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Can the stock market go to zero?

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Re: Can the stock market go to zero?

#41

Post by solatic »

mkl95 wrote: post #28

> Can both the government and the economic system fail in the United States to such an extent that all existing companies on the stock exchange become valueless with no prospects of any future business? Perhaps. Stock market != economy. If the stock market crashed overnight, the economy would take a hit, but the expectation would be for it to be functional.

Only because the stock market doesn't include private businesses, sole proprietorships, etc. If, hypothetically, all economic activity was securitized, and the price of those securities collectively went to zero, then yeah, that's what an observation would look like of a non-functional economy.

Re: Can the stock market go to zero?

#42

Post by panarky »

bandrami wrote: post #35
bboygravity wrote: post #23

Earlier quoted context omitted.

> via a US broker, then they ought to be able to claim legal ownership of those stocks they purchased. This is a funny sentence if you know how US brokers operate, because: -- The stock is registered at Cede and Co. In your broker's name (not the client's name). -- Most US brokers don't hold all the stock that their clients "have" in their account. They lend out stock with or without the client's approval. -- It has…

Gold exchanges are like that too -- the amount of gold "held" by investors exceeds the world supply.

> exceeds the world supply

People say this as if it's evidence of some dark, fraudulent conspiracy.

But it's simply because the exchange allows traders to sell short. If Alice owns 100 troy ounces of gold held in her name at an exchange, and Bob borrows 50 troy ounces and sells them short to Charlie, then Alice owns 100 and Charlie owns 50 when there are really only 100 in the vault.

People own more shares of Tesla than the company has issued, and there are more dollars in bank accounts than the Treasury has issued, and it's all normal and natural and the way the system is supposed work.

Re: Can the stock market go to zero?

#43

Post by osigurdson »

Of course stock markets can go to zero but they probably will not. It is impossible to prepare for myriad near-zero-probability Armageddon events so don't waste time thinking about them. Strengthen the cognitive noise gate, focus on things within your locus of control.

Re: Can the stock market go to zero?

#44

Post by zerbinxx »

panarky wrote: post #38
bmitc wrote: post #19

Earlier quoted context omitted.

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 b…

Nearly every asset depends on the existing regime for its value. Public and private corporations are chartered by governments. Real estate is titled into existence by governments. Currency and bonds are issued by governments. When the regime ends, these assets may or may not be recognized by the new regime. Gold, fine art and crypto are the exceptions to the rule.

In the case of gold or other assets, sure, you can hold it, but the risk (op identifies this) is that you will be killed during the revolutionary war and it won’t matter. Crypto could (and may still be) heavily regulated or even outlawed by states - if they can get you for downloading movies they can get you for your coinbase account. And fine art, too, is subject to sometimes intense state regulation - both in Russia and China international and domestic art trading was severely limited/censored after the revolution.

Re: Can the stock market go to zero?

#45

Post by spacebanana7 »

cuteboy19 wrote: post #31
nologic01 wrote: post #21

Electricity prices can go negative, interest rates can go negative, so yeah, there are conceivable circumstances where the "stock market" can go not just to zero but negative. I.e., people paying something to get rid of their stock ownership. Argumemts about rationality and arbitrage are good for quantitative finance books and the make-believe worlds they construct. They dont define the limits of what can actually ha…

The concept of limited liability limits this negative scenario. And my limit buy for the entire US stock market @5cents keeps it from going to exact zero

There are exceptions to limited liability. Courts can pierce the corporate veil and hold directors or shareholders responsible when a case gets controversial enough.

I’m not aware of a recent example of public company shareholders being held liable, but it’s only one Supreme Court decision away.

Re: Can the stock market go to zero?

#46

Post by mkl95 »

solatic wrote: post #41
mkl95 wrote: post #28

> Can both the government and the economic system fail in the United States to such an extent that all existing companies on the stock exchange become valueless with no prospects of any future business? Perhaps. Stock market != economy. If the stock market crashed overnight, the economy would take a hit, but the expectation would be for it to be functional.

Only because the stock market doesn't include private businesses, sole proprietorships, etc. If, hypothetically, all economic activity was securitized, and the price of those securities collectively went to zero, then yeah, that's what an observation would look like of a non-functional economy.

I wonder how much Fortune 500 companies would tank as a result, considering they generate a large chunk of the world's GDP.

Re: Can the stock market go to zero?

#47

Post by beachy »

zerbinxx wrote: post #44
panarky wrote: post #38

Earlier quoted context omitted.

Nearly every asset depends on the existing regime for its value. Public and private corporations are chartered by governments. Real estate is titled into existence by governments. Currency and bonds are issued by governments. When the regime ends, these assets may or may not be recognized by the new regime. Gold, fine art and crypto are the exceptions to the rule.

In the case of gold or other assets, sure, you can hold it, but the risk (op identifies this) is that you will be killed during the revolutionary war and it won’t matter. Crypto could (and may still be) heavily regulated or even outlawed by states - if they can get you for downloading movies they can get you for your coinbase account. And fine art, too, is subject to sometimes intense state regulation - both in Russi…

I think the point is that gold and fine art have value (someone will pay money for them, possibly illegaly) whether or not the regime approves.

Whereas real estate has no value if the state says that it now belongs to someone else.

Re: Can the stock market go to zero?

#48

Post by jmopp »

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…

The post specified that the stock market going to zero implies some sort of catastrophic event leading to the dissolution of the US government and economic system - which is exactly what happened in Russia and China. As much as people whine about the red scare, a communist revolution in the US is very unlikely.

With regards to the last point, a close parallel would be to ask at what happened to people exposed to Russian stocks prior to February 2022. While not going down to zero, suddenly being cut out of the global market has a similar effect.

Re: Can the stock market go to zero?

#49

Post by nologic01 »

cuteboy19 wrote: post #31
nologic01 wrote: post #21

Electricity prices can go negative, interest rates can go negative, so yeah, there are conceivable circumstances where the "stock market" can go not just to zero but negative. I.e., people paying something to get rid of their stock ownership. Argumemts about rationality and arbitrage are good for quantitative finance books and the make-believe worlds they construct. They dont define the limits of what can actually ha…

The concept of limited liability limits this negative scenario. And my limit buy for the entire US stock market @5cents keeps it from going to exact zero

Limited liability is a legal argument, a negative price is a market event. The two are only loosely coupled.

I can imagine a circumstance where people want to get rid of their stocks because of reputational reasons.

People downvoting can't differentiate what is likely to happen from what is possible to happen.

Re: Can the stock market go to zero?

#50

Post by infthi »

thetopher wrote: post #32
nologic01 wrote: post #21

Electricity prices can go negative, interest rates can go negative, so yeah, there are conceivable circumstances where the "stock market" can go not just to zero but negative. I.e., people paying something to get rid of their stock ownership. Argumemts about rationality and arbitrage are good for quantitative finance books and the make-believe worlds they construct. They dont define the limits of what can actually ha…

I don’t know if these are good examples. Money and electricity both have inherent liabilities that don’t seem to translate to stock. At the end of the day, cash has to be transported and stored somewhere. Negative interest rates can be used to effectively pay somebody else to store your cash. A similar situation has happened with oil prices going negative. Negative electric rates could be used to increase load on a g…

In 2022, Meta was added to the list of terrorist and extremist organisations in Russia, and some people suggested that owners of Meta stock should be considered sponsors of terrorism. Do a few more steps and stock may become a liability.
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