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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

#161

Post by JohnPrine »

tablespoon wrote: post #159
defaultprimate wrote: post #156

Earlier quoted context omitted.

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…

They are accessible to a regular shareholder through the ability to sell the shares

Re: Redditors are right about the unfairness of the market

#162

Post by bradlys »

JohnPrine wrote: post #161
tablespoon wrote: post #159

Earlier quoted context omitted.

> 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…

They are accessible to a regular shareholder through the ability to sell the shares

But to who? Another person who has to perpetuate the scheme?

Re: Redditors are right about the unfairness of the market

#163

Post by JohnPrine »

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…

I don't quite understand. Suppose a company has a bank account with $1000. I own shares equating to 25% of the company, worth $250. The company has a good quarter and the bank account grows to $2000, but it doesn't pay a dividend.

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.

Re: Redditors are right about the unfairness of the market

#164

Post by JohnPrine »

bradlys wrote: post #162
JohnPrine wrote: post #161

Earlier quoted context omitted.

They are accessible to a regular shareholder through the ability to sell the shares

But to who? Another person who has to perpetuate the scheme?

Can you read my comment here https://news.ycombinator.com/item?id=28721310 and let me know if it makes sense to you?

Re: Redditors are right about the unfairness of the market

#165

Post by [deleted] »

kemiller2002 wrote: post #33
zz865 wrote: post #13

I understand that people shouldn't benefit from insider information for their personal trading - but there are rules around this. Blanket banning stock trading has a lot of downsides. Its an important part of everyone's financial wellbeing - esp if you are wealthy or powerful. I left my job in financial industry primarily because of this.

Public service used to be thought of as a sacrifice for the good of all people. For many people it is. Teachers, social workers, public defenders, armed service people. All of these people make a pittance compared to what they could in the private sector. Saying a congressperson or a judge should be allowed to trade stocks simply because it affects their well being is an argument that appears rather frail. I would be…

[deleted]

Re: Redditors are right about the unfairness of the market

#166

Post by tablespoon »

JohnPrine wrote: post #161
tablespoon wrote: post #159

Earlier quoted context omitted.

> 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…

They are accessible to a regular shareholder through the ability to sell the shares

> They are accessible to a regular shareholder through the ability to sell the shares

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.

Re: Redditors are right about the unfairness of the market

#167

Post by JohnPrine »

setr wrote: post #160
wilkommen wrote: post #152

Earlier quoted context omitted.

> 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).

Stocks represent ownership in a company. Apple has $200 billion in cash currently. Owning a share of Apple quite literally means that you own a share of that $200 billion.

It's useful to think about this in terms of a company's tangible assets because it provides a lower bound on the price of a share (assuming the company has no debt). If the Apple share price ever dropped so low that the sum of all the shares was worth less than $200 billion, a savvy investor could just snap up all the shares and effectively purchase 200 billion dollars at a discount.

Any premium on the price of a share beyond the company's assets comes from either the dividends that you expect to be paid out as a result of owning that stock, or from an expectation that the company's assets will grow in the future (so that share will entitle you to part ownership of $300 billion instead of $200 billion, for example).

Re: Redditors are right about the unfairness of the market

#168

Post by JohnPrine »

tablespoon wrote: post #166
JohnPrine wrote: post #161

Earlier quoted context omitted.

They are accessible to a regular shareholder through the ability to sell the shares

> They are accessible to a regular shareholder through the ability to sell the shares 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.

Can you read my comment here https://news.ycombinator.com/item?id=28721310 and let me know if it clears up my explanation?

Re: Redditors are right about the unfairness of the market

#169

Post by JohnPrine »

wilkommen wrote: post #150
greenhatman wrote: post #140

Earlier quoted context omitted.

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 attempti…

When you're confused that very few knowledgable people agree with your model, it's usually an indicator that your model could be wrong.

Re: Redditors are right about the unfairness of the market

#170

Post by JohnPrine »

fairity wrote: post #147
refurb wrote: post #143

Earlier quoted context omitted.

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…

This disregards the time value of money. If I'm 80 years old, $100,000 today will have more value to me right now than $1 million paid out over 30 years.
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