7 ms·

The growth rate of capital has exceeded the growth rate of wages for many many decades now. So you have two choices: 1. Invest in yourself 2. Invest in the m

by anonu 7y ago

The growth rate of capital has exceeded the growth rate of wages for many many decades now. So you have two choices: 1. Invest in yourself 2. Invest in the market The first would mean you go to school, work hard, etc to earn a high salary. You hope that the payoffs of this will grow year over year. Turns out the long-term growth rate of wages is south of 4%. The second path you can take is invest your capital in the SPX. I did a quick calculation: SPX level in 1990: 334, today 3273. (3273/334)^(1/30) = 7.9% annualized growth. So basically the rich, the people with capital, earn almost twice on their investment doing nothing versus someone who invests in their career with hopes of earning more money.

tempsy 7y ago
Don’t talk about the market on HN. Every time I bring it up there’s a dozen people who insist that the stock market is a scam and no one should consider an appreciating asset as a contributor to their net worth.
- wayoutthere 7y ago
  It's not only not a scam, it's the only reliable way to generate wealth.
  - tempsy 7y ago
    Not the only reliable way but it’s reliable. Real estate is more so in the right markets. But yes see my other comments for examples of what I mean.
    - wayoutthere 7y ago
      In my experience, it's difficult to amass the amount of wealth required to invest in real estate without the stock market.
      - tempsy 7y ago
        It’s more work but I mean buying a rental in a market that is up and coming and renting it out. Most people can learn how to do it.
  - neffy 7y ago
    The stock market doesn´t generate wealth, it prices second hand (for the most part) company ownership coupons. Inventing new technologies creates wealth. Building, constructing actual objects such as cars, clothes, computers, medicines creates wealth. Growing food creates wealth. The stock market is a way of moving ownership around to a limited extent, but mostly it is a medieval way of sharing risk among the ownership class that has been extended way beyond its original purpose and designs. The entire stock market could be wiped out tomorrow, and there would still be an economy of factories, farms etc. The reverse is not the case.
    - tempsy 7y ago
      so you don’t participate in the market because...semantics? no one suggested a stock is like a fixed income asset that is “income generating”
- falcolas 7y ago
  The thing about stocks is, to me, that their value is completely divorced from anything other than “what someone may pay for it”. Company posts losses, stock can go up. Company posts profits above projections, the stock can go down. It’s solely based on human behavior, which is completely opaque and illogical to me. EDIT: Disagree if you want, but it's quite demonstrably true. The stock market keep going up only because we humans have put in protections to ensure that it can't crash. We will literally stop trading entirely to ensure that the overall trend is upwards. However, this is unsustainable; permanent growth (that outpaces inflation) is impossible. Yet we keep (to me illogically) thinking that it will continue this way forever - to quote a sibling thread here "it's the only reliable way to generate wealth," as if it is permanently incapable of also generating poverty.
  - deanmoriarty 7y ago
    What would be an investment vehicle with expected returns above inflation whose value is not dependent on “what someone may pay for it“? These companies are making profits and by buying stocks you are entitled in their present and future stream of dividends. It’s not different than investing in your friend’s business restaurant.
    - falcolas 7y ago
      > by buying stocks you are entitled in their present and future stream of dividends If the value of stock was driven by the potential dividends, I would agree. But the actual dividend payouts are meaningless in the transaction; it's only worth what the next owner of that piece of stock will buy it for. For example, stock in a business that has no revenue (or doesn't pay dividends) and that provides non controlling votes, should be worthless. But it's not. Instead, you have prices per share set so high that even if the company was wildly profitable and paid out dividends it would take decades or centuries to make that money back.
      - deanmoriarty 7y ago
        it should most definitely not be worthless. A company not paying dividends is akin to you investing in your friend’s restaurant, and have your friend tell you that by investing you are entitled to a piece of the pie, but the business plan he has in mind is to invest all the profits (if any) for the next 10 years to grow the business and expand to new locations, and just after 10 years start sharing profits or selling it to someone else. In such scenario, is that piece of the pie worthless? I say most definitely not, because, net of risk, the expectation is that your “slice” will end up being more valuable than what you invested in. I ask my question again: what is another investment that doesn’t operate by this basic logic? What is a business where its value is purely and solely based on a hardcoded multiple of current profits, and such multiple cannot go up and down based on how the buyers feel the future growth trajectory will be for such business?
- icedchai 7y ago
  I don't think that's true, given the large component of FAANG compensation coming from the stock market.
  - tempsy 7y ago
    Skim this thread and tell me it’s not true
    - icedchai 7y ago
      Fair enough. But you can find other threads where people talk about making 500K+ a year, and 50%+ of that is coming from stock. Without the stock market, that sort of compensation would be unheard of.
      - tempsy 7y ago
        Well exactly, but the HN audience is not majority FAANG.
wayoutthere 7y ago
Somewhat related to this is that only a small percentage of wage earners make enough money to invest any of it. This makes class mobility extremely difficult, and we're starting to see that move down-market with more people renting vs buying houses, leasing cars, etc. It's very difficult to own anything these days.
- Consultant32452 7y ago
  The poor invest in a retirement account their whole lives that results in no asset to leave to their children. The way social security works today robs the poor of the ability to create generational wealth.
  - wayoutthere 7y ago
    I would say the entire concept of "retirement" is what depletes generational wealth in those capable of building it. Not that generational wealth should be a goal, as it only concentrates wealth in the hands of the most wealthy -- I don't think it's an accident that wealth inequality hockey-sticked around the time the estate tax was repealed.
  - cryptica 7y ago
    The whole financial system is designed to rob value producers and keep them poor. The Fed keeps injecting new fiat money into the economy through loans at very low interest rates. A lot of that new money goes towards government bonds which the government uses to pay for expensive government contractors (well-connected people; aka rich people). The Fed loan money also ends up going to the public via regional banks but this requires the borrower to have collateral; so either way, most of the new fiat money injected into the system goes straight to the rich in the form of cheap loans (so cheap in fact that they're basically free because dividend payments or earnings from just about any asset are higher than the interest rate that they have to pay back). Then at the same time, the government taxes workers based on their income (not based on wealth); this form of taxation depletes the working classes of any surplus disposable income and as a result, makes it seem like inflation is stable but in reality, because rich people don't pay much income tax (through offshore holdings, etc...), their wealth is silently hyper-inflating. Because rich people can only physically consume so much stuff, this kind of top-inflation doesn't show up in the Consumer Price Index; instead it shows up as increase in the Shiller PE ratio and an increase in the valuation of speculative startups and private equity. Since fiat money was introduced, the system has been on a death spiral. The more time passes without complete economic failure, the more brittle the system is becoming.
icedchai 7y ago
True, but to do #2, most people have to do #1, at least for a few years. That investment capital has to come from somewhere, right?
- anonu 7y ago
  True - and I think thats what the problem is that our society faces today. #1 isnt as valuable as it was pre-Internet. Doing work isn't very valuable because I can replace you with an automated system and replicate your work for 0 marginal cost to me. I want to believe in the laissez-faire principles of Friedman and other economists. But I think this time is different. Our society needs help.
bostonvaulter2 7y ago
The scary thing is that if we do not change the system, then the growth rate of capital will continue increasing and the inequality gap will just grow and grow. Remember that ONLY 30% of American graduate from college. If we don't change something those 70% of Americans will have a very rough life ahead of them. This is why I support Andrew Yang and a Universal Basic Income (which MLK also supported, he called it Guaranteed Income). Andrew Yang also has many other good policies that I've believed in for a long time, such as ranked choice voting, universal healthcare, and my pet favorite–abolishing the penny.

by anonu 7y ago

tempsy 7y ago

Don’t talk about the market on HN. Every time I bring it up there’s a dozen people who insist that the stock market is a scam and no one should consider an appreciating asset as a contributor to their net worth.

wayoutthere 7y ago
It's not only not a scam, it's the only reliable way to generate wealth.
- tempsy 7y ago
  Not the only reliable way but it’s reliable. Real estate is more so in the right markets. But yes see my other comments for examples of what I mean.
  - wayoutthere 7y ago
    In my experience, it's difficult to amass the amount of wealth required to invest in real estate without the stock market.
    - tempsy 7y ago
      It’s more work but I mean buying a rental in a market that is up and coming and renting it out. Most people can learn how to do it.
- neffy 7y ago
  The stock market doesn´t generate wealth, it prices second hand (for the most part) company ownership coupons. Inventing new technologies creates wealth. Building, constructing actual objects such as cars, clothes, computers, medicines creates wealth. Growing food creates wealth. The stock market is a way of moving ownership around to a limited extent, but mostly it is a medieval way of sharing risk among the ownership class that has been extended way beyond its original purpose and designs. The entire stock market could be wiped out tomorrow, and there would still be an economy of factories, farms etc. The reverse is not the case.
  - tempsy 7y ago
    so you don’t participate in the market because...semantics? no one suggested a stock is like a fixed income asset that is “income generating”
falcolas 7y ago
The thing about stocks is, to me, that their value is completely divorced from anything other than “what someone may pay for it”. Company posts losses, stock can go up. Company posts profits above projections, the stock can go down. It’s solely based on human behavior, which is completely opaque and illogical to me. EDIT: Disagree if you want, but it's quite demonstrably true. The stock market keep going up only because we humans have put in protections to ensure that it can't crash. We will literally stop trading entirely to ensure that the overall trend is upwards. However, this is unsustainable; permanent growth (that outpaces inflation) is impossible. Yet we keep (to me illogically) thinking that it will continue this way forever - to quote a sibling thread here "it's the only reliable way to generate wealth," as if it is permanently incapable of also generating poverty.
- deanmoriarty 7y ago
  What would be an investment vehicle with expected returns above inflation whose value is not dependent on “what someone may pay for it“? These companies are making profits and by buying stocks you are entitled in their present and future stream of dividends. It’s not different than investing in your friend’s business restaurant.
  - falcolas 7y ago
    > by buying stocks you are entitled in their present and future stream of dividends If the value of stock was driven by the potential dividends, I would agree. But the actual dividend payouts are meaningless in the transaction; it's only worth what the next owner of that piece of stock will buy it for. For example, stock in a business that has no revenue (or doesn't pay dividends) and that provides non controlling votes, should be worthless. But it's not. Instead, you have prices per share set so high that even if the company was wildly profitable and paid out dividends it would take decades or centuries to make that money back.
    - deanmoriarty 7y ago
      it should most definitely not be worthless. A company not paying dividends is akin to you investing in your friend’s restaurant, and have your friend tell you that by investing you are entitled to a piece of the pie, but the business plan he has in mind is to invest all the profits (if any) for the next 10 years to grow the business and expand to new locations, and just after 10 years start sharing profits or selling it to someone else. In such scenario, is that piece of the pie worthless? I say most definitely not, because, net of risk, the expectation is that your “slice” will end up being more valuable than what you invested in. I ask my question again: what is another investment that doesn’t operate by this basic logic? What is a business where its value is purely and solely based on a hardcoded multiple of current profits, and such multiple cannot go up and down based on how the buyers feel the future growth trajectory will be for such business?
icedchai 7y ago
I don't think that's true, given the large component of FAANG compensation coming from the stock market.
- tempsy 7y ago
  Skim this thread and tell me it’s not true
  - icedchai 7y ago
    Fair enough. But you can find other threads where people talk about making 500K+ a year, and 50%+ of that is coming from stock. Without the stock market, that sort of compensation would be unheard of.
    - tempsy 7y ago
      Well exactly, but the HN audience is not majority FAANG.

wayoutthere 7y ago

Somewhat related to this is that only a small percentage of wage earners make enough money to invest any of it. This makes class mobility extremely difficult, and we're starting to see that move down-market with more people renting vs buying houses, leasing cars, etc. It's very difficult to own anything these days.

Consultant32452 7y ago
The poor invest in a retirement account their whole lives that results in no asset to leave to their children. The way social security works today robs the poor of the ability to create generational wealth.
- wayoutthere 7y ago
  I would say the entire concept of "retirement" is what depletes generational wealth in those capable of building it. Not that generational wealth should be a goal, as it only concentrates wealth in the hands of the most wealthy -- I don't think it's an accident that wealth inequality hockey-sticked around the time the estate tax was repealed.
- cryptica 7y ago
  The whole financial system is designed to rob value producers and keep them poor. The Fed keeps injecting new fiat money into the economy through loans at very low interest rates. A lot of that new money goes towards government bonds which the government uses to pay for expensive government contractors (well-connected people; aka rich people). The Fed loan money also ends up going to the public via regional banks but this requires the borrower to have collateral; so either way, most of the new fiat money injected into the system goes straight to the rich in the form of cheap loans (so cheap in fact that they're basically free because dividend payments or earnings from just about any asset are higher than the interest rate that they have to pay back). Then at the same time, the government taxes workers based on their income (not based on wealth); this form of taxation depletes the working classes of any surplus disposable income and as a result, makes it seem like inflation is stable but in reality, because rich people don't pay much income tax (through offshore holdings, etc...), their wealth is silently hyper-inflating. Because rich people can only physically consume so much stuff, this kind of top-inflation doesn't show up in the Consumer Price Index; instead it shows up as increase in the Shiller PE ratio and an increase in the valuation of speculative startups and private equity. Since fiat money was introduced, the system has been on a death spiral. The more time passes without complete economic failure, the more brittle the system is becoming.

icedchai 7y ago

True, but to do #2, most people have to do #1, at least for a few years. That investment capital has to come from somewhere, right?

anonu 7y ago
True - and I think thats what the problem is that our society faces today. #1 isnt as valuable as it was pre-Internet. Doing work isn't very valuable because I can replace you with an automated system and replicate your work for 0 marginal cost to me. I want to believe in the laissez-faire principles of Friedman and other economists. But I think this time is different. Our society needs help.

bostonvaulter2 7y ago

The scary thing is that if we do not change the system, then the growth rate of capital will continue increasing and the inequality gap will just grow and grow. Remember that ONLY 30% of American graduate from college. If we don't change something those 70% of Americans will have a very rough life ahead of them. This is why I support Andrew Yang and a Universal Basic Income (which MLK also supported, he called it Guaranteed Income). Andrew Yang also has many other good policies that I've believed in for a long time, such as ranked choice voting, universal healthcare, and my pet favorite–abolishing the penny.