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Can the stock market go to zero?

afrugaldoctor.com

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Re: Can the stock market go to zero?

#11

Post by contingencies »

stevenjgarner wrote: post #4
justrealist wrote: post #3

No, it can't. I am the backstop. If the stock market goes to $1 I will personally buy all public companies in the US using the change I found underneath my couch. I am willing to make this personal sacrifice to maintain the financial stability of the free world. It's not a burden I take lightly, but it's one I take of my own volition.

I offer to buy your position for $2.00 giving you a 100% upside profit and doubling the value of the US stock market. Capitalism is awesome!

I offer to charge for advice, regardless of its utility. Alternatively, I offer to corrupt the regulatory oversight such that the entire thing becomes a pay-to-play arrangement whereby I am guaranteed a return but no liability for my selfless work.

Re: Can the stock market go to zero?

#13

Post by chii »

TekMol wrote: post #10

So the stock markets of two of the biggest countries in the world (Russia and China) went to zero quite recently (1917 and 1949). And the author summarizes that stock markets can't go to zero? How does that make sense? Even his closing statement contradicts itself: So in conclusion, rest assured that as long as you are properly diversified, your stock investments won’t go to zero. If you should diversify, then that s…

> who held US stocks which they bought via the Chinese/Russian stock market

it would depend on what it means to hold stock "via the stockmarket".

If those chinese/russian citizens had a legal entity in the US, and purchased via a US broker, then they ought to be able to claim legal ownership of those stocks they purchased.

If, on the other hand, the stock was purchased on custody by a chinese/russian entity, then the govt would've been able to seize that ownership.

Re: Can the stock market go to zero?

#14

Post by fallingfrog »

Everything goes to zero eventually. But it’s more likely though that the stock market will be replaced by something else, rather than all companies simultaneously going bankrupt. (Which doesn’t have to be communism as practiced in the 20th century)

Time goes on forever, and present day capitalism is not the most effective economic system possible nor is it indefinitely sustainable, so in that sense it’s eventually guaranteed to go to zero.

Re: Can the stock market go to zero?

#15

Post by TekMol »

chii wrote: post #13
TekMol wrote: post #10

So the stock markets of two of the biggest countries in the world (Russia and China) went to zero quite recently (1917 and 1949). And the author summarizes that stock markets can't go to zero? How does that make sense? Even his closing statement contradicts itself: So in conclusion, rest assured that as long as you are properly diversified, your stock investments won’t go to zero. If you should diversify, then that s…

> who held US stocks which they bought via the Chinese/Russian stock market it would depend on what it means to hold stock "via the stockmarket". If those chinese/russian citizens had a legal entity in the US, and purchased via a US broker, then they ought to be able to claim legal ownership of those stocks they purchased. If, on the other hand, the stock was purchased on custody by a chinese/russian entity, then the…

I meant the latter. Stocks purchased on custody by a chines/russian entity.

Because that is how the world works today. People from all around the world buy shares of companies all around the world. But the companies don't know those people. If Europe decides to seize all stocks of their citizens, it could do so by just seizing the brokers.

Re: Can the stock market go to zero?

#16

Post by daniel-cussen »

TekMol wrote: post #10

So the stock markets of two of the biggest countries in the world (Russia and China) went to zero quite recently (1917 and 1949). And the author summarizes that stock markets can't go to zero? How does that make sense? Even his closing statement contradicts itself: So in conclusion, rest assured that as long as you are properly diversified, your stock investments won’t go to zero. If you should diversify, then that s…

[dead]

Re: Can the stock market go to zero?

#17

Post by bruce511 »

justrealist wrote: post #3

No, it can't. I am the backstop. If the stock market goes to $1 I will personally buy all public companies in the US using the change I found underneath my couch. I am willing to make this personal sacrifice to maintain the financial stability of the free world. It's not a burden I take lightly, but it's one I take of my own volition.

Ironically, that's not how it would play out.

When a company goes bust it isn't worth 0. Its actually worth way less year 0. (In other words it owes creditors money.)

Yes, it'll own some assets, customer lists, trade marks, copyrights, maybe even property, vehicles, desks, a coffee machine, whatever [1].

The liquidator will come in, assess quickly how much everything is worth, then plan how to spend as much time as possible disposing those things so their bill more-or-less matches the money raised. (Cynicism maybe... but as a stiffed creditor it sure seems that way.)

So you can't "buy" the company for $1. The company has lots of (hopefully) valuable assets. But it also has lots of creditors.

[1] one of my distributors declared bankruptcy, leaving us an unpaid (thankfully software) bill. The liquidator sold all the assets and surprisingly the most gained was on their customer list. That alone would have made all the creditors whole. Instead the liquidator bill swallowed 95% of all the monies raised.

There's a lesson in there somewhere for creditors and owners to work together to extract maximum value -before- formal bankruptcy starts. Probably easiest to do if the big creditor is not a bank.

Re: Can the stock market go to zero?

#19

Post by bmitc »

TekMol wrote: post #10

So the stock markets of two of the biggest countries in the world (Russia and China) went to zero quite recently (1917 and 1949). And the author summarizes that stock markets can't go to zero? How does that make sense? Even his closing statement contradicts itself: So in conclusion, rest assured that as long as you are properly diversified, your stock investments won’t go to zero. If you should diversify, then that s…

To be specific though, neither of the countries of modern China or Russia existed at those times. In particular, those two dates were revolutionary dates on which entire governments were replaced. There was more going on than just the stock markets.

And as far as I can tell, at least with the Shanghai Stock Exchange, it didn't go to zero in 1950. It was simply closed and liquidated, and that implies that people got back whatever the market value was. That isn't going to zero. I don't know if the money was confiscated by the government or not.

So if one's diversification strategy needs to somehow take into account literal revolution, then I'm not sure how one does that. All bets are off.

Re: Can the stock market go to zero?

#20

Post by bruce511 »

steve1977 wrote: post #12

The currency stocks are traded in could probably get devalued by hyperinflation so that it’s effectively zero. But not nominally. But that would only affect one market (well, ir depends on how one defines market).

In a hyperinflation world it's the opposite. Stocks go up in value (in proportion to the inflation) since they become a better vehicle of wealth than cash.

Indeed this is true for normal inflation too. Stocks, commodities, and so on are hood hedges against inflation primarily because the thing they are based on is "not cash".

In an inflation world it is -only- cash which deflates. Everything else (that is real), more or less, has steady value.

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