Redditors are right about the unfairness of the market • Hacker News Board

Re: Redditors are right about the unfairness of the market

#191

Post by idrios » Fri, Oct 01, 2021, 8:26 PM UTC

tablespoon wrote: post #188

bern4444 wrote: post #178

Earlier quoted context omitted.

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.

Yes, but the difference is that a Ponzi scheme never created value in the first place and was always zero sum.

If Joe's Farm sells corn and Jane's Lumberyard sells wood, you could invest in either, which they would use to expand, resulting in more corn and more lumber and therefore value was created. Meanwhile, if you invest in Jim's Useless Objects you'll end up with only more useless objects that have no real value to anyone. Jim's running a Ponzi Scheme.

Re: Redditors are right about the unfairness of the market

#192

Post by throw0101a » Fri, Oct 01, 2021, 8:55 PM UTC

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

… at the moment.

Microsoft didn't pay didn't dividends… until they did. Apple paid dividends, stopped, then started again. If you knew about where they'd go, would you object to buying them before they started paying out?

Amazon hasn't ever paid dividends, but would you object to owning AMZN? Especially if you purchased it in (say) 2011.

Total Returns = Capital Appreciation (CA) + Dividends (D)

For most people saving for retirement is the primary thing that they're putting away money for. For that you want the biggest pile of money you can get for when you hit 65 (or whenever). Whether you can get pile with just CA (like with AMZN), or with CA+D, is irrelevant at the end of the day.

It's not that dividends are not important—they can be a (big) component of TR—but fetishizing them like there's no other way to build your retirement pile is short sighted.

AMZN may eventually pay out dividends, but until then you can own a piece of a company growing by creating value, and be part of the ride of rising value (represented, loosely, by a rising stock price).

Re: Redditors are right about the unfairness of the market

#193

Post by bern4444 » Fri, Oct 01, 2021, 8:55 PM UTC

tablespoon wrote: post #188

bern4444 wrote: post #178

Earlier quoted context omitted.

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.

Just like idrios said, the difference is the creation of value. Companies especially public ones, must produce value. If they don't, no one will invest and if they continue not producing value long enough, they go broke and declare bankruptcy.

In a ponzi scheme, money is just moved from new investors to old investors without any value creation. It's impossible to sustain which is why the only interesting question is how long can a ponzi scheme keep going. That's one aspect why Madoff's ponzi scheme was so incredible. It went on for nearly 2 decades (~17 years)!

It's why pyramid schemes are ponzi schemes, they rely on continuously recruiting new people who invest and funnel money up. Once you're in one your goal is to recruit as many people as possible so you're not at the bottom and begin getting money flowing up to you.

Companies (public and private) go bust all the time and do a lot more than move money around. In fact, a company only gets money from its shares through a traditional IPO.

The public markets are second hand markets. If I buy a share of Apple stock, Apple doesn't get another ~$142 (approx its current share price). The person from whom I'm buying the shares gets it.

The only way the company can directly get cash from its stock is by issuing and then selling new stock. Stock fundamentally is a currency the company can control just as the Fed and Treasury control the Dollar. It's an asset which also means companies can take out loans against stock they have as collateral (or they could just sell any extra shares they have to the market).

All of this is also what makes bankruptcy very interesting. A lot of people are owed money, various types of investors, employees etc. Who gets paid, and how much is always the question. Some people by legal right have higher priority than others. Judges play a role in adjudicating this too.

TLDR: Companies are obviously not ponzi schemes. The stock market is just a way for people to benefit from companies' success.

Re: Redditors are right about the unfairness of the market

#194

Post by SkipperCat » Fri, Oct 01, 2021, 8:55 PM UTC

cudgy wrote: post #151

costcofries wrote: post #98

Earlier quoted context omitted.

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?

Fair point, but you can purchase the Vanguard Total Stock Market Index Fund which has pretty much the entire stock market. That way, you're only betting on the direction of the total market. And as history shows, it will most probably creep up at 6 to 8% over the long haul.

Re: Redditors are right about the unfairness of the market

#195

Post by bern4444 » Fri, Oct 01, 2021, 9:13 PM UTC

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?

The same place that money goes when you lose money in the market :) [0]

More seriously I think the key lots of people miss is that when you buy shares of a company, you don't have dollars anymore. You have shares. Shares are a currency controlled by the company that can issue them (just as the govt can issue dollars). Shares are assets just like a dollar. Also like a dollar, those assets can appreciate or depreciate in value over time.

As the company does well, more people will want to invest. People want to invest in a successful company since it means the company will have more profits to give out and more money to continue growing and succeeding to eventually distribute. Most of the time companies go down this second path.

As more people invest, fewer shares are available. Demand has gone up, and supply has gone down. Each share is now worth more. But you still have the same number of shares.

The reverse is equally true. If a public company does poorly, people will begin to sell. As people sell, demand goes down, supply goes up. Each share is worth less than what it was. But you still have the same number of shares. Their purchasing power has just decreased just as the dollar's purchasing power decreases with inflation.

[0]https://www.youtube.com/watch?v=NmFo-LKHGY0 - poof its gone.

Re: Redditors are right about the unfairness of the market

#196

Post by qeternity » Fri, Oct 01, 2021, 9:33 PM UTC

Jensson wrote: post #35

qeternity wrote: post #19

Earlier quoted context omitted.

Piling into high gamma strikes at the same time to force a dealer squeeze is a bit more than expressing a view that an asset is undervalued. I'm not defending either side here, but Reddit has picked a fight that is absolutely tantamount to market manipulation.

But how can you tell the difference between people following dumb advice on the internet and people intentionally manipulating the market? It isn't illegal to be an idiot. It is pretty obvious that lots of people try to post on reddit to make their assets more valuable, but I am pretty sure that many of them are conventional investors. There is no reason for any of the old big players to not post these things on redd…

Market manipulation and insider trading are two of the most difficult crimes to prove. I'm not saying it's easy to prove, but I do think it's easy to spot, particularly when you have large /r/wsb threads devoted to trying to bankrupt Citadel Securities.

Re: Redditors are right about the unfairness of the market

#197

Post by andrekandre » Fri, Oct 01, 2021, 9:34 PM UTC

Geee wrote: post #148

sophacles wrote: post #135

Earlier quoted context omitted.

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 r…

  > More regulators and more central power is likely to increase the risk that the regulators become cheaters.

so whats the solution?

Re: Redditors are right about the unfairness of the market

#198

Post by tablespoon » Fri, Oct 01, 2021, 9:43 PM UTC

JohnPrine wrote: post #190

tablespoon wrote: post #187

Earlier quoted context omitted.

> 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?

> 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.

Legal agreements can take many forms, and the legal agreement for the account says no withdrawals ever. When you have ownership of a share of stock, you're also denied access to the underlying assets. If you buy one share of Microsoft, can you take them to court to demand access to that share's worth of assets?

Re: Redditors are right about the unfairness of the market

#199

Post by tablespoon » Fri, Oct 01, 2021, 9:51 PM UTC

JohnPrine wrote: post #189

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?

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 though…

> The difference is that these companies actually have real assets, and holding stock legally grants you fractional ownership over them.

So? How valuable is "legal ownership" over an asset if that doesn't actually entitle you to anything besides a certificate of ownership?

In practical terms, non-dividend-paying stock actually looks a lot like an NFT, unless you've amassed enough voting control to actually matter.

Re: Redditors are right about the unfairness of the market

#200

Post by strken » Fri, Oct 01, 2021, 10:16 PM UTC

j-pb wrote: post #85

strken wrote: post #71

Earlier quoted context omitted.

It's the inverse of a casino, because economies grow instead of shrink. If you bought shares at random, you'd make money on average, like a casino where the house loses more often than it wins. Rich people and politicians are absolutely skimming off the top in various legal and illegal ways, but they skim off less than economic growth adds.

At some point the pyramid has to reach a bottom. There is no infinite grown in this universe. Especially not exponential growth. Even if you assume that we'll reach space at some point and infinitely expand into the universe. Resources available to that civilisation will grow at most cubically (based on the fact that our universe has 3 dimensions). That growth is not caused by magic, the reason why you'd still get a…

Whether it's possible to grow forever isn't relevant to whether we can grow for another 10, 100, or 1000 years. At some point the sun is going to burn out, and even further than that the universe is going to reach heat death, but they belong to an entirely different class of problem than where to invest your money to prepare for retirement.

The growth of economies doesn't rest solely on forcing enslaved Bangladeshi youth to make t-shirts, or causing environmental disasters. It's also powered by the Haber process, cheap power from renewables, efficient labour markets that don't rely on wildly inefficient slavery to assign workers to jobs, assembly lines, spreadsheets, and the other boring but efficient advancements we've made.

If I'm reading it right, this is a claim that we're hitting fundamental limits of how large an economy can be, so all future growth will come at the cost of the "bottom of the pyramid". You're claiming that there is no possible future growth, that technology has hit a hard limit, and that any growing company will intrinsically be exploitative because there's no possible way for it to grow otherwise. This is a very extraordinary claim.