6 ms·

From my limited understanding, ICOs are more or less a tax on being stupid, as (relatively) intelligent individuals ride the cryptocurrency wave, profiting off

by tabeth 9y ago

From my limited understanding, ICOs are more or less a tax on being stupid, as (relatively) intelligent individuals ride the cryptocurrency wave, profiting off the naive greed of the dumb. In other words, money made off cryptocurrencies are zero sum. Similar to how money made from stocks are zero sum (for every buyer their must be a seller and if one made money the other must have lost for the buyer to have gained, yadda yadda) if you ignore dividends. Any truth to this statement? I've tried to gather some more information but I still fail to see the advantage of any cryptocurrency for the average person conducting an average, typical transaction. I don't see how everyone investing in crytocurrencies can make money. EDIT: It seems this comment has riled a few people up. Basically, all I was trying to say is that the simplistic stock market (one without dividends) and bitcoins are very similar as they seem to be built on irrationality. People taking advantage of this irrationality in my view is how "dumb" people end up broke and the ICO sponsors or what have you run away with the dumb people's money.

quickthrower2 9y ago
Stocks are certainly not zero sum. If they were then the implication is that they have no intrinsic value.
- tabeth 9y ago
  Ignoring dividends, what intrinsic value do stocks have? I'd be curious to know how the stock market, ignoring dividends, is not a zero sum game. Maybe my understanding of "zero sum" is incorrect.
  - umanwizard 9y ago
    > Ignoring dividends This is like saying "ignoring calories, what intrinsic value does food have?" The whole point of stocks is that they pay dividends, or in the case of some high-growth tech companies, they have some probability of paying dividends in the future.
    - revelation 9y ago
      But dividends are priced into the stock price.
    - tabeth 9y ago
      Hmm. I only invest passively so I can't say I'm super knowledgeable about this. My understanding is that stocks do not inherently give you dividends. Food inherently has caloric value, so I'd say that's the difference. Also, I thought the whole point is that stocks are tied to the (expected) performance of the company itself, and the value is that when you sell if you basically made a return on betting on the company before it appreciated. Finally, even if there are dividends wouldn't that affect the stock price and therefore be irrelevant (as the stock itself already accounts for it)? Are you suggesting that without dividends the stock market would not function?
      - Simon_says 9y ago
        > I only invest passively so I can't say I'm super knowledgeable about this. I'll say. Unless you carefully selected stocks that don't pay dividends, you'll be receiving dividend payments soon.
        vasilipupkin 9y ago
        And paying taxes on those dividends
        A_Person 9y ago
        Not necessarily! Australia has a system called "imputation credits" or "franking credits". Say a company BigCo makes an operating profit of $100. They decide to pay that out as a divident to shareholder Mary. Australia's company tax rate is 30%, so BigCo sends $30 to the tax department, and the remaining $70 to Mary. Say Mary's personal tax rate is 50%. On the face of it, Mary would pay 50% of the $70 (ie. $35) to the tax department, leaving $35 in her own pocket. However, this would mean that the original $100 profit had been taxed at 65% ($30 + $35)! This is seen to be inequitable, and a disincentive to owning shares. So instead what happens is this, Mary gets a "franking credit" of $30 along with the $70 dividend. The franking credit is just a book-keeping entry to record the amount of tax that BigCo paid on its original $100 profit. At tax time, Mary's accountant proceeds as follows. (1) Add the franking credid ($30) to the divident amount ($70), thus reverse-engineering BigCo's original profit ($100). (2) Apply Mary's personal tax rate (50%) to that whole profit, getting $50. (3) Ensure the tax department gets that $50, regardless of who and where it comes from! In this case, BigCo has already paid $30 of the $50 total tax obligation on the original $100 profit, so Mary is only up for the remaining $20. By that means, BigCo's original profit of $100 is eventually taxed, in total, at Mary's personal tax rate of 50% - not at the double-taxed rate of 65%. This might just seem like a whole lotta shakin' goin' on - but wait, there's more! Say the dividend was paid to another company (SmallCo) instead of to Mary. SmallCo's tax rate is also 30%, so when you apply the franking credit, you'll find that SmallCo pays no tax on the $70 dividend. Now say it was paid to a self-managed superannuation fund (SMSF) in so-called "transition to retirement" phase. These are only taxed at 17%. 17% of $100 is $17, so the total tax expected by the tax department, on the original $100 profit, has been overpaid by $13 ($30 - $17), and the tax department will refund that $13 to the SMSF! The SMSF gets the $70 dividend, and not only pays no tax on that, but also, gets a $13 refund cheque. Then we get to the apogee of this process, the quintessence of financial wizardry, a situation so warming to the heart as to impose some risk of dangerous palpitations. Say the SMSF has gone into "pension mode". In that mode, it pays no tax. Thus, when the fund receives the $70 dividend, it also receives a full refund of the $30 tax originally paid by BigCo! As I understand it, BigCo can actually choose to pay the full tax, part of the tax, or no tax, on its origial $100 profit. The dividend is correspondingly said to be "fully franked", "partly franked", or "unfranked". A dividend recipient ("X") might get a mixture of franked and unfranked dividends from various sources. "X" would add all franking credits to a notional "franking account", then use that account at tax time to offset their normal tax obligations. [edit: typos]
  - Simon_says 9y ago
    Stocks are valued off of their discounted future cashflow, so ignoring dividends (and capital distributions) basically takes all of their value off the table.
  - dragonwriter 9y ago
    > Ignoring dividends, what intrinsic value do stocks have? Voting rights, claim on corporate assets in the event of dissolution (coordinated use of the former can trigger the latter; though that's rare in practice because if you don't like the way the corporation is run, you usually just sell out.) Dividends are, in effect, a periodic partial dissolution that a corporation has chosen to conduct. > I'd be curious to know how the stock market, ignoring dividends, is not a zero sum game. Er, because the sum of net returns is not fixed at zero, or fixed at all, so it's not a zero or even fixed sum game.
    - tabeth 9y ago
      Isn't the sum of net returns fixed to the total amount of stock multiplied by the purchase price?
      - dragonwriter 9y ago
        > Isn't the sum of net returns fixed to the total amount of stock multiplied by the purchase price? (1) A value which continuously changes over time based on the decisions of participants in the market is not “fixed”, and (2) that aside, no, the value you suggest is not the same as total net returns. If you if ignore the claim on assets (which is the fundamental purpose of stock), then, the sum of all returns must be zero. But you can't meaningfully ignore that. That's like saying “aren't all money-based markets zero sum, if you ignore the use-value of the goods/services sold”?
        tabeth 9y ago
        In regards to (1), I don't get it. Just because the value changes doesn't mean it's not fixed. A trivial example is 100 = XA + YB + ZC. Fixed, yet weights for each value can change. And with (2), what's the value then?
  - btilly 9y ago
    I recommend that you buy a used copy of https://www.amazon.com/How-Buy-Stocks-Louis-Engel/dp/0316353809 https://www.amazon.com/How-Buy-Stocks-Louis-Engel/dp/0316353... and read it to understand what stocks are, why they have value, what different kinds of stock are, and why they are created. But the long and short of it is that stock is part ownership of a company. Companies are not zero sum, they create wealth through a process that Paul Graham explains in http://www.paulgraham.com/wealth.html http://www.paulgraham.com/wealth.html. The trading of stock itself is a zero sum game - each time it happens someone is trading ownership worth a certain amount for the same value in money. But owning stock goes up and down with the prospects for the company.
  - quickthrower2 9y ago
    Stocks that don't pay good dividends should be reinvesting that money in future growth. At some point in the future the company will then increase its dividends. If stocks are a zero sum game then so is business in general. But business isn't just a giant casino. Useful stuff is produced.

by tabeth 9y ago

quickthrower2 9y ago

Stocks are certainly not zero sum. If they were then the implication is that they have no intrinsic value.

tabeth 9y ago
Ignoring dividends, what intrinsic value do stocks have? I'd be curious to know how the stock market, ignoring dividends, is not a zero sum game. Maybe my understanding of "zero sum" is incorrect.
- umanwizard 9y ago
  > Ignoring dividends This is like saying "ignoring calories, what intrinsic value does food have?" The whole point of stocks is that they pay dividends, or in the case of some high-growth tech companies, they have some probability of paying dividends in the future.
  - revelation 9y ago
    But dividends are priced into the stock price.
  - tabeth 9y ago
    Hmm. I only invest passively so I can't say I'm super knowledgeable about this. My understanding is that stocks do not inherently give you dividends. Food inherently has caloric value, so I'd say that's the difference. Also, I thought the whole point is that stocks are tied to the (expected) performance of the company itself, and the value is that when you sell if you basically made a return on betting on the company before it appreciated. Finally, even if there are dividends wouldn't that affect the stock price and therefore be irrelevant (as the stock itself already accounts for it)? Are you suggesting that without dividends the stock market would not function?
    - Simon_says 9y ago
      > I only invest passively so I can't say I'm super knowledgeable about this. I'll say. Unless you carefully selected stocks that don't pay dividends, you'll be receiving dividend payments soon.
      - vasilipupkin 9y ago
        And paying taxes on those dividends
        A_Person 9y ago
        Not necessarily! Australia has a system called "imputation credits" or "franking credits". Say a company BigCo makes an operating profit of $100. They decide to pay that out as a divident to shareholder Mary. Australia's company tax rate is 30%, so BigCo sends $30 to the tax department, and the remaining $70 to Mary. Say Mary's personal tax rate is 50%. On the face of it, Mary would pay 50% of the $70 (ie. $35) to the tax department, leaving $35 in her own pocket. However, this would mean that the original $100 profit had been taxed at 65% ($30 + $35)! This is seen to be inequitable, and a disincentive to owning shares. So instead what happens is this, Mary gets a "franking credit" of $30 along with the $70 dividend. The franking credit is just a book-keeping entry to record the amount of tax that BigCo paid on its original $100 profit. At tax time, Mary's accountant proceeds as follows. (1) Add the franking credid ($30) to the divident amount ($70), thus reverse-engineering BigCo's original profit ($100). (2) Apply Mary's personal tax rate (50%) to that whole profit, getting $50. (3) Ensure the tax department gets that $50, regardless of who and where it comes from! In this case, BigCo has already paid $30 of the $50 total tax obligation on the original $100 profit, so Mary is only up for the remaining $20. By that means, BigCo's original profit of $100 is eventually taxed, in total, at Mary's personal tax rate of 50% - not at the double-taxed rate of 65%. This might just seem like a whole lotta shakin' goin' on - but wait, there's more! Say the dividend was paid to another company (SmallCo) instead of to Mary. SmallCo's tax rate is also 30%, so when you apply the franking credit, you'll find that SmallCo pays no tax on the $70 dividend. Now say it was paid to a self-managed superannuation fund (SMSF) in so-called "transition to retirement" phase. These are only taxed at 17%. 17% of $100 is $17, so the total tax expected by the tax department, on the original $100 profit, has been overpaid by $13 ($30 - $17), and the tax department will refund that $13 to the SMSF! The SMSF gets the $70 dividend, and not only pays no tax on that, but also, gets a $13 refund cheque. Then we get to the apogee of this process, the quintessence of financial wizardry, a situation so warming to the heart as to impose some risk of dangerous palpitations. Say the SMSF has gone into "pension mode". In that mode, it pays no tax. Thus, when the fund receives the $70 dividend, it also receives a full refund of the $30 tax originally paid by BigCo! As I understand it, BigCo can actually choose to pay the full tax, part of the tax, or no tax, on its origial $100 profit. The dividend is correspondingly said to be "fully franked", "partly franked", or "unfranked". A dividend recipient ("X") might get a mixture of franked and unfranked dividends from various sources. "X" would add all franking credits to a notional "franking account", then use that account at tax time to offset their normal tax obligations. [edit: typos]
- Simon_says 9y ago
  Stocks are valued off of their discounted future cashflow, so ignoring dividends (and capital distributions) basically takes all of their value off the table.
- dragonwriter 9y ago
  > Ignoring dividends, what intrinsic value do stocks have? Voting rights, claim on corporate assets in the event of dissolution (coordinated use of the former can trigger the latter; though that's rare in practice because if you don't like the way the corporation is run, you usually just sell out.) Dividends are, in effect, a periodic partial dissolution that a corporation has chosen to conduct. > I'd be curious to know how the stock market, ignoring dividends, is not a zero sum game. Er, because the sum of net returns is not fixed at zero, or fixed at all, so it's not a zero or even fixed sum game.
  - tabeth 9y ago
    Isn't the sum of net returns fixed to the total amount of stock multiplied by the purchase price?
    - dragonwriter 9y ago
      > Isn't the sum of net returns fixed to the total amount of stock multiplied by the purchase price? (1) A value which continuously changes over time based on the decisions of participants in the market is not “fixed”, and (2) that aside, no, the value you suggest is not the same as total net returns. If you if ignore the claim on assets (which is the fundamental purpose of stock), then, the sum of all returns must be zero. But you can't meaningfully ignore that. That's like saying “aren't all money-based markets zero sum, if you ignore the use-value of the goods/services sold”?
      - tabeth 9y ago
        In regards to (1), I don't get it. Just because the value changes doesn't mean it's not fixed. A trivial example is 100 = XA + YB + ZC. Fixed, yet weights for each value can change. And with (2), what's the value then?
- btilly 9y ago
  I recommend that you buy a used copy of https://www.amazon.com/How-Buy-Stocks-Louis-Engel/dp/0316353809 https://www.amazon.com/How-Buy-Stocks-Louis-Engel/dp/0316353... and read it to understand what stocks are, why they have value, what different kinds of stock are, and why they are created. But the long and short of it is that stock is part ownership of a company. Companies are not zero sum, they create wealth through a process that Paul Graham explains in http://www.paulgraham.com/wealth.html http://www.paulgraham.com/wealth.html. The trading of stock itself is a zero sum game - each time it happens someone is trading ownership worth a certain amount for the same value in money. But owning stock goes up and down with the prospects for the company.
- quickthrower2 9y ago
  Stocks that don't pay good dividends should be reinvesting that money in future growth. At some point in the future the company will then increase its dividends. If stocks are a zero sum game then so is business in general. But business isn't just a giant casino. Useful stuff is produced.