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Comment by calvinmorrison | Hacker News Reader

so stocks are less related to individual company performance than they should be?

Stocks in the modern context are little more than speculative instruments - the equivalent of buying a blind bag of chips from a casino and betting they'll increase in value by the time you attempt to redeem them. They rarely correlate to long-term company health anymore, and often correlate to little more than the psychological state of the market at the moment of any given transaction. Remember that prices are a product of trades, not actual valuation, and that those making trades have a vested interest in getting the best possible price by any means necessary - and that since very few people hold a disproportionate amount of total securities, they have outsized influence on those valuations.

It's why I've always been wary of this forced participation in the securities markets the US seems to have. It's forcing folks to gamble at a casino for the chance to retire or grow their earnings, using historical models to support arguments in lieu of actual regulations or guarantees of returns (like dividends, bonds, or interest rates on savings).

I don't think this is completely true. Other than some small portion of companies with weird ownership structure (which the market should have punished but doesn't always) stock ownership is ownership of the business.

There's probably a broader participation in the market (re: few people) than most of history, both direct and indirect. That can be good and bad.

There's definitely a speculative component but it's nothing like a casino.

For the volumes your retail investor deals in, the equity rights that come with common stock are negligible to nonexistent.

Maybe you get dividends, but you’d get more value from the comped room and buffet at the casino.

But the investors in aggregate have the rights. If you bought a stock that pays dividend then for sure you get dividends.

> stock ownership is ownership of the business.

I hate that argument, because it's the equivalent of my saying I won a board game by preventing too many people from playing it with me, starting with most of the resources already in my possession, and changed the rules so it's harder to spend those resources than to acquire new ones.

As of 2022, Vanguard owned two-thirds of US companies by outstanding shares. That's one institutional investor controlling much of the marketplace. Literally everyone else - other institutional investors, retail investors, governments, corporate employees, etc - is competing for the scraps. If we're talking people, the top 10% of Americans own 93% of US equities according to a 2024 study - again, everyone else is competing for scraps.

So while you are technically correct in that stocks represent ownership, your detractors are more "spiritually" (as in, the spirit of the argument) correct in that it's an irrelevant point when the vast majority of US Equities are held by a fraction of the population. The argument falls apart completely when you consider Capital Gains are treated more favorably by taxation than wages, which is intentional.

So to John Q Public? It's a casino. They have zero hope of actually investing or having a say in corporate outcomes.

Vanguard generally owns stocks in their funds on behalf of people. Those people can chose to e.g. vote their share and if the business is sold (e.g.) will get their share. This is still ownership.

I'm not sure why the capital gains argument matters here. If the business can return money to shareholders in a way that increases their capital then they'll prefer to do so (e.g. via stock buybacks) but that benefits the fractional owner the same way it benefits the large owner.

It's true that if you own 0.0001% of a business you have very little influence about how it is run in the day to day. But the value of your investment is still anchored to the value of the business in exactly the same way as the larger owners are.

More that, almost all companies are expected to perform worse when you elect an economically incompetent government.

What's the opposite of "a rising tide floats all boats"?

A rising flood drowns all swimmers?

"when the tide goes out, you see who's been swimming naked" - Supposedly Warren Buffet

Stocks have always been influenced by stuff outside of company performance. This is why you should look at other metrics to see how successful a company actually is.

Also, companies don't exist in a vacuum. Every US company is impacted by the actions of the federal government. Some companies may be able to come out ahead, but many others will struggle. And predicting which is which is incredibly difficult.

Stocks values are predictions about the future. Past performance is just one factor among many.

There is no "should".

You have hundreds of millions of people predicting the future using different models and heuristics. The future is a moving Target which also depends on what people think about it.

There is no “should”

A big factor of stock performance is the r market’s assessment of risk and its risk tolerance.

Both of those can change, and have nothing to do with company performance.

Who’s to say how much the stock price “should” be based on individual company performance, but I think the idea is that individual company performance may be affected by uncertainty in the broader economy. You could also see movement out of stocks in general and into safer investments if the stock market is seen as getting more volatile

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