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Redditors are right about the unfairness of the market

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Re: Redditors are right about the unfairness of the market

#141

Post by vxNsr »

sidlls wrote: post #91
BrianOnHN wrote: post #21

Earlier quoted context omitted.

Isn't this exactly how YC network effects work? Is that why the parent is downvoted?

It's how modern capitalism works, yes, and at least some of the downvotes are surely from freemarketeers who truly believe all the stuff described in the GP is just a perfectly fine, fair state of affairs.

Can we all agree that if we’re gonna claim that real socialism(tm) has never been tried that real capitalism has similarly never been tried. The current system is very much a hybrid socialist/capitalist approach and attempting to attribute all the ills of society to capitalism is simply dishonest.

Re: Redditors are right about the unfairness of the market

#142

Post by msdrigg »

fairity wrote: post #139
bern4444 wrote: post #115

One of the biggest misconceptions is that the stock market is a zero sum game. Its absolutely not. One person can make money without another person losing money. Is that always the case? No. But that doesn't make it a zero sum game. 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 win…

> One of the biggest misconceptions is that the stock market is a zero sum game. Its absolutely not. 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 th…

I think the breakdown in this argument is the fact that $Y is not the same for everyone.

> $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.

Re: Redditors are right about the unfairness of the market

#143

Post by refurb »

fairity wrote: post #139
bern4444 wrote: post #115

One of the biggest misconceptions is that the stock market is a zero sum game. Its absolutely not. One person can make money without another person losing money. Is that always the case? No. But that doesn't make it a zero sum game. 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 win…

> One of the biggest misconceptions is that the stock market is a zero sum game. Its absolutely not. 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 th…

Incorrect. Your definition of “winner” is someone who leaves money on the table (unknown to anyone at the time, based on a future value).

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.

Re: Redditors are right about the unfairness of the market

#144

Post by AvAn12 »

bern4444 wrote: post #115

One of the biggest misconceptions is that the stock market is a zero sum game. Its absolutely not. One person can make money without another person losing money. Is that always the case? No. But that doesn't make it a zero sum game. 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 win…

I feel this argument is a bit of a red herring. It's sort of like saying, it's ok to drive through red lights so long as I don't hit any pedestrians - - nobody gets hurt, so what's the problem?

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.

Re: Redditors are right about the unfairness of the market

#145

Post by Jeff_Brown »

auslegung wrote: post #2

This wouldn’t work, but my hot take is that anyone with potential insider information can only buy/sell index funds.

If that were the law, someone with inside information could still give valuable suggestions to their friends, or people they want to be friends with. The result would be as unfair as if they themselves were doing the trading.

Re: Redditors are right about the unfairness of the market

#146

Post by jandrewrogers »

rapsey wrote: post #120
UncleMeat wrote: post #111

Earlier quoted context omitted.

> The entire issue is a fund was allowed to short shares they did not have. Has this ever been demonstrated?

The float was shorted 120%. This is not disputed.

Shorting 120% of float does not imply naked shorting. It means some shares were re-loaned. You are only looking at the debtor side of the ledger and ignoring the creditor side.

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.

Re: Redditors are right about the unfairness of the market

#147

Post by fairity »

refurb wrote: post #143
fairity wrote: post #139

Earlier quoted context omitted.

> One of the biggest misconceptions is that the stock market is a zero sum game. Its absolutely not. 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 th…

Incorrect. Your definition of “winner” is someone who leaves money on the table (unknown to anyone at the time, based on a future value). 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.

> Your definition of “winner” is someone who leaves money on the table

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.

Re: Redditors are right about the unfairness of the market

#148

Post by Geee »

sophacles wrote: post #135
Geee wrote: post #132

Why are they blaming capitalism? It's just dishonesty and corruption, which happens under any system if it's not kept in check. It's actually more likely to happen under socialist or authoritarian regimes, when power is more centralized.

I see a lot of evidence in the article that the current system (capitalism) doesn't work as well as you pie in the sky idealists like to say. You can attribute it to dishonesty and corruption - I'm not disagreeing, but a system in which those thrive is a bad system. Any system that relies on key players to act right and doesn't have counters to collusion between those players is doomed to be gamed like this. (See for…

It's not a problem with capitalism, it's a problem in the system that should protect capitalism. Free-market capitalism doesn't work if someone is cheating, and that's why we have these systems and regulations that try to prevent cheating. There is a systemic risk where the protectors and cheaters are the same people, which (again) is not the problem of capitalism, but a problem of the system that protects it. More regulators and more central power is likely to increase the risk that the regulators become cheaters.

Re: Redditors are right about the unfairness of the market

#149

Post by ItsMonkk »

vxNsr wrote: post #137
ItsMonkk wrote: post #103

Earlier quoted context omitted.

Let's take two examples. 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…

Thank you for taking the time to explain what you meant. I appreciate it and don’t want to discount the time and effort you put into it. That being said, I vehemently disagree: > 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 fu…

> what you meant

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.

Re: Redditors are right about the unfairness of the market

#150

Post by wilkommen »

greenhatman wrote: post #140
bern4444 wrote: post #115

One of the biggest misconceptions is that the stock market is a zero sum game. Its absolutely not. One person can make money without another person losing money. Is that always the case? No. But that doesn't make it a zero sum game. 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 win…

What you're describing is still zero sum. The share price only went up because there is a bigger fool willing to pay more. New investors are funding old investors' gains. 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 ti…

Yeah this is a perfect description. I find that it's really rare to find someone who sees it this way. The stock market is basically one big ponzi scheme that we're all bought into, which has two consequences: 1. We're never going to let it fail no matter what 2. Most of us are going to be unwilling to see that it's a ponzi scheme, leading to a lot of "religious thinking" about the whole thing justifying and attempting to rationalize and legitimize the way the "system" works. I would really like to find a respected and articulate authority who is has written a book or something about this, cause it feels weird to me seeing the whole system this way with so few people I've ever met agreeing with me, and none of them well known people.
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