5 ms·

It's not a zero sum game, remember that value is created by inventions and improvements. If 10 people 10 years ago would have bought stocks in amazon and kept t

by jseban 5y ago

It's not a zero sum game, remember that value is created by inventions and improvements. If 10 people 10 years ago would have bought stocks in amazon and kept them for 1 year each, then sold on to the next person, and the last person just holds them 1 day and cashes out at basically break even. Then all of these 10 people have made money, and that's because because amazon is more efficient at something compared to the competitors. The losers are not the people who bought the stock "high", all stock owners won, the losers are the companies who lost business to amazon because they were less efficient. So everyone can win except those who are doing things in a way that's not efficient or not up to the latest standard. The end goal is progress, to eliminate unnecessary work and constantly move forward to other more valuable work.

newswasboring 5y ago
> and the last person just holds them 1 day and cashes out at basically break even. Cashes out how? That is what my confusion is. Shares don't have inherent value so to cash out you need to sell it to someone (sometimes the buyer is the company itself but I don't think that is sustainable beyond few percentage of their shares). Its not like an asset backed currency where you can go to a central bank and ask for consumable resources. (Although most times the asset is also useless, like gold). Its all just floating in the air from my point of view and "value" is just what someone else is willing to pay.
- tomalpha 5y ago
  But shares do have an inherent value. Owning them gives you a right to a share of the profits. You own a share of the company. You can vote on who you choose to run it - i.e. the board of Directors. Now many companies recently have chosen not to distribute profits - e.g. Amazon reinvests everything back into growth. And there are types of share that don’t give you a vote on who runs the company (or your tiny ownership percentage makes it meaningless). And there are companies that don’t make any profits so there’s nothing to share out! But shares, at least classically, do have an inherent value. Edit: Examples of these classic shares are “Dividend stocks” [0], but even with say TSLA or AMZN when you buy a share you’re buying the right to a share of the future profits. [0] https://www.investopedia.com/dividend-stocks-4689744 https://www.investopedia.com/dividend-stocks-4689744 Edit2: Now of course that inherent value might be zero if the company will never make a profit…
  - newswasboring 5y ago
    I understand what a dividend stock is I even mentioned these two concepts in my other post. But condescension aside now we are getting somewhere. So people are speculating on future earning and think profits will grow exponentially. But none of these companies are projecting profits in short or long term and I don't ever see talk of profits from people who are buying these stocks. Functionally it all seems to run on emotions.
    - jseban 5y ago
      Yeah it's strange that the market cares so little about profits, and it runs much on emotions, but that still doesn't make it "wrong" in any way, in my point of view, as a ponzi scheme would. Progress is still being made, and revenue as well. By the way, I hope you didn't find my tone condescending because I made such simplistic examples, just trying to be helpful, but probably mostly helping myself understand by typing it out :)
      - newswasboring 5y ago
        Maybe Ponzi scheme is too loaded a term but both have the same failure mode. At some point people will wise up and demand some real returns. It might not collapse but it will stop growing and there will be a knock on effect as so much of it is taken on leverage.
        nightski 5y ago
        "Wising up" is just the stock price going down. Happens all the time. Dividends are also paid regularly, which is real money in the investors pocket.
        newswasboring 5y ago
        Both Tesla and Amazon have never payed out a dividend even though they have had profitable quarters. Plenty other companies have never even had a profitable quarter. Yet the stock price keeps going up.
- jseban 5y ago
  Yeah the company can buy back their own shares, or it can get acquired and taken off the stock exchange. The stock can also become illiquid and you can't sell. But as long as the company keeps doing well, it could also just continue indefinitely. The only way it could go through a downwards spiral of plummeting stock price is if they are doing something inefficient or becoming worse. So people that invest in inefficient or bad companies are the ones who will lose, again the goal is to move money from the inefficient to the more efficient. I mean you try to avoid stagnation and luddism, there's always casualties whenever things change, even if it is change for the better overall, and these are the ones who will lose in the stock exchange. You can also just have really bad luck, invest your whole life savings in a farrier business just before the car was invented, so bad luck can also make you lose but the idea is that the change is for the better overall.
  - newswasboring 5y ago
    I think we are talking past each other. I'm trying to understand what is the value of one stock apart from speculative valuation. It seems to me you agree that there is none beyond what someone else is willing to pay for it.
    - jseban 5y ago
      Apart from speculative valuation, it's the value of the goods and services produced by the company + it's assets etc.
      - newswasboring 5y ago
        Has there ever been any case where people were actually able to cash out in that way? Companies to my knowledge tend to fail catastrophically and in that scenario nobody really gets anything. And there isn't a way to "cash out" apart from selling it to someone else.
        jseban 5y ago
        I owned shares in a company that was suddenly acquired and all shareholders cashed out with a nice profit. This company didn't fail, it just succeeded and disappeared.
- jseban 5y ago
  If you have a great idea but no resources to realise it, you create a limited liability company, issue stock to the market to raise money to create your business. It's just a way to raise money to create products, inventions etc. Like crowdsourcing except you get a share in the company instead of giving it as a donation for a sticker or a t-shirt. Edit: a ponzi scheme would be if the company is constantly issuing more and more stock at an ever increasing price, and do not have any other actual revenue but somehow is faking this for the market to believe.
- neutronicus 5y ago
  It's supposed to be "the NPV of the dividend annuity." In the event that there is no Greater Fool, the shareholders as a body have some recourse to generate income from the company. So it's not just a Pokemon card. But I agree no one seems to be calculating this. I think no one wants dividends because of how they're taxed relative to capital gains
  - deleted 5y ago
    [deleted]
  - sokoloff 5y ago
    You mean how qualified dividends* are taxed like long-term capital gains already? * - which is almost all of them
    - jkhdigital 5y ago
      Yeah at this point the only difference is timing of the tax liability, but timing can count for a lot.
- UncleMeat 5y ago
  Buybacks.
amelius 5y ago
The problem is that this gets us in an undesirable local optimum. Because if all investors put money in a pile to outcompete the rest, at some point the company can throw its weight around against other companies and consumers too.

by jseban 5y ago

newswasboring 5y ago

> and the last person just holds them 1 day and cashes out at basically break even. Cashes out how? That is what my confusion is. Shares don't have inherent value so to cash out you need to sell it to someone (sometimes the buyer is the company itself but I don't think that is sustainable beyond few percentage of their shares). Its not like an asset backed currency where you can go to a central bank and ask for consumable resources. (Although most times the asset is also useless, like gold). Its all just floating in the air from my point of view and "value" is just what someone else is willing to pay.

tomalpha 5y ago
But shares do have an inherent value. Owning them gives you a right to a share of the profits. You own a share of the company. You can vote on who you choose to run it - i.e. the board of Directors. Now many companies recently have chosen not to distribute profits - e.g. Amazon reinvests everything back into growth. And there are types of share that don’t give you a vote on who runs the company (or your tiny ownership percentage makes it meaningless). And there are companies that don’t make any profits so there’s nothing to share out! But shares, at least classically, do have an inherent value. Edit: Examples of these classic shares are “Dividend stocks” [0], but even with say TSLA or AMZN when you buy a share you’re buying the right to a share of the future profits. [0] https://www.investopedia.com/dividend-stocks-4689744 https://www.investopedia.com/dividend-stocks-4689744 Edit2: Now of course that inherent value might be zero if the company will never make a profit…
- newswasboring 5y ago
  I understand what a dividend stock is I even mentioned these two concepts in my other post. But condescension aside now we are getting somewhere. So people are speculating on future earning and think profits will grow exponentially. But none of these companies are projecting profits in short or long term and I don't ever see talk of profits from people who are buying these stocks. Functionally it all seems to run on emotions.
  - jseban 5y ago
    Yeah it's strange that the market cares so little about profits, and it runs much on emotions, but that still doesn't make it "wrong" in any way, in my point of view, as a ponzi scheme would. Progress is still being made, and revenue as well. By the way, I hope you didn't find my tone condescending because I made such simplistic examples, just trying to be helpful, but probably mostly helping myself understand by typing it out :)
    - newswasboring 5y ago
      Maybe Ponzi scheme is too loaded a term but both have the same failure mode. At some point people will wise up and demand some real returns. It might not collapse but it will stop growing and there will be a knock on effect as so much of it is taken on leverage.
      - nightski 5y ago
        "Wising up" is just the stock price going down. Happens all the time. Dividends are also paid regularly, which is real money in the investors pocket.
        newswasboring 5y ago
        Both Tesla and Amazon have never payed out a dividend even though they have had profitable quarters. Plenty other companies have never even had a profitable quarter. Yet the stock price keeps going up.
jseban 5y ago
Yeah the company can buy back their own shares, or it can get acquired and taken off the stock exchange. The stock can also become illiquid and you can't sell. But as long as the company keeps doing well, it could also just continue indefinitely. The only way it could go through a downwards spiral of plummeting stock price is if they are doing something inefficient or becoming worse. So people that invest in inefficient or bad companies are the ones who will lose, again the goal is to move money from the inefficient to the more efficient. I mean you try to avoid stagnation and luddism, there's always casualties whenever things change, even if it is change for the better overall, and these are the ones who will lose in the stock exchange. You can also just have really bad luck, invest your whole life savings in a farrier business just before the car was invented, so bad luck can also make you lose but the idea is that the change is for the better overall.
- newswasboring 5y ago
  I think we are talking past each other. I'm trying to understand what is the value of one stock apart from speculative valuation. It seems to me you agree that there is none beyond what someone else is willing to pay for it.
  - jseban 5y ago
    Apart from speculative valuation, it's the value of the goods and services produced by the company + it's assets etc.
    - newswasboring 5y ago
      Has there ever been any case where people were actually able to cash out in that way? Companies to my knowledge tend to fail catastrophically and in that scenario nobody really gets anything. And there isn't a way to "cash out" apart from selling it to someone else.
      - jseban 5y ago
        I owned shares in a company that was suddenly acquired and all shareholders cashed out with a nice profit. This company didn't fail, it just succeeded and disappeared.
jseban 5y ago
If you have a great idea but no resources to realise it, you create a limited liability company, issue stock to the market to raise money to create your business. It's just a way to raise money to create products, inventions etc. Like crowdsourcing except you get a share in the company instead of giving it as a donation for a sticker or a t-shirt. Edit: a ponzi scheme would be if the company is constantly issuing more and more stock at an ever increasing price, and do not have any other actual revenue but somehow is faking this for the market to believe.
neutronicus 5y ago
It's supposed to be "the NPV of the dividend annuity." In the event that there is no Greater Fool, the shareholders as a body have some recourse to generate income from the company. So it's not just a Pokemon card. But I agree no one seems to be calculating this. I think no one wants dividends because of how they're taxed relative to capital gains
- deleted 5y ago
  [deleted]
- sokoloff 5y ago
  You mean how qualified dividends* are taxed like long-term capital gains already? * - which is almost all of them
  - jkhdigital 5y ago
    Yeah at this point the only difference is timing of the tax liability, but timing can count for a lot.
UncleMeat 5y ago
Buybacks.

amelius 5y ago

The problem is that this gets us in an undesirable local optimum. Because if all investors put money in a pile to outcompete the rest, at some point the company can throw its weight around against other companies and consumers too.