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I think a lot of newcomers to stock investing in the past year have been given the wrong ideas about the stock market. When all of the headlines are about Game

I think a lot of newcomers to stock investing in the past year have been given the wrong ideas about the stock market. When all of the headlines are about GameStop and Nokia and AMC and some kid who made it lost a lot of money on RobinHood, the stock market can feel like a place for gambling. Now that cryptocurrency prices are listed right next to stock prices, many people don’t even understand that stocks are ownership shares in real businesses instead of just another ticker symbol to gamble on. Several times a week there are conversations on HN where commenters can’t understand how crypto currencies are different than stocks or how stocks are any different than gambling or why stocks can have any value without paying dividends. I suspect many of those newcomers will be shaken out of the market during the next protracted drawdown. It’s unfortunate, because they stand to lose a lot over the course of a lifetime of investing.

Red_Leaves_Flyy 6y ago
> the next protracted drawdown We should have seen this drawdown last year.
- thoughtstheseus 6y ago
  The longer the bubble builds the bigger the bust. We’ve chosen growth over stability, fundamentals, and robustness. Once the U.S. struggles to stimulate its economy through deficit spending it’ll hit a wall. It’ll be fine for people but there will be a massive dislocation in the economy.
  - Red_Leaves_Flyy 6y ago
    I understand this. I'd much rather deal with the bad decisions of yesterday today than tomorrow. I guess for people that won't be alive in twenty years this is immaterial..
    - willcipriano 6y ago
      Check out the ages of elected officials, most are in the "won't be alive in twenty years" camp so the lack of foresight is unsurprising.
      - Red_Leaves_Flyy 6y ago
        That is part of my reasoning behind my statement. The other part is the desires and concerns of the largest demographics electing these same people.
  - kqr 6y ago
    As long as people are still unemployed there should be no reason for the US with its sovereign currency to struggle stimulating the economy. Even if you guys would overshoot full employment your current president doesn't seem too frightened by the idea of taxing coins out of existence again.
  - imtringued 6y ago
    This is an argument in favor of pushing up inflation as soon as possible. Ideally inflation should be 2% and interest rates should be between 3-4% and it should stay that way forever. If there is a discrepancy from that ideal then it means that something is going wrong, and the longer that discrepancy lasts, the more things are going wrong. Those wrong things will be discovered as soon as interest rates are back to their normal level.
    - omegaworks 6y ago
      Why those magic numbers?
ryandrake 6y ago
> Now that cryptocurrency prices are listed right next to stock prices, many people don’t even understand that stocks are ownership shares in real businesses instead of just another ticker symbol to gamble on. This distinction is practically useless, unless you own enough shares to have even tiny sway at shareholder meetings. Owning 1/1000000000th of a company doesn't mean any extra value or power to you. The big difference between crypto coins and stock is that (some) stocks pay dividends. The ones that don't pay dividends are just speculative ticker symbols that go up and down in value--no difference from crypto names that go up and down.
- hobs 6y ago
  There's a large difference, one of those is based on a pyramid scheme with no inherent value, and one is based on a company delivering value to customers. With the state of the stock market companies can and do go under, but generally those doing something for people dont magically disappear overnight (like any crypto certainly can.) That's it; that's the difference.
  - kqr 6y ago
    Sure, but this is already priced in. Most equity doesn't go completely down the toilet overnight, but it also doesn't give you spectacular overnight returns. So it's still a game, only for lower stakes in both directions.
  - bko 6y ago
    > There's a large difference, one of those is based on a pyramid scheme with no inherent value, and one is based on a company delivering value to customers. Crypto is mostly a store of wealth, similar to a currency. It's inherit value is that it is fungible, transferrable and scarce. Unlike other currencies, the supply is not at the whims of fed officials and politicians. The difference is that you can't pay taxes directly in crypto. I like it as a hedge. Do you believe all currencies are pyramid schemes with no inherent value as they're based on nothing?
    - jonfw 6y ago
whatshisface 6y ago
>why stocks can have any value without paying dividends. Well, if a company was never going to issue dividends at any time in the future, or do dividend-alternatives like buybacks or a liquidation at the end of its life (not a normal option), or anything else, its shares would be worthless. I could actually imagine a tech company going out of business before its first dividend.
- bluGill 6y ago
  Many have gone bankrupt without any form of dividend. Many others have gone on for years reinvesting in the business before doing a dividend. (I'm counting as buy-back as a dividend - with modern tax code it is currently a better way to do them)
- imtringued 6y ago
  Yes, but everyone is aware of this. Nobody talks about cryptocurrencies "going out of business", even though this is a thing that happens all the time.
dnautics 6y ago
> It’s unfortunate, because they stand to lose a lot over the course of a lifetime of investing. On the other hand, it's worth gambling in stocks because if you don't your going to lose your shirt in the upcoming inflation, so you might as well roll the dice and shot your shit at not winding up poor. Especially since there are tax increases targeted at the rich coming down the pike that are going to absolutely destroy you if you are middle class or poor, when a mcdouble costs $20 instead of $2 and the minimum wage is $100/hr instead of $15
dcow 6y ago
The problem is options/derivatives trading. That is straight up gambling. There’s a meta market where you bet on the behavior of the market...
- kqr 6y ago
  While that is a large part of it, it also seems like an unfair simplification, for two reasons: 1. You can construct portfolios of derivatives that are almost equivalent to holding the underlying except at a smaller initial cost. This gives you nothing but flexibility in ownership. 2. Remember that fire insurance is also straight up gambling that your house will burn down. Gambling counter to your interests is what we call insurance, and the proper mix of underlying and derivative is a hedged, lower risk portfolio than just the underlying.
- hattmall 6y ago
  It is ALL gambling, options are just another instrument, they can make your gamble more risky or less risky depending on how you use them. Except in very rare cases stocks are entirely based on what investors think someone else is willing to pay in the future.
  - dcow 6y ago
    When I buy TSLA stock I’m not gambling on the future of Tesla. I’m investing in electric vehicles. So it’s “value investing” insofar as that’s my motive for investing. Sure I could gamble with plain stocks in the market, but thats not my motive or goal. Others, sure. Of course stocks are based on what investors think they’re worth. Thats the whole point. It’s not gambling. Tesla is worth a lot of money because people think it is. If you’re susceptible to fomo hype trains and looking for a quick buck, you’re looking at the market as a slot machine, no doubt. Stocks pay owners other than their value in the market, too. Capitalists look to make money off the market. It doesn't mean it’s all gambling. That’s a little reductive.
- Der_Einzige 6y ago
  When gambling, the house "always wins" over time. With options trading, that's not always the case. Anyone with a gambling addiction would be far better off doing options trading - their chances are much better.
MR4D 6y ago
I agree completely. Downturns are events where many participants learn how the market really works. It’s an ugly reality check, but thankfully we have them frequently. Otherwise you get really overbought and then events like the tulip mania/bubble happen. Also, this isn't limited to stocks - back when whale oil was a thing, there were all sorts of booms and busts, depending mostly if a ship came in with or without a whale. Instead of Wall Street analysts, there were people with telescopes to view the incoming ships as far from port as possible to gain an information advantage. All of my research in this suggests this behavior is hardwired into human DNA and won’t ever change.

Red_Leaves_Flyy 6y ago

> the next protracted drawdown We should have seen this drawdown last year.

thoughtstheseus 6y ago
The longer the bubble builds the bigger the bust. We’ve chosen growth over stability, fundamentals, and robustness. Once the U.S. struggles to stimulate its economy through deficit spending it’ll hit a wall. It’ll be fine for people but there will be a massive dislocation in the economy.
- Red_Leaves_Flyy 6y ago
  I understand this. I'd much rather deal with the bad decisions of yesterday today than tomorrow. I guess for people that won't be alive in twenty years this is immaterial..
  - willcipriano 6y ago
    Check out the ages of elected officials, most are in the "won't be alive in twenty years" camp so the lack of foresight is unsurprising.
    - Red_Leaves_Flyy 6y ago
      That is part of my reasoning behind my statement. The other part is the desires and concerns of the largest demographics electing these same people.
- kqr 6y ago
  As long as people are still unemployed there should be no reason for the US with its sovereign currency to struggle stimulating the economy. Even if you guys would overshoot full employment your current president doesn't seem too frightened by the idea of taxing coins out of existence again.
- imtringued 6y ago
  This is an argument in favor of pushing up inflation as soon as possible. Ideally inflation should be 2% and interest rates should be between 3-4% and it should stay that way forever. If there is a discrepancy from that ideal then it means that something is going wrong, and the longer that discrepancy lasts, the more things are going wrong. Those wrong things will be discovered as soon as interest rates are back to their normal level.
  - omegaworks 6y ago
    Why those magic numbers?

ryandrake 6y ago

> Now that cryptocurrency prices are listed right next to stock prices, many people don’t even understand that stocks are ownership shares in real businesses instead of just another ticker symbol to gamble on. This distinction is practically useless, unless you own enough shares to have even tiny sway at shareholder meetings. Owning 1/1000000000th of a company doesn't mean any extra value or power to you. The big difference between crypto coins and stock is that (some) stocks pay dividends. The ones that don't pay dividends are just speculative ticker symbols that go up and down in value--no difference from crypto names that go up and down.

hobs 6y ago
There's a large difference, one of those is based on a pyramid scheme with no inherent value, and one is based on a company delivering value to customers. With the state of the stock market companies can and do go under, but generally those doing something for people dont magically disappear overnight (like any crypto certainly can.) That's it; that's the difference.
- kqr 6y ago
  Sure, but this is already priced in. Most equity doesn't go completely down the toilet overnight, but it also doesn't give you spectacular overnight returns. So it's still a game, only for lower stakes in both directions.
- bko 6y ago
  > There's a large difference, one of those is based on a pyramid scheme with no inherent value, and one is based on a company delivering value to customers. Crypto is mostly a store of wealth, similar to a currency. It's inherit value is that it is fungible, transferrable and scarce. Unlike other currencies, the supply is not at the whims of fed officials and politicians. The difference is that you can't pay taxes directly in crypto. I like it as a hedge. Do you believe all currencies are pyramid schemes with no inherent value as they're based on nothing?
  - jonfw 6y ago

whatshisface 6y ago

>why stocks can have any value without paying dividends. Well, if a company was never going to issue dividends at any time in the future, or do dividend-alternatives like buybacks or a liquidation at the end of its life (not a normal option), or anything else, its shares would be worthless. I could actually imagine a tech company going out of business before its first dividend.

bluGill 6y ago
Many have gone bankrupt without any form of dividend. Many others have gone on for years reinvesting in the business before doing a dividend. (I'm counting as buy-back as a dividend - with modern tax code it is currently a better way to do them)
imtringued 6y ago
Yes, but everyone is aware of this. Nobody talks about cryptocurrencies "going out of business", even though this is a thing that happens all the time.

dnautics 6y ago

> It’s unfortunate, because they stand to lose a lot over the course of a lifetime of investing. On the other hand, it's worth gambling in stocks because if you don't your going to lose your shirt in the upcoming inflation, so you might as well roll the dice and shot your shit at not winding up poor. Especially since there are tax increases targeted at the rich coming down the pike that are going to absolutely destroy you if you are middle class or poor, when a mcdouble costs $20 instead of $2 and the minimum wage is $100/hr instead of $15

dcow 6y ago

The problem is options/derivatives trading. That is straight up gambling. There’s a meta market where you bet on the behavior of the market...

kqr 6y ago
While that is a large part of it, it also seems like an unfair simplification, for two reasons: 1. You can construct portfolios of derivatives that are almost equivalent to holding the underlying except at a smaller initial cost. This gives you nothing but flexibility in ownership. 2. Remember that fire insurance is also straight up gambling that your house will burn down. Gambling counter to your interests is what we call insurance, and the proper mix of underlying and derivative is a hedged, lower risk portfolio than just the underlying.
hattmall 6y ago
It is ALL gambling, options are just another instrument, they can make your gamble more risky or less risky depending on how you use them. Except in very rare cases stocks are entirely based on what investors think someone else is willing to pay in the future.
- dcow 6y ago
  When I buy TSLA stock I’m not gambling on the future of Tesla. I’m investing in electric vehicles. So it’s “value investing” insofar as that’s my motive for investing. Sure I could gamble with plain stocks in the market, but thats not my motive or goal. Others, sure. Of course stocks are based on what investors think they’re worth. Thats the whole point. It’s not gambling. Tesla is worth a lot of money because people think it is. If you’re susceptible to fomo hype trains and looking for a quick buck, you’re looking at the market as a slot machine, no doubt. Stocks pay owners other than their value in the market, too. Capitalists look to make money off the market. It doesn't mean it’s all gambling. That’s a little reductive.
Der_Einzige 6y ago
When gambling, the house "always wins" over time. With options trading, that's not always the case. Anyone with a gambling addiction would be far better off doing options trading - their chances are much better.

MR4D 6y ago

I agree completely. Downturns are events where many participants learn how the market really works. It’s an ugly reality check, but thankfully we have them frequently. Otherwise you get really overbought and then events like the tulip mania/bubble happen. Also, this isn't limited to stocks - back when whale oil was a thing, there were all sorts of booms and busts, depending mostly if a ship came in with or without a whale. Instead of Wall Street analysts, there were people with telescopes to view the incoming ships as far from port as possible to gain an information advantage. All of my research in this suggests this behavior is hardwired into human DNA and won’t ever change.