3 ms·

Now many people have no money and are scraping by, and many(!) people are extremely bad with money, even fairly middle class people who cannot commit to saving

Now many people have no money and are scraping by, and many(!) people are extremely bad with money, even fairly middle class people who cannot commit to saving anything and would rather the BMW, but... > 10% own 84% sounds more like simple power law. "A small wealthy % owns most of the X" is true for, well, almost everything. So when you ponder: > Is it because 90% of Americans don't even have money left to invest after their cost of living? The answer is "probably not." Because even if every american invested exactly 5% of their income in the stock market, or 50% of their income, you'd still expect to see ~10% own 84% of all stock. The 10% just have really high incomes/previous savings from incomes, etc. In fact just ponder for a laugh, imagine if the 10% [richest people] only owned like... 15% of the stock market, or owned only like 15% of all real estate, etc. If that were true, you should be really worried about that thing as an investment! Bitcoin might actually be the rare case where the top 10% don't actually own a huge share of a big valuable thing. > Otherwise, where are people investing, if not the stock market? The bottom 90% own most of the lotto tickets. The top 10% eschew these! The top 10% prefer index/hedge funds, which are basically lotto tickets with great odds and a totally lame ROI. There is probably lots of value in convincing people to invest in the index fund lotto instead of the lotto lotto, but even if you did, about 10% would still own about 84% of all stock.

didibus 8y ago
Hum, plausible, but I'm not sure I fully see it. How is the stock market an exponential investment? If you look at the growth of the stock since the beginning, and of most company stock, isn't it much more a linear growth? So where would this power distribution come from?
- simonsarris 8y ago
  Anything with some kind of returns that you can put back into it will exhibit compounding interest. True of real estate or stocks or even just bank deposits. Even if a stock price goes nowhere but pays a 5% dividend (I'm looking at you, RDSA) It is trivially true in real estate (Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population.) Why wouldn't it be true in a market where the returns have been higher than real estate?
  - didibus 8y ago
    > Anything with some kind of returns that you can put back into it will exhibit compounding interest This is only true if you play the market though. Just holding on stock is not a compounding interest rate. I might be wrong, but that's my impression. If I buy 1000$ of stock this year and make 10% return. At the end of the year I have 1100$. Now the next year, I need to make 10% off of 1100$ to be compounded and end up with 1210$. Now if I hold onto my same amount of stock. If I end up with 1210$ the second year, that's not due to compound interest, but simply to good performance in the stock which grew by 21% in two years. Effectively allowing it to grow at an annual return rate of 10%. To be compounding, I would need to sell my shares after year one. Thus pocket 1100$. And buy 1100$ worth of shares which again would make 10%. I mean, in effect it's the same. If the shares truly grow by 10% year over year. But the point I'm making is that your ownership in total number of shares does not grow. So if I had 100 shares at 1000$ out of a total of 10000 shares, I still have 100 shares but they are worth more at 1210$. So as you see, over time, I don't grow at the expense of others in my total ownership. Thus I feel this does not explain how 10% can own 84% of all stocks. It would be true, if people play the market in a way that, every year, they sell to buy cheaper stocks, thus growing their share count. And it turns out the companies whose share they held prior years all go bust. Then they'd progressively own more and more at an exponential rate.

didibus 8y ago

Hum, plausible, but I'm not sure I fully see it. How is the stock market an exponential investment? If you look at the growth of the stock since the beginning, and of most company stock, isn't it much more a linear growth? So where would this power distribution come from?

simonsarris 8y ago
Anything with some kind of returns that you can put back into it will exhibit compounding interest. True of real estate or stocks or even just bank deposits. Even if a stock price goes nowhere but pays a 5% dividend (I'm looking at you, RDSA) It is trivially true in real estate (Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population.) Why wouldn't it be true in a market where the returns have been higher than real estate?
- didibus 8y ago
  > Anything with some kind of returns that you can put back into it will exhibit compounding interest This is only true if you play the market though. Just holding on stock is not a compounding interest rate. I might be wrong, but that's my impression. If I buy 1000$ of stock this year and make 10% return. At the end of the year I have 1100$. Now the next year, I need to make 10% off of 1100$ to be compounded and end up with 1210$. Now if I hold onto my same amount of stock. If I end up with 1210$ the second year, that's not due to compound interest, but simply to good performance in the stock which grew by 21% in two years. Effectively allowing it to grow at an annual return rate of 10%. To be compounding, I would need to sell my shares after year one. Thus pocket 1100$. And buy 1100$ worth of shares which again would make 10%. I mean, in effect it's the same. If the shares truly grow by 10% year over year. But the point I'm making is that your ownership in total number of shares does not grow. So if I had 100 shares at 1000$ out of a total of 10000 shares, I still have 100 shares but they are worth more at 1210$. So as you see, over time, I don't grow at the expense of others in my total ownership. Thus I feel this does not explain how 10% can own 84% of all stocks. It would be true, if people play the market in a way that, every year, they sell to buy cheaper stocks, thus growing their share count. And it turns out the companies whose share they held prior years all go bust. Then they'd progressively own more and more at an exponential rate.