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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

#181

Post by bsd44 »

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."

So when you make money in the stock market, where does the money come from?

Re: Redditors are right about the unfairness of the market

#182

Post by mbg721 »

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…

Derivatives add another layer to the collective fiction. Even if they're useful for hedging, it still seems weird to me that you can use options to construct something mathematically equivalent to a share of stock without ever buying the actual stock.

Re: Redditors are right about the unfairness of the market

#183

Post by mrpf1ster »

Clubber wrote: post #89
Atlas667 wrote: post #80

Jolly, what a surprise... This article is just paying lip service to everyone who already feels this is the case (most sane people) and redditors. Just for gathering some traffic. The real truth is in understanding that this is fundamentally unstoppable within our economic mode of production. No ammount of regulation or de-regulation will prevent a system based on individual profit accumulation from becoming corrupt.…

Throw people in jail for insider trading. Prosecute it as hard as we prosecute people stealing $2 bags of chips from the grocery store or passing counterfeit $20s. Also, why are government employees accused of malfeasance allowed to quit and not get prosecuted? Why is that even a thing?

Where is the un-corruptible agency that is going to enforce these laws? Someone stealing a bag of chips has no recourse to get out of prosecution. A wealthy insider trader has the resources and influence to reduce or even eliminate any consequences.

Re: Redditors are right about the unfairness of the market

#184

Post by DSMan195276 »

gimmeThaBeet wrote: post #133
DSMan195276 wrote: post #62

Earlier quoted context omitted.

I think part the above person's complaint may stem from what happened a few years ago, which is that a decent number of businesses had their taxes reduced and simply used the extra money to do stock buybacks instead of improve or expand the company, increase pay, etc. Now that said, stock buybacks on their own are not necessarily a "bad" thing, and if a company has no uses for a bunch of cash on hand then giving it t…

One of the things that I think about with buybacks is sort of the 'second-degree' implications. The company is buying its equity, what are the parties selling doing with the money? And so you delve into a subjective area. Part of me feels that there is a literal 'passing of the buck' where the company sort of dilutes and distributes sort of, societal investment responsibility, which is where even my own philosophy so…

> But does society suffer when businesses are so wed to capital efficiency? Does society benefit from corporate investment, period? Are earnest investments beneficial to society even if they don't work out?

I'm not sure if this is exactly what you're getting at, but I think there's an argument to be made that companies are a bit too comfortable with simply giving cash back to shareholders rather than using it to improve their position, I think effectively the interests of the company and the interests of the shareholders aren't aligned in this situation. When you give it to shareholders in the form of buybacks, there's no guarantee you'll ever be getting it back, and like we saw in 2020 the times you most want to have a lot of cash are the same times investors aren't really interested in buying your stock.

> Basically, how does the money distributed from buybacks impact society, and could that be improved?

This one is somewhat easier to answer, because the majority of stocks are owned by the wealthy (a quick google suggests the top 1% own 40% of stocks, and bottom 80% only own ~7% of stocks). How they then use that money is a different matter, which would depend on a lot of other stuff and the economy at the time.

Re: Redditors are right about the unfairness of the market

#185

Post by joelwilliamson »

wilkommen wrote: post #152
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…

> 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…

In 2019, 84% of the S&P 500, 69% of the S&P MidCap 400 and 53% of the S&P SmallCap 600 paid dividends. I would not characterize dividends as "relatively rare", and I'm curious why you think they are.

https://www.streetinsider.com/Dividends/S%26P+500+Companies+...

Re: Redditors are right about the unfairness of the market

#186

Post by jfengel »

bsd44 wrote: post #181
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." So when you make money in the stock market, where does the money come from?

From the company's profits.

When you buy a company, you own a piece of it. The price of a stock theoretically reflects how much profit you expect the company to earn.

In a simple scenario, the company keeps all of its profits in a bank somewhere. The company's value then goes up because you own a share of that money. You'd expect the price to go up to reflect that increased value. You would sell it at a higher price, and it would be a positive-sum game.

In reality it's more complicated. Most companies would re-invest that money so that they'll make even more money in the future. The stock price will reflect how well you expect the company to grow and earn more. It's still a positive-sum game, just with more uncertainty.

It's even more complicated than that, for a lot of reasons. But at the core, it's a positive-sum game, not a zero-sum game.

(At least until the point where people are throwing so much money at the stock market that the prices have nothing to do with a reasonable assessment of uncertainty. And there's a decent chance that this is true today. But long term, such irrational exuberance tends to crash, and over enough time the two mostly cancel out.)

Re: Redditors are right about the unfairness of the market

#187

Post by tablespoon »

defaultprimate wrote: post #177
tablespoon wrote: post #175

Earlier quoted context omitted.

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?

> What assets and performance metrics do you have backing this account worth $100000? From what are you deriving its value?

I'm a multi-millionaire and successful businessman, but what does that matter? You can't take the money out regardless if it's backed by anything or not.

> What rights and privileges are granted over your bank by owning a portion of this account?

You get to vote in a meaningless election.

Re: Redditors are right about the unfairness of the market

#188

Post by tablespoon »

bern4444 wrote: post #178
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…

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 delive…

> 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.

The exact same thing is true of a Ponzi scheme.

Re: Redditors are right about the unfairness of the market

#189

Post by JohnPrine »

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?

The difference is that these companies actually have real assets, and holding stock legally grants you fractional ownership over them. Your hypothetical is more like an Enron situation where shareholders are told that there are assets behind their stock that really don't exist. That's why the stock price plunged when the fraud was revealed, and why my net worth doesn't budge when you grant me the account.

As a thought experiment, do you think that your ownership of a company is also meaningless if there are only 2 shareholders? What about 3 shareholders? At what point does breaking a company up into fractional shares become a ponzi scheme?

Re: Redditors are right about the unfairness of the market

#190

Post by JohnPrine »

tablespoon wrote: post #187
defaultprimate wrote: post #177

Earlier quoted context omitted.

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?

> What assets and performance metrics do you have backing this account worth $100000? From what are you deriving its value? I'm a multi-millionaire and successful businessman, but what does that matter? You can't take the money out regardless if it's backed by anything or not. > What rights and privileges are granted over your bank by owning a portion of this account? You get to vote in a meaningless election.

If you granted me ownership of the account and then denied me access, I could take you to court. Stock ownership is a legal agreement. If the leadership of the corporation doesn't act in the shareholders' best interest, they'll be replaced with someone who does.

Stock markets have worked for 400 years. Don't you think that makes it less likely that they're ponzi schemes?

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