If everyone buys the same index funds, then all the money chases the same stocks within those index funds. The system feeds on itself resulting in overpricing of the index stocks which may not work out well during a sell-off. Index funds have risks too.
If more people invest in an asset, the price of the asset increases because its value also increases. This isn't overpricing, or the 'system' feeding itself, this is the value of assets increasing..
You are ignoring all the other stocks in the market that are not part of an index, which should represent better investment value in the scenario. Do you really want to only invest in the peak priced assets in a market?
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…
> Fundamentally, owning shares in a company just grants you rights to a fraction of all future company earnings.
No it doesn't! Owning shares in a company doesn't give you rights to a fraction of all the future earnings of the company. What kinds of shares have you been buying? All owning shares in a company gives you is the ability to sell those shares to someone else. There's some kind of nominal "voting rights" and in relatively rare cases there might be some amount of dividends you can get from owning the shares, but the value of the shares is very rarely derived from the voting rights conferred on the owner or the expected dividends to be received.
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.
> 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…
Yea, I guess the fact that parties value risk differently, gives a little bit of room for positive sum transactions. But, given limited supply (of company shares) and large transaction volume in equity markets, this effect should be muted. That is, shortly after an IPO, I could see there being truly positive sum transactions as more risk-seeking investors enter the market. But, eventually, risk-aversion between buyer and seller should reach equilibrium and all future transactions will be largely zero-sum.
I hate to be a cynic, but the rules have never really applied to the guys at the top of the market. In business school you’re flat out told that “the role of government is to pick the winners”. And the associated cases were generally about compromising regulatory authorities — with the goal of showing why the side with more money almost always wins. Everyone below you on the food chain sees you as a payday and is wil…
Which business school did you go to?
I like my anonymity; but it was a brand name. Had more than one classmate whose parents were billionaires and many others who were children of sub-billionaire fortune 100 executives; it was the kind of place they sent their kids to learn the unspoken rules of the game.
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…
No it isn't, the company's underlying assets and performance can increase the value of the stock by itself.
If more people invest in an asset, the price of the asset increases because its value also increases. This isn't overpricing, or the 'system' feeding itself, this is the value of assets increasing..
You are ignoring all the other stocks in the market that are not part of an index, which should represent better investment value in the scenario. Do you really want to only invest in the peak priced assets in a market?
Your perceived peak is exactly that, a perceived peak. You go and try to time the market, I will continue to DCA, I know what has historically proven a more effective strategy.
I've been down-voted for years for saying this, but I am right. The stock market is a scam. Just like casinos in Las Vegas. The house wins more often than we do. 'You need to diversify' simply means 'Give us more of your money'. 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…
It's a scam, but only in the sense that it's become completely controlled by central banks. Since 2008, any 10% drawdown, regardless of how stretched actual valuations are, is met by panic at the Eccles Building, followed by anything from dovish jawboning to unprecedented asset purchases. This results in valuation expansion regardless of underlying GAAP profits, particularly for stonks in the "growth" category. Equit…
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…
No it isn't, the company's underlying assets and performance can increase the value of the stock by itself.
> No it isn't, the company's underlying assets and performance can increase the value of the stock by itself.
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.
> 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…
> Fundamentally, owning shares in a company just grants you rights to a fraction of all future company earnings. No it doesn't! Owning shares in a company doesn't give you rights to a fraction of all the future earnings of the company. What kinds of shares have you been buying? All owning shares in a company gives you is the ability to sell those shares to someone else. There's some kind of nominal "voting rights" an…
This I've never understood -- if a stock is detached from company earnings, then what drives the value of a stock, beyond the meaningless "someone else is willing to pay for it" -- why are they willing? It's not at all clear to me why my apple stock should have greater value, if apple does better as a company (or is predicted to do better).