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.
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?
… 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you could, but other shareholders might not want it withdrawn.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.
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.
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.
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.
But tragically, the IRS will tax JohnPrine on that "income" of $1M he can never get his hands on.
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 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.
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.
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.