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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 product

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.
    - chii 5y ago
      > value to be created in the future this is the subjective, aka, speculative value. > resulting in more corn and more lumber this is the objective value - it's already realized (aka, this is the profits the company have made). > Both can't be true at the same time. They are different things, and certainly can be true at the same time. > The problem is that we need someone to have incorrect believes so we can sell to them no, we need someone who would speculate that the future value would be higher than today's value, but it's not a ponzi scheme because the company is constantly creating value (as it's profitable currently). Ponzi scheme requires that there's no underlying value being generated, and that all current profits paid out from new investors.
- bern4444 5y ago
  Just like idrios said, the difference is the creation of value. Companies especially public ones, must produce value. If they don't, no one will invest and if they continue not producing value long enough, they go broke and declare bankruptcy. In a ponzi scheme, money is just moved from new investors to old investors without any value creation. It's impossible to sustain which is why the only interesting question is how long can a ponzi scheme keep going. That's one aspect why Madoff's ponzi scheme was so incredible. It went on for nearly 2 decades (~17 years)! It's why pyramid schemes are ponzi schemes, they rely on continuously recruiting new people who invest and funnel money up. Once you're in one your goal is to recruit as many people as possible so you're not at the bottom and begin getting money flowing up to you. Companies (public and private) go bust all the time and do a lot more than move money around. In fact, a company only gets money from its shares through a traditional IPO. The public markets are second hand markets. If I buy a share of Apple stock, Apple doesn't get another ~$142 (approx its current share price). The person from whom I'm buying the shares gets it. The only way the company can directly get cash from its stock is by issuing and then selling new stock. Stock fundamentally is a currency the company can control just as the Fed and Treasury control the Dollar. It's an asset which also means companies can take out loans against stock they have as collateral (or they could just sell any extra shares they have to the market). All of this is also what makes bankruptcy very interesting. A lot of people are owed money, various types of investors, employees etc. Who gets paid, and how much is always the question. Some people by legal right have higher priority than others. Judges play a role in adjudicating this too. TLDR: Companies are obviously not ponzi schemes. The stock market is just a way for people to benefit from companies' success.
greenhatman 5y ago
There is only one reason the share price goes up. And that is when there is more buying than selling pressure. Now there are many reasons why buying and selling pressure fluctuates. But those don't directly influence price. It's only buying and selling.

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.
  - chii 5y ago
    > value to be created in the future this is the subjective, aka, speculative value. > resulting in more corn and more lumber this is the objective value - it's already realized (aka, this is the profits the company have made). > Both can't be true at the same time. They are different things, and certainly can be true at the same time. > The problem is that we need someone to have incorrect believes so we can sell to them no, we need someone who would speculate that the future value would be higher than today's value, but it's not a ponzi scheme because the company is constantly creating value (as it's profitable currently). Ponzi scheme requires that there's no underlying value being generated, and that all current profits paid out from new investors.
bern4444 5y ago
Just like idrios said, the difference is the creation of value. Companies especially public ones, must produce value. If they don't, no one will invest and if they continue not producing value long enough, they go broke and declare bankruptcy. In a ponzi scheme, money is just moved from new investors to old investors without any value creation. It's impossible to sustain which is why the only interesting question is how long can a ponzi scheme keep going. That's one aspect why Madoff's ponzi scheme was so incredible. It went on for nearly 2 decades (~17 years)! It's why pyramid schemes are ponzi schemes, they rely on continuously recruiting new people who invest and funnel money up. Once you're in one your goal is to recruit as many people as possible so you're not at the bottom and begin getting money flowing up to you. Companies (public and private) go bust all the time and do a lot more than move money around. In fact, a company only gets money from its shares through a traditional IPO. The public markets are second hand markets. If I buy a share of Apple stock, Apple doesn't get another ~$142 (approx its current share price). The person from whom I'm buying the shares gets it. The only way the company can directly get cash from its stock is by issuing and then selling new stock. Stock fundamentally is a currency the company can control just as the Fed and Treasury control the Dollar. It's an asset which also means companies can take out loans against stock they have as collateral (or they could just sell any extra shares they have to the market). All of this is also what makes bankruptcy very interesting. A lot of people are owed money, various types of investors, employees etc. Who gets paid, and how much is always the question. Some people by legal right have higher priority than others. Judges play a role in adjudicating this too. TLDR: Companies are obviously not ponzi schemes. The stock market is just a way for people to benefit from companies' success.

greenhatman 5y ago

There is only one reason the share price goes up. And that is when there is more buying than selling pressure. Now there are many reasons why buying and selling pressure fluctuates. But those don't directly influence price. It's only buying and selling.