or causing environmental disasters. It's also powered by the Haber process, cheap power from renewables, efficient labour markets that don't rely on wildly inefficient slavery to assign workers to jobs, assembly lines, spreadsheets, and the other boring but efficient advancements we've made.
If I'm reading it right, this is a claim that we're hitting fundamental limits of how large an economy can be, so all future growth will come at the cost of the "bottom of the pyramid". You're claiming that there is no possible future growth, that technology has hit a hard limit, and that any growing company will intrinsically be exploitative because there's no possible way for it to grow otherwise. This is a very extraordinary claim.
There is an entire non-profit dedicated to calculating the resource consumption of different countries, based on re-growable biological resources: https://www.footprintnetwork.org/
The entire western world is essentially consuming 2-10x as much per person as the planet can provide for that person. That consumption needs to come at the expense of somebody else, in a zero-sum game.
I'm not saying that technology has hit that hard limit per se, but many technologies are at points of diminishing returns where further advances are possible, but so expensive that they don't increase efficiency. E.g. Combustion engine efficiency, Solar Panel efficiency (price is still going down though luckily), moores law (at least in terms of clock speed, and per transistor costs die to node shrinking), crop growth rate.
The things you listed are great, but they have not been the driving factor behind growth.
Look around, does that look like a planet that got the way it is from boring sustainable growth?
Even the Habor process, has resulted in massive nitrate polution, algea blooms, and reduced biodiversity.
You're not gonna get back from consuming 4x too much, from a few percent here and there.
What I'm saying is that our current notion of economic growth and the idea that with a one time investment, you get an asymptotically infinite and indefinite return on said investment, is unsustainable and explotiative. And that we need to apply different metrics to success, than blindly aiming at growth. E.g. biodiversity, individual free time, children above the poverty line.
A more sustainable model for example for retirement saving is a PAYGO system, like germany has. Everybody receives their fair share from the resources available each year, and you don't need to worry about some burst bubble, or crash, wiping out your lives savings.
Companies are real things that appreciate over time. Stock is ownership of that. I wouldn't characterize it as a scam exactly. I do think people underestimate how clever markets are and would advise against trying to outsmart them.
There is a different kind of bet you can make which is to buy a small part of the entire US economy on the assumption that it will continue to grow during your lifetime. Thats what an index fund is. It's a boring bet with modest returns.
A lot has been written about index funds. This video is probably the most clear resource I can think of that has all the information in one place.
Casinos are just the only place where gullible people go to entertain themselves and expect to get paid for that.
The suggestion that scams and the entertainment industry are nonoverlapping sets is...interesting, but untrue.
But casinos are very optimized to develop and milk addicts; they are very much in the addiction industry, like tobacco and heroine dealers.
The actual buying of shares is hardly a scam but the more complicated and removed from reality investment tools are used the scamyness comes out.
Buying an index fund over long term will not scam you.
What? You can take a $100 investment and invest in a single stock or you could put $10 in a diversified portfolio....or put $100 in an index fund...
None of these options require investing more money..
when you own shares in a company you are entitled to the cash flow of the company. Over time the price trends towards the future cash flow of the company.
In the short term the price can be anything, but if a company continues to grow and generate cash/profits, then the value will go up.
There is too much money chasing too few companies so multiples are high, but that is a temporary situation (that could last a decade).
Anything that happens in the short run is irrelevant to long term investors. In fact retail investors have a huge advantage over professionals in that they dont have to show returns every quarter.
But the great thing is that you can participate in the scam just as easily as the next guy. Just buy the index and wait. Jay Powell's got your back.
I used to be a "hard money" guy who raged against the "injustice" of the "rigged" system. but think practically - you can either be mad, or you can join in and benefit. One is better for your mental health than the other.
What house? There is no house. its a market of competing parties, with multiple exchange venues so you can't even say the exchanges are the house.
Hedge funds compete against market makers given that they compete head on, which one would you consider to be the house, they both can't be:)
In a democracy that values free speech and the liberty of association, combined with the Internet, it was inevitable, but then the bar for what counts as market manipulation punishable under the law is raised considerably.
That was the whole idea behind the GameStop thing. They were purposely trying to ensure that a hedge fund wouldn't be able to buy GameStop shares to cover their massively over-shorted position.
Funds that own full percentage points in stocks making pure top-down orchestrated moves vs hobby investors reaching out into the void with their info that may or may not gain traction are simply not in the same league.
I'm not defending either side here, but Reddit has picked a fight that is absolutely tantamount to market manipulation.
It is pretty obvious that lots of people try to post on reddit to make their assets more valuable, but I am pretty sure that many of them are conventional investors. There is no reason for any of the old big players to not post these things on reddit, I don't see how having the power of reddit could trump having the power of reddit + the power of controlling the marketplaces. When unwanted things happens based on reddit manipulation they shut down the market, when things go as they want the market stays open, so it seems like they can't lose under the current rules.