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

Re: Redditors are right about the unfairness of the market

#201

Post by wilkommen » Sat, Oct 02, 2021, 12:30 AM UTC

joelwilliamson wrote: post #185

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…

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+...

My point isn't really how many stocks offer dividends, but more that the price of the stock isn't really connected to the size dividend at all. Companies can and do change the amount of the dividend without your approval, and many stocks don't offer dividends at all, and no one sees a stock not offering a dividend as a demerit on its desirability or value. Except for people who buy the companies on Dividend Kings list, no one is evaluating the value of stocks purely on the expected future dividend returns. For the most part, the dividend is sort of a "bonus" and the real return you hope to get from the stock is in the form of appreciation.

Re: Redditors are right about the unfairness of the market

#202

Post by setr » Sat, Oct 02, 2021, 1:11 AM UTC

JohnPrine wrote: post #167

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).

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 wo…

The part I don't understand is how do I translate "ownership in apple" to USD. Obviously I can trade it to someone else, but that's just moving the problem -- eventually someone has to be in the position to actually extract real value out of the stock, in a fashion that correlates to company success.

AFAIK dividends aren't an inherit property to a stock (it's a "class" of stock) so that's not fully satisfactory, and it's not guaranteed either (a board "chooses" to give out dividend, for reasons/amounts unclear to me).

It's also very unclear how I would take my part ownership of $300B, and translate it to $20 in my pocket, except by passing the buck to some other investor.

The only scenario I can think of is the risk of sufficient ownership to take over the company, at which point you could pay yourself wage or force buybacks, but then stocks are entirely worthless until someone holds less than 51% -- and even then, zuckerberg famously screws that equation too. So under this description, there's still no way to actually translate my FB stock into USD, without FB doing a buyback (which would be pointless, because there's no risk of control-loss anyways), until zuckerberg dies.

Re: Redditors are right about the unfairness of the market

#203

Post by refurb » Sat, Oct 02, 2021, 1:22 AM UTC

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…

But future NPV isn’t known. Yes, everyone would value future earnings of say $1B the same, but they don’t all agree the future earnings are $1B, thus they value it differently.

Re: Redditors are right about the unfairness of the market

#204

Post by xg15 » Sat, Oct 02, 2021, 2:08 AM UTC

idrios wrote: post #191

tablespoon wrote: post #188

Earlier quoted context omitted.

> 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…

How exactly do you define "creating value"?

> resulting in more corn and more lumber and therefore value was created.

> Maybe they sell to others who disagree and believe that there is still value to be created in the future.

The first paragraph implies "value" is an objective quantity while the second one implies "value" is subjective to a particular investor. Both can't be true at the same time.

We can all have different believes about future creation of value, but if value is objective then some of those believes will simply turn out to be wrong. The problem is that we need someone to have incorrect believes so we can sell to them - at which point, it's again just a ponzi scheme.

Re: Redditors are right about the unfairness of the market

#205

Post by xg15 » Sat, Oct 02, 2021, 2:12 AM UTC

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. One person can make money without another person losing money.

Last time I checked, stock exchanges did not have licenses to print money.

> If that stock continues to do well, everyone wins. I make money, the person I bought the shares from makes money.

No, the person you bought the stock from made money before the stock went up. You might make money if you decide to sell before the stock goes down again.

Re: Redditors are right about the unfairness of the market

#206

Post by xg15 » Sat, Oct 02, 2021, 2:41 AM UTC

afiori wrote: post #179

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…

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.

> when the entire market goes up everybody makes "money"

But they don't. They make "potential" money as in "if I sold now, I'd have $x more than before I bought the stock". But if all stock holders actually sold, the price would quickly plummet.

So it's not possible to actually realize the full valuation as cash without literally printing money somewhere.

I think it's important not to conflate actual and potential value. Otherwise you could also argue that lottery tickets are a great investment because you can instantly turn a few dollars into a million.

Re: Redditors are right about the unfairness of the market

#207

Post by [deleted] » Sat, Oct 02, 2021, 2:51 AM UTC

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

[deleted]

Re: Redditors are right about the unfairness of the market

#208

Post by xg15 » Sat, Oct 02, 2021, 2:53 AM 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…

Genuine questions, what does legal fractional ownership entitle you to do?

Re: Redditors are right about the unfairness of the market

#209

Post by xg15 » Sat, Oct 02, 2021, 2:59 AM 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…

> At what point does breaking a company up into fractional shares become a ponzi scheme?

Depends on what being a shareholder entitles me to do. If I can't vote and don't have a realistic expectation of getting dividends and have no other rights, then yess, that "ownership" seems pretty meaningless to me even if there are only two shareholders.

If you have voting rights, you can give an actual answer to the question: At the point were the fractions are small enough that the vote doesn't have any practical influence anymore.

Re: Redditors are right about the unfairness of the market

#210

Post by cudgy » Sat, Oct 02, 2021, 3:17 AM UTC

costcofries wrote: post #157

cudgy wrote: post #151

Earlier quoted context omitted.

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.

You missed the point entirely. It’s your money.