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Comment by dislikedtom | Hacker News Reader

sometimes i feel the whole market resembles ponzi. things getting expensive because there is a promise of price rising and more people getting into the market.

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this is a symptom of the short-termism in equity markets that we get from abstracting ownership away from involvement. it's a direct consequence that such markets become centers of gambling rather than long-term interest, because otherwise your focus would be on growing your main source of equity, rather than spraying and praying.

it's also why we should be wary of anyone spouting "markets provide liquidity" dogmatically. equity markets do provide liquidity, but only a trickle is needed for a well-functioning market, but the gamblers (traders, brokers, etc.) propel a tsunami of liquidity[0], because that's what benefits the gambling mechanics. we should leave gambling to casinos and let equity markets be about involved ownership. i'd made a related point yesterday about each person having one appreciating asset to nuture is great, but not having many: https://news.ycombinator.com/item?id=31573993 .

[0]: a similar phenomenon occurs in real estate, where only a trickle is needed, but brokers/agents try to drive sales past the natural equilibrium for their own benefit, and not the market's.

>this is a symptom of the short-termism in equity markets that we get from abstracting ownership away from involvement.

Except this is explicitly talking about private markets. You know, those places that VCs and people like Elon Musk claim companies need to be to avoid "short-termism" of public markets and have ownership be rewarded.

The reality is these money men want to be private so they never have to mark-to-market. The public markets enforce that.

yes, you're right. i misread the title and didn't originally read the article because it was behind a paywall, but just saw the archive link and read through it now.

i think a similar dynamic happens in PE though, which is a private market, but a very large one, so not like the illiquid, opaque private markets we'd otherwise imagine. PE firms try to inflate valuations and get out while leaving others holding the bag (i.e., take the inflated risks and therefore take the eventual losses).

I'm an armchair economist, hello! Are you one as well? Nice! We armchair economists should look out for each other, who else is going to do it ya know? ;-) I'd pour you some wine or any beverage of your choice if I'd see you in IRL.

In any case.

I disagree with your point. Companies that have solid fundamentals and fairly steady dividend payments do not feel like a ponzi at all. The deal is simple: you get a share, they give you a dividend. If management changes that, you can always sell the share.

Dividend payments is one of the best tools to keep a stock market (somewhat) honest.

In times of great exuberance yes, but eventually the markets do revert back and generally the broad market has been a good source of consistent, reasonable returns(6-9%). One should use their own common sense when evaluating risk and the major reason to get into a market should not be simply because others are doing it.

Surely others doing it is a perfect reason to do it. They pile in, market surges, you hop in and get lifted, and cash out before they do. Leaving aside the critical timing of that last step, it seems obviously right (for a short-term purely economics view)

And that's how you get less informed private persons (ie. the public, ie. the "economy") over-leveraged on real-estate or junky assets holding the bag.

Quite so. I didn't say it was a good thing; read my parethesised affix.

In theory sure, but it has been proven over and over and over that it is incredibly difficult to time the market and some people who do this will get burned.

Also, people become incredibly greedy in these situations, they think they will be able to get out of the game but keep going back for more.

That's not a Ponzi scheme. So long as the sun shines, people are born, resources are extracted, raw materials are converted into finished goods then there is still real economic growth happening. When we turns rocks into computers and sunlight into seedless grapes we are creating value that didn't previously exist. The characteristic of a Ponzi scheme is money chasing money and no value being created.

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