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).
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.
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.
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.
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 .
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.
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.
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..
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.
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.
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.
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"?
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:)
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.
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.