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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

#171

Post by vxNsr »

ItsMonkk wrote: post #149
vxNsr wrote: post #137

Earlier quoted context omitted.

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 ar…

> I wasn't the original poster.

Yea I saw that after I replied but left it bec you seem to agree with them but didn’t actually explain what they meant.

> It's not very constructive to post that someone is wrong, and not explain why they are wrong. How wrong are they

You’re right. I should have been clearer. You told an substantiated lie, that’s why you are wrong. Not asking for first principles, just honesty.

> Switching from one government granted monopoly to a duopoly is not progress. We need competition to force buyer's markets.

Agreed. But the previous model was neither accurate nor a free market so using it as an example of a free market doesn’t work, and is dishonest.

But really we’re getting way off track. I’d like to know how starting a new job where you’re getting paid more and ostensibly are productive is adding negative value.

Re: Redditors are right about the unfairness of the market

#172

Post by wilkommen »

JohnPrine wrote: post #169
wilkommen wrote: post #150

Earlier quoted context omitted.

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.

Sometimes, yeah!

Re: Redditors are right about the unfairness of the market

#173

Post by wilkommen »

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).

Right, you've got it. There is no reason why your apple stock should have a greater value if apple does better as a company, other than the fact that as a collective we've all chosen to believe that your share "represents" a "slice" of the company, and we've also all chosen to believe that other people will value your "slice" more when the company does "better". There is no material meaning behind saying that your apple stock is a "slice of the company." In no material way is that true in a practical sense. You are not entitled to a percentage of profits, and you do not have any say in the way the company operates. As for my other point, we've all chosen to believe that other people will buy our stock for more when the company "does better". But "doing better" doesn't necessarily mean "is more profitable." Just look at WeWork for a counterexample. We're all just trading meaningless tickets with ticker symbols on them believing that they're valuable because someone else will buy them for more later. And because we all believe this, it's actually true. It's like a collective fever dream that never ends. Stocks are no different from Air Jordans or Dutch tulips - the value of individual stocks changes according to the stories we tell about them, which can be influenced by the company becoming more profitable, making an acquisition, laying people off, getting a new CEO, or any number of things. The value has so much more to do with the stories we tell about the stocks than anything else - because the stories determine what someone else is willing to pay for them. It's not about math, it's about psychology and group psychology.

I don't say this as like a really angry person shouting as a sky hoping it'll all stop. It just goes to show how as a group, we can make our expectations real by all expecting the same thing.

Re: Redditors are right about the unfairness of the market

#174

Post by tablespoon »

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).

> 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).

It seems like it's a similar collective fiction to the one that gives money its value, but a fiction that provides far less social utility than money.

Random thought: owning stocks gives you two things: voting rights and dividends. Take the dividends away, and you're left with voting rights. Those are typically pretty much worthless unless you own a billionaire's amount of shares (and sometimes not even then, if some other billionaire has super-voting shares). The collective fiction that small shareholdings have value without dividends mainly serves to create buy-in for a system that creates greater fools for those people.

Re: Redditors are right about the unfairness of the market

#175

Post by tablespoon »

JohnPrine wrote: post #163
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…

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 fro…

What's the of value owning a bank account you can't take a withdrawal from?

Just now, with this comment, I've started a "bank" and I'm granting you. JohnPrine, an account with a balance of $1,000,000. However, the terms are you can never, ever withdraw or transfer that money under any circumstance. How much does this new account add to your net worth?

Re: Redditors are right about the unfairness of the market

#176

Post by wilkommen »

tablespoon wrote: post #174
setr wrote: post #160

Earlier quoted context omitted.

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).

> 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). It seems like it's a similar collective fiction to the one that gives money…

Yes you've nailed it! Said it even better than me. Stocks are a collective fiction just like money. Except stupider, and only beneficial to a relatively small number of people.

And to your second point, it's true - even billionaires don't profit directly from owning stock in public companies. They profit from that stock by selling it to other billionaires or institutions. Billionaires make money from owning stocks in public companies in more or less the same way as retail traders. Billionaires who own private companies though, that's a whole other thing. If you own a private company in part or in whole, it is possible to just take the company's profits and pay them directly to yourself. But owning and selling stocks is so profitable that I think for the most part billionaires don't bother with private companies - that's why they always want companies they've invested in to IPO. That's when they cash out. Anyway thanks for posting!

Re: Redditors are right about the unfairness of the market

#177

Post by defaultprimate »

tablespoon wrote: post #175
JohnPrine wrote: post #163

Earlier quoted context omitted.

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 fro…

What's the of value owning a bank account you can't take a withdrawal from? Just now, with this comment, I've started a "bank" and I'm granting you. JohnPrine, an account with a balance of $1,000,000. However, the terms are you can never, ever withdraw or transfer that money under any circumstance. How much does this new account add to your net worth?

What assets and performance metrics do you have backing this account worth $100000? From what are you deriving its value? What rights and privileges are granted over your bank by owning a portion of this account?

Re: Redditors are right about the unfairness of the market

#178

Post by bern4444 »

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…

A company’s share price can go up for several reasons. The most obvious of which is that a company creates value. Some of that created value (by selling products and services the company creates) is captured by the share price going up.

As share prices go up, more people may take notice and realize that company is and has the potential to continually create more and more value and want in.

Once a company stops delivering on that premise, people again take notice and begin to sell. Maybe they sell to others who disagree and believe that there is still value to be created in the future.

Sometimes it’s even very difficult to buy or sell shares for companies because it’s hard to find someone willing to buy shares your selling or someone willing to sell shares you want to buy. There is risk.

Different people value companies in different ways and have different ideas on how to measure it.

It’s not in any way a ponzi scheme.

Re: Redditors are right about the unfairness of the market

#179

Post by afiori »

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…

when the entire market goes up everybody makes "money", that is the definition of not-zero-sum. The fact that many people are competing for a limited quantity of gains is not enough to be a zero sum, the ammount of possible gains need to remain constant.

Re: Redditors are right about the unfairness of the market

#180

Post by bitshiftfaced »

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…

It's a zero sum game with extra steps. The "sum" varies over time. If both players come out ahead, then one always pays an opportunity cost equal to the amount they would've gained had they stayed in the market longer.

In other words, it's win/lose, not win/win once you extend the timeline and compare what it would look like had the trade not had happened.

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