5 ms·

What is missing here is the Big Picture: trading activity has totally decoupled from value creation, and technology has sped up the process exponentially. These

What is missing here is the Big Picture: trading activity has totally decoupled from value creation, and technology has sped up the process exponentially. These are not investors, they are speculators, and it is creating a form of technical debt that has the inherent capability to take down the productive parts of the system.

CobrastanJorji 7y ago
If you buy stock in a public company which does not pay dividends, what are you if not a speculator?
- xeRTRex 7y ago
  Speculators have shorter windows than retail investors looking to store value for long-terms gains. Owning a non-dividend stock in my retirement fund is not equivalent to speculation.
  - shkkmo 7y ago
    Why does the time frame make a difference?
    - 0xEFF 7y ago
      Because what the market will do between now and next week is pure speculation. Over the next 30 years you can expect value to grow about 7% per year on average. edit: s/the market/value/
      - shkkmo 7y ago
        I'm not sure that continuous growth can be reliably predicted over a 30 year span. There is reason to believe that we may need to move away from economic systems dependent on continuous growth. (edit: though I highly suspect this is more than 30 years away.) Buying a range of stocks and holding them for the long term may reduce your risks, but that doesn't mean it isn't speculation. Speculation just means that you are buying something with the expectation that you will sell it for a higher value. When your assets don't produce direct value (such as dividends, rental income, functional utility, etc) then investment in those assets is speculation, regardless of the risk level or time frame.
      - francisofascii 7y ago
        Just because the US stock market has worked out in the past century doesn't mean it will continue to reap those types of gains. I you would have invested in the Nikkei 30 years ago, you would still be waiting.
        unforeseen9991 7y ago
        The very act of investing is the act of taking on risk. It's not free money, you are being rewarded for taking on the risk. Every disclaimer you will see in the trading world has the disclaimer "Past performance is not an indication of future performance". Everything in trading is probabilities, which is a way of thinking humans mightily struggle with. A good day to day example is when a weather forecast calls for an 80% chance for rain on the weekend, so you cancel your camping trip. It ends up not raining, and you curse the meteorologist for being wrong. They were not wrong - yet most people say they were, showing they are unable to think in a probabilistic way.
- georgeecollins 7y ago
  You are speculating in a company even it pays dividends. There is no guarantee dividends will continue. Are you trying to say there is a difference between a speculator and an investor? If so please explain.
  - shkkmo 7y ago
    If the company pays dividends, you may purchase a stock with zero expectation that the price of that stock will rise. There may be risk, but some of that risk is that your asset will stop delivering value to you, not soley that other speculators will not be willing to buy that asset from you at a higher price.
- ElonMuskrat 7y ago
  You are confusing speculation with growth investment. They are not the same.
  - CobrastanJorji 7y ago
    Ah, you're right. I had my English vocabulary loaded instead of my investor vocabulary.
- chongli 7y ago
  A dividend just reduces the value of the company by x cents per share and pays you x cents per share in cash. It's not "free income" as most people seem to think. It makes more sense to think of it like a buyback.
opportune 7y ago
Trading activity was never about value creation to begin with. Non-finance people seem to think the stock market only exists for investing, which isn’t true at all. In fact outside of an IPO you are not investing into a company, but just trading a piece of a pie that already existed. The stock market has always been primarily about trading, and informational arbitrage is simply more efficient when you have computers calculating it
- aaronblohowiak 7y ago
  liquidity creates value by freeing capital to chase new opportunities.
- ElonMuskrat 7y ago
  > Non-finance people seem to think the stock market only exists for investing, which isn’t true at all. In fact outside of an IPO you are not investing into a company, but just trading a piece of a pie that already existed. The stock market has always been primarily about trading, and informational arbitrage is simply more efficient when you have computers calculating it Baloney. Corporations compensate employees, management and executives in stock. Furthermore, they may use their stock as debt collateral, or flat-out purchase investments [e.g. startups or other companies] completely or partially with stock. For example Facebook purchased Whatsapp with $12 billion of Facebook shares, $3 billion RSUs, and $4 billion in cash [1]. Moral of the story: The higher your stock price, the lower your cost of capital. [1] https://en.wikipedia.org/wiki/WhatsApp#Facebook_subsidiary_(2014%E2%80%93present) https://en.wikipedia.org/wiki/WhatsApp#Facebook_subsidiary_(...
  - opportune 7y ago
    What exactly are you arguing? That stock based compensation or usage in an acquisition means the stock market isn’t about trading? Sure, the more valuable your company is (let’s not say stock price because really it’s your market cap and some other factors) the more it can leverage that to make deals. Not sure how that’s related to the function of the stock market itself
esoterica 7y ago
Liquidity has to exist before investment can happen, and liquidity only exists because of “speculators”.

CobrastanJorji 7y ago

If you buy stock in a public company which does not pay dividends, what are you if not a speculator?

xeRTRex 7y ago
Speculators have shorter windows than retail investors looking to store value for long-terms gains. Owning a non-dividend stock in my retirement fund is not equivalent to speculation.
- shkkmo 7y ago
  Why does the time frame make a difference?
  - 0xEFF 7y ago
    Because what the market will do between now and next week is pure speculation. Over the next 30 years you can expect value to grow about 7% per year on average. edit: s/the market/value/
    - shkkmo 7y ago
      I'm not sure that continuous growth can be reliably predicted over a 30 year span. There is reason to believe that we may need to move away from economic systems dependent on continuous growth. (edit: though I highly suspect this is more than 30 years away.) Buying a range of stocks and holding them for the long term may reduce your risks, but that doesn't mean it isn't speculation. Speculation just means that you are buying something with the expectation that you will sell it for a higher value. When your assets don't produce direct value (such as dividends, rental income, functional utility, etc) then investment in those assets is speculation, regardless of the risk level or time frame.
    - francisofascii 7y ago
      Just because the US stock market has worked out in the past century doesn't mean it will continue to reap those types of gains. I you would have invested in the Nikkei 30 years ago, you would still be waiting.
      - unforeseen9991 7y ago
        The very act of investing is the act of taking on risk. It's not free money, you are being rewarded for taking on the risk. Every disclaimer you will see in the trading world has the disclaimer "Past performance is not an indication of future performance". Everything in trading is probabilities, which is a way of thinking humans mightily struggle with. A good day to day example is when a weather forecast calls for an 80% chance for rain on the weekend, so you cancel your camping trip. It ends up not raining, and you curse the meteorologist for being wrong. They were not wrong - yet most people say they were, showing they are unable to think in a probabilistic way.
georgeecollins 7y ago
You are speculating in a company even it pays dividends. There is no guarantee dividends will continue. Are you trying to say there is a difference between a speculator and an investor? If so please explain.
- shkkmo 7y ago
  If the company pays dividends, you may purchase a stock with zero expectation that the price of that stock will rise. There may be risk, but some of that risk is that your asset will stop delivering value to you, not soley that other speculators will not be willing to buy that asset from you at a higher price.
ElonMuskrat 7y ago
You are confusing speculation with growth investment. They are not the same.
- CobrastanJorji 7y ago
  Ah, you're right. I had my English vocabulary loaded instead of my investor vocabulary.
chongli 7y ago
A dividend just reduces the value of the company by x cents per share and pays you x cents per share in cash. It's not "free income" as most people seem to think. It makes more sense to think of it like a buyback.

opportune 7y ago

Trading activity was never about value creation to begin with. Non-finance people seem to think the stock market only exists for investing, which isn’t true at all. In fact outside of an IPO you are not investing into a company, but just trading a piece of a pie that already existed. The stock market has always been primarily about trading, and informational arbitrage is simply more efficient when you have computers calculating it

aaronblohowiak 7y ago
liquidity creates value by freeing capital to chase new opportunities.
ElonMuskrat 7y ago
> Non-finance people seem to think the stock market only exists for investing, which isn’t true at all. In fact outside of an IPO you are not investing into a company, but just trading a piece of a pie that already existed. The stock market has always been primarily about trading, and informational arbitrage is simply more efficient when you have computers calculating it Baloney. Corporations compensate employees, management and executives in stock. Furthermore, they may use their stock as debt collateral, or flat-out purchase investments [e.g. startups or other companies] completely or partially with stock. For example Facebook purchased Whatsapp with $12 billion of Facebook shares, $3 billion RSUs, and $4 billion in cash [1]. Moral of the story: The higher your stock price, the lower your cost of capital. [1] https://en.wikipedia.org/wiki/WhatsApp#Facebook_subsidiary_(2014%E2%80%93present) https://en.wikipedia.org/wiki/WhatsApp#Facebook_subsidiary_(...
- opportune 7y ago
  What exactly are you arguing? That stock based compensation or usage in an acquisition means the stock market isn’t about trading? Sure, the more valuable your company is (let’s not say stock price because really it’s your market cap and some other factors) the more it can leverage that to make deals. Not sure how that’s related to the function of the stock market itself

esoterica 7y ago

Liquidity has to exist before investment can happen, and liquidity only exists because of “speculators”.