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What you're describing is still zero sum. The share price only went up because there is a bigger fool willing to pay more. New investors are funding old investo

What you're describing is still zero sum. The share price only went up because there is a bigger fool willing to pay more. New investors are funding old investors' gains. The only part that's not zero sum are the dividends that are paid out. It's kind of all a big Ponzi scheme, just with some dividends thrown in. Well, not counting only paid out dividends, but also dividends that are speculated to be paid out some time in the future.

wilkommen 5y ago
Yeah this is a perfect description. I find that it's really rare to find someone who sees it this way. The stock market is basically one big ponzi scheme that we're all bought into, which has two consequences: 1. We're never going to let it fail no matter what 2. Most of us are going to be unwilling to see that it's a ponzi scheme, leading to a lot of "religious thinking" about the whole thing justifying and attempting to rationalize and legitimize the way the "system" works. I would really like to find a respected and articulate authority who is has written a book or something about this, cause it feels weird to me seeing the whole system this way with so few people I've ever met agreeing with me, and none of them well known people.
- JohnPrine 5y ago
  When you're confused that very few knowledgable people agree with your model, it's usually an indicator that your model could be wrong.
  - wilkommen 5y ago
    Sometimes, yeah!
defaultprimate 5y ago
No it isn't, the company's underlying assets and performance can increase the value of the stock by itself.
- tablespoon 5y ago
  > No it isn't, the company's underlying assets and performance can increase the value of the stock by itself. Realistically, how are those things in any way accessible to a regular shareholder without dividends? Even if a company liquidates, by that point it's probably racked up so much debt that the shareholders get nothing. I'm by no means an economic historian, but my impression is people used to value stocks as a claim on future dividends. Then many companies stopped paying them, but people still pretend like they still do.
  - JohnPrine 5y ago
    They are accessible to a regular shareholder through the ability to sell the shares
    - bradlys 5y ago
      But to who? Another person who has to perpetuate the scheme?
      - JohnPrine 5y ago
        Can you read my comment here https://news.ycombinator.com/item?id=28721310 https://news.ycombinator.com/item?id=28721310 and let me know if it makes sense to you?
    - tablespoon 5y ago
      > They are accessible to a regular shareholder through the ability to sell the shares But isn't that only true if they sell the shares back to the company in a buyback (which is essentially a dividend)? Otherwise, they're just accessing the proverbial greater fool's assets.
      - JohnPrine 5y ago
        Can you read my comment here https://news.ycombinator.com/item?id=28721310 https://news.ycombinator.com/item?id=28721310 and let me know if it clears up my explanation?
JohnPrine 5y ago
I don't quite understand. Suppose a company has a bank account with $1000. I own shares equating to 25% of the company, worth $250. The company has a good quarter and the bank account grows to $2000, but it doesn't pay a dividend. How should the growth of the bank account affect the price of my shares? Under the model of stock pricing you described, the price wouldn't increase and it would take a fool to buy them from me for more than $250. But the bank account of which I own 25% of the shares has doubled in value, so it wouldn't make sense to me that the share price wouldn't change.
- tablespoon 5y ago
  What's the of value owning a bank account you can't take a withdrawal from? Just now, with this comment, I've started a "bank" and I'm granting you. JohnPrine, an account with a balance of $1,000,000. However, the terms are you can never, ever withdraw or transfer that money under any circumstance. How much does this new account add to your net worth?
  - defaultprimate 5y ago
    What assets and performance metrics do you have backing this account worth $100000? From what are you deriving its value? What rights and privileges are granted over your bank by owning a portion of this account?
    - tablespoon 5y ago
      > What assets and performance metrics do you have backing this account worth $100000? From what are you deriving its value? I'm a multi-millionaire and successful businessman, but what does that matter? You can't take the money out regardless if it's backed by anything or not. > What rights and privileges are granted over your bank by owning a portion of this account? You get to vote in a meaningless election.
      - JohnPrine 5y ago
        If you granted me ownership of the account and then denied me access, I could take you to court. Stock ownership is a legal agreement. If the leadership of the corporation doesn't act in the shareholders' best interest, they'll be replaced with someone who does. Stock markets have worked for 400 years. Don't you think that makes it less likely that they're ponzi schemes?
bern4444 5y ago
A company’s share price can go up for several reasons. The most obvious of which is that a company creates value. Some of that created value (by selling products and services the company creates) is captured by the share price going up. As share prices go up, more people may take notice and realize that company is and has the potential to continually create more and more value and want in. Once a company stops delivering on that premise, people again take notice and begin to sell. Maybe they sell to others who disagree and believe that there is still value to be created in the future. Sometimes it’s even very difficult to buy or sell shares for companies because it’s hard to find someone willing to buy shares your selling or someone willing to sell shares you want to buy. There is risk. Different people value companies in different ways and have different ideas on how to measure it. It’s not in any way a ponzi scheme.
- tablespoon 5y ago
  > As share prices go up, more people may take notice and realize that company is and has the potential to continually create more and more value and want in. > Once a company stops delivering on that premise, people again take notice and begin to sell. Maybe they sell to others who disagree and believe that there is still value to be created in the future. The exact same thing is true of a Ponzi scheme.
  - idrios 5y ago
    Yes, but the difference is that a Ponzi scheme never created value in the first place and was always zero sum. If Joe's Farm sells corn and Jane's Lumberyard sells wood, you could invest in either, which they would use to expand, resulting in more corn and more lumber and therefore value was created. Meanwhile, if you invest in Jim's Useless Objects you'll end up with only more useless objects that have no real value to anyone. Jim's running a Ponzi Scheme.
    - xg15 5y ago
      How exactly do you define "creating value"? > resulting in more corn and more lumber and therefore value was created. > Maybe they sell to others who disagree and believe that there is still value to be created in the future. The first paragraph implies "value" is an objective quantity while the second one implies "value" is subjective to a particular investor. Both can't be true at the same time. We can all have different believes about future creation of value, but if value is objective then some of those believes will simply turn out to be wrong. The problem is that we need someone to have incorrect believes so we can sell to them - at which point, it's again just a ponzi scheme.
afiori 5y ago
when the entire market goes up everybody makes "money", that is the definition of not-zero-sum. The fact that many people are competing for a limited quantity of gains is not enough to be a zero sum, the ammount of possible gains need to remain constant.
- xg15 5y ago
  > when the entire market goes up everybody makes "money" But they don't. They make "potential" money as in "if I sold now, I'd have $x more than before I bought the stock". But if all stock holders actually sold, the price would quickly plummet. So it's not possible to actually realize the full valuation as cash without literally printing money somewhere. I think it's important not to conflate actual and potential value. Otherwise you could also argue that lottery tickets are a great investment because you can instantly turn a few dollars into a million.
  - afiori 5y ago
    > So it's not possible to actually realize the full valuation as cash without literally printing money somewhere. This is not a downside, clearly (economically speaking) we are much richer compared to few centuries ago, that came out of nowhere.

wilkommen 5y ago

Yeah this is a perfect description. I find that it's really rare to find someone who sees it this way. The stock market is basically one big ponzi scheme that we're all bought into, which has two consequences: 1. We're never going to let it fail no matter what 2. Most of us are going to be unwilling to see that it's a ponzi scheme, leading to a lot of "religious thinking" about the whole thing justifying and attempting to rationalize and legitimize the way the "system" works. I would really like to find a respected and articulate authority who is has written a book or something about this, cause it feels weird to me seeing the whole system this way with so few people I've ever met agreeing with me, and none of them well known people.

JohnPrine 5y ago
When you're confused that very few knowledgable people agree with your model, it's usually an indicator that your model could be wrong.
- wilkommen 5y ago
  Sometimes, yeah!

defaultprimate 5y ago

No it isn't, the company's underlying assets and performance can increase the value of the stock by itself.

tablespoon 5y ago
> No it isn't, the company's underlying assets and performance can increase the value of the stock by itself. Realistically, how are those things in any way accessible to a regular shareholder without dividends? Even if a company liquidates, by that point it's probably racked up so much debt that the shareholders get nothing. I'm by no means an economic historian, but my impression is people used to value stocks as a claim on future dividends. Then many companies stopped paying them, but people still pretend like they still do.
- JohnPrine 5y ago
  They are accessible to a regular shareholder through the ability to sell the shares
  - bradlys 5y ago
    But to who? Another person who has to perpetuate the scheme?
    - JohnPrine 5y ago
      Can you read my comment here https://news.ycombinator.com/item?id=28721310 https://news.ycombinator.com/item?id=28721310 and let me know if it makes sense to you?
  - tablespoon 5y ago
    > They are accessible to a regular shareholder through the ability to sell the shares But isn't that only true if they sell the shares back to the company in a buyback (which is essentially a dividend)? Otherwise, they're just accessing the proverbial greater fool's assets.
    - JohnPrine 5y ago
      Can you read my comment here https://news.ycombinator.com/item?id=28721310 https://news.ycombinator.com/item?id=28721310 and let me know if it clears up my explanation?

JohnPrine 5y ago

I don't quite understand. Suppose a company has a bank account with $1000. I own shares equating to 25% of the company, worth $250. The company has a good quarter and the bank account grows to $2000, but it doesn't pay a dividend. How should the growth of the bank account affect the price of my shares? Under the model of stock pricing you described, the price wouldn't increase and it would take a fool to buy them from me for more than $250. But the bank account of which I own 25% of the shares has doubled in value, so it wouldn't make sense to me that the share price wouldn't change.

tablespoon 5y ago
What's the of value owning a bank account you can't take a withdrawal from? Just now, with this comment, I've started a "bank" and I'm granting you. JohnPrine, an account with a balance of $1,000,000. However, the terms are you can never, ever withdraw or transfer that money under any circumstance. How much does this new account add to your net worth?
- defaultprimate 5y ago
  What assets and performance metrics do you have backing this account worth $100000? From what are you deriving its value? What rights and privileges are granted over your bank by owning a portion of this account?
  - tablespoon 5y ago
    > What assets and performance metrics do you have backing this account worth $100000? From what are you deriving its value? I'm a multi-millionaire and successful businessman, but what does that matter? You can't take the money out regardless if it's backed by anything or not. > What rights and privileges are granted over your bank by owning a portion of this account? You get to vote in a meaningless election.
    - JohnPrine 5y ago
      If you granted me ownership of the account and then denied me access, I could take you to court. Stock ownership is a legal agreement. If the leadership of the corporation doesn't act in the shareholders' best interest, they'll be replaced with someone who does. Stock markets have worked for 400 years. Don't you think that makes it less likely that they're ponzi schemes?

bern4444 5y ago

A company’s share price can go up for several reasons. The most obvious of which is that a company creates value. Some of that created value (by selling products and services the company creates) is captured by the share price going up. As share prices go up, more people may take notice and realize that company is and has the potential to continually create more and more value and want in. Once a company stops delivering on that premise, people again take notice and begin to sell. Maybe they sell to others who disagree and believe that there is still value to be created in the future. Sometimes it’s even very difficult to buy or sell shares for companies because it’s hard to find someone willing to buy shares your selling or someone willing to sell shares you want to buy. There is risk. Different people value companies in different ways and have different ideas on how to measure it. It’s not in any way a ponzi scheme.

tablespoon 5y ago
> As share prices go up, more people may take notice and realize that company is and has the potential to continually create more and more value and want in. > Once a company stops delivering on that premise, people again take notice and begin to sell. Maybe they sell to others who disagree and believe that there is still value to be created in the future. The exact same thing is true of a Ponzi scheme.
- idrios 5y ago
  Yes, but the difference is that a Ponzi scheme never created value in the first place and was always zero sum. If Joe's Farm sells corn and Jane's Lumberyard sells wood, you could invest in either, which they would use to expand, resulting in more corn and more lumber and therefore value was created. Meanwhile, if you invest in Jim's Useless Objects you'll end up with only more useless objects that have no real value to anyone. Jim's running a Ponzi Scheme.
  - xg15 5y ago
    How exactly do you define "creating value"? > resulting in more corn and more lumber and therefore value was created. > Maybe they sell to others who disagree and believe that there is still value to be created in the future. The first paragraph implies "value" is an objective quantity while the second one implies "value" is subjective to a particular investor. Both can't be true at the same time. We can all have different believes about future creation of value, but if value is objective then some of those believes will simply turn out to be wrong. The problem is that we need someone to have incorrect believes so we can sell to them - at which point, it's again just a ponzi scheme.

afiori 5y ago

when the entire market goes up everybody makes "money", that is the definition of not-zero-sum. The fact that many people are competing for a limited quantity of gains is not enough to be a zero sum, the ammount of possible gains need to remain constant.

xg15 5y ago
> when the entire market goes up everybody makes "money" But they don't. They make "potential" money as in "if I sold now, I'd have $x more than before I bought the stock". But if all stock holders actually sold, the price would quickly plummet. So it's not possible to actually realize the full valuation as cash without literally printing money somewhere. I think it's important not to conflate actual and potential value. Otherwise you could also argue that lottery tickets are a great investment because you can instantly turn a few dollars into a million.
- afiori 5y ago
  > So it's not possible to actually realize the full valuation as cash without literally printing money somewhere. This is not a downside, clearly (economically speaking) we are much richer compared to few centuries ago, that came out of nowhere.