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Someone isn't always wrong on a trade. Case in point, someone sells shares to fund their retirement, the counterparty buys those shares for the dividend return

Someone isn't always wrong on a trade. Case in point, someone sells shares to fund their retirement, the counterparty buys those shares for the dividend return and/or expected capital gains. This happens all the time. How is anyone wrong in this scenario?

anonymouskimmer 3y ago
I agree in principle. But theoretically if the share is expected to go up at faster than the rate of compounded interest at the current interest rate, then it's a better deal for the seller to instead take out a loan using the share as collateral. And if the share is not expected to go up at faster than the rate of compounded interest at the current interest rate, then it might be a better deal for the buyer to loan out their money instead. The only thing that would make this a worse decision than the share trade are middleman costs.
- willdearden 3y ago
  People have different risk exposures and different risk appetites. If you're a corn farmer then your entire livelihood is tied to the price of corn. You're willing to give up expected value to reduce risk by selling futures and there are others who are less exposed to corn prices who are willing to take the other side of that trade.
- yellowstuff 3y ago
  Sure, in an idealized enough world you can make many statements true. In the real world people buy and sell stock for many reasons, and value different types of returns on different time horizons, and it’s likely that for a majority of stock trades both the buyer and seller are happy with the trade.
- HWR_14 3y ago
  In your theory, there is no cost to servicing loans (on both sides), foreclosing on an asset or long term lockup of capital in not perfectly liquid markets. Or other uses for shares (eg exerting corporate control) absent receiving dividend streams.
  - anonymouskimmer 3y ago
    With the exception of corporate control, this is covered in my final sentence.
    - HWR_14 3y ago
      None of my costs had to do with middlemen.
      - anonymouskimmer 3y ago
        Loan servicing costs only exist because of middlemen. If two people directly interface for a loan there is no additional cost (other than the cost of transportation, which only exists because a middleman is charging for gas and car maintenance). Foreclosing on an asset doesn't happen in my example, but regardless is not a cost, but a risk, which the interest rate should be accounting for. Longterm lockup of capital is not a problem, as either party in my example are financially gaining regardless. And I granted you the other uses for shares, which technically can be done without buying the share, but at a middleman cost (renting the share). I really don't care to continue this. Mine was just a hypothetical in favor of the idea that there's always a "loser" (when compared to all possible financial alternatives) in stock trades, even if everyone ends up happy with the trade. Sure, there are holes in the hypothetical, which is why I said I agreed with the comment I was replying to.
gonzo41 3y ago
You see the share market like someone who invests in value stocks. The other poster is showing their hand that they view the market as a casino. Which is sort of the prevailing 'theme' that comes out of places like WSB's.
- rotinNotes 3y ago
  That you “see” a market is just recitation of previously encountered and memorized speech. It’s just numbers. The labels are arbitrary. A lot of hallucinated money is spent on paying people to recite the correct tags and labels.
- throw9away6 3y ago
  In short durations it is a casino.

anonymouskimmer 3y ago

I agree in principle. But theoretically if the share is expected to go up at faster than the rate of compounded interest at the current interest rate, then it's a better deal for the seller to instead take out a loan using the share as collateral. And if the share is not expected to go up at faster than the rate of compounded interest at the current interest rate, then it might be a better deal for the buyer to loan out their money instead. The only thing that would make this a worse decision than the share trade are middleman costs.

willdearden 3y ago
People have different risk exposures and different risk appetites. If you're a corn farmer then your entire livelihood is tied to the price of corn. You're willing to give up expected value to reduce risk by selling futures and there are others who are less exposed to corn prices who are willing to take the other side of that trade.
yellowstuff 3y ago
Sure, in an idealized enough world you can make many statements true. In the real world people buy and sell stock for many reasons, and value different types of returns on different time horizons, and it’s likely that for a majority of stock trades both the buyer and seller are happy with the trade.
HWR_14 3y ago
In your theory, there is no cost to servicing loans (on both sides), foreclosing on an asset or long term lockup of capital in not perfectly liquid markets. Or other uses for shares (eg exerting corporate control) absent receiving dividend streams.
- anonymouskimmer 3y ago
  With the exception of corporate control, this is covered in my final sentence.
  - HWR_14 3y ago
    None of my costs had to do with middlemen.
    - anonymouskimmer 3y ago
      Loan servicing costs only exist because of middlemen. If two people directly interface for a loan there is no additional cost (other than the cost of transportation, which only exists because a middleman is charging for gas and car maintenance). Foreclosing on an asset doesn't happen in my example, but regardless is not a cost, but a risk, which the interest rate should be accounting for. Longterm lockup of capital is not a problem, as either party in my example are financially gaining regardless. And I granted you the other uses for shares, which technically can be done without buying the share, but at a middleman cost (renting the share). I really don't care to continue this. Mine was just a hypothetical in favor of the idea that there's always a "loser" (when compared to all possible financial alternatives) in stock trades, even if everyone ends up happy with the trade. Sure, there are holes in the hypothetical, which is why I said I agreed with the comment I was replying to.

gonzo41 3y ago

You see the share market like someone who invests in value stocks. The other poster is showing their hand that they view the market as a casino. Which is sort of the prevailing 'theme' that comes out of places like WSB's.

rotinNotes 3y ago
That you “see” a market is just recitation of previously encountered and memorized speech. It’s just numbers. The labels are arbitrary. A lot of hallucinated money is spent on paying people to recite the correct tags and labels.
throw9away6 3y ago
In short durations it is a casino.