13 ms·

Can the stock market go to zero?

42 points by XxDeathManxX 3y ago

justrealist 3y ago
No, it can't. I am the backstop. If the stock market goes to $1 I will personally buy all public companies in the US using the change I found underneath my couch. I am willing to make this personal sacrifice to maintain the financial stability of the free world. It's not a burden I take lightly, but it's one I take of my own volition.
- stevenjgarner 3y ago
  I offer to buy your position for $2.00 giving you a 100% upside profit and doubling the value of the US stock market. Capitalism is awesome!
  - contingencies 3y ago
    I offer to charge for advice, regardless of its utility. Alternatively, I offer to corrupt the regulatory oversight such that the entire thing becomes a pay-to-play arrangement whereby I am guaranteed a return but no liability for my selfless work.
    - boeingUH60 3y ago
      Post-apocalypse Goldman Sachs CEO.
- atq2119 3y ago
  If you actually read the article, do you think your strategy would have worked in China when communism took over? The article itself presents a much better reasoned account of all this than your comment.
- bruce511 3y ago
  Ironically, that's not how it would play out. When a company goes bust it isn't worth 0. Its actually worth way less year 0. (In other words it owes creditors money.) Yes, it'll own some assets, customer lists, trade marks, copyrights, maybe even property, vehicles, desks, a coffee machine, whatever [1]. The liquidator will come in, assess quickly how much everything is worth, then plan how to spend as much time as possible disposing those things so their bill more-or-less matches the money raised. (Cynicism maybe... but as a stiffed creditor it sure seems that way.) So you can't "buy" the company for $1. The company has lots of (hopefully) valuable assets. But it also has lots of creditors. [1] one of my distributors declared bankruptcy, leaving us an unpaid (thankfully software) bill. The liquidator sold all the assets and surprisingly the most gained was on their customer list. That alone would have made all the creditors whole. Instead the liquidator bill swallowed 95% of all the monies raised. There's a lesson in there somewhere for creditors and owners to work together to extract maximum value -before- formal bankruptcy starts. Probably easiest to do if the big creditor is not a bank.
  - J_cst 3y ago
    "so their bill more-or-less matches the money raised." Absolutely true.
  - Earw0rm 3y ago
    The company may be worth less than 0, but the stock can't be (thanks to limited liability). I've seen scenarios where creditors and owners work together. In practice what this means is that one or two big creditors - usually friends with the owner, or unofficial partnership - get their money back, dozens of small suppliers and other unsecured creditors get shafted.
- globalise83 3y ago
  Not if a totalitarian regime decides that you cannot own stock and live at the same time.
  - justrealist 3y ago
    It's kind of pedantic but I would say that the market ceases to exist in those circumstances, not that it went to $0.
    - bloak 3y ago
      Yes, it's pedantic, but I think you're right. A price of $0 should mean that people are buying and selling for $0, which isn't as stupid as it sounds because prices (of some things at least) can be negative, so why shouldn't they sometimes be exactly zero? If there is no prospect of people buying and selling the thing any more, or the thing doesn't even exist any more, then the price went to $NaN, obviously!
greesil 3y ago
Can an asteroid hit the earth?
arcticbull 3y ago
Yes, if everyone dies. Next question?
- NovaDudely 3y ago
  The crazy thing is, if everyone suddenly vanished the stock market would continue while the power grid is still up and the automated high frequency trading continues. There is no value because there are no people to infer value but the structure of it would persist for a little while.
bruce511 3y ago
>> According to statista.com, somewhere between 19,000 to 60,000 businesses file for bankruptcy every year in the United States, although not all of these are publicly traded companies. Understatement of the year? About 20-200 public companies go bankrupt in a year [1]. So about 0.01% of the numbers quoted. "Not all" is doing some heavy lifting there. [1] https://www.jonesday.com/en/insights/2022/01/the-year-in-bankruptcy-2021#:~:text=Public%20Company%20Bankruptcies,plummeted%20to%2022%20in%202021 https://www.jonesday.com/en/insights/2022/01/the-year-in-ban....
- kens 3y ago
  I don't understand your math. 0.01% of 60,000 is 6.
  - bmitc 3y ago
    I don't think the point is lost by correcting the value to 0.1%.
steve1977 3y ago
The currency stocks are traded in could probably get devalued by hyperinflation so that it’s effectively zero. But not nominally. But that would only affect one market (well, ir depends on how one defines market).
- bruce511 3y ago
  In a hyperinflation world it's the opposite. Stocks go up in value (in proportion to the inflation) since they become a better vehicle of wealth than cash. Indeed this is true for normal inflation too. Stocks, commodities, and so on are hood hedges against inflation primarily because the thing they are based on is "not cash". In an inflation world it is -only- cash which deflates. Everything else (that is real), more or less, has steady value.
  - Earw0rm 3y ago
    Hasn't exactly been true the last couple of years, granted that's a bit of a short term view as far as stocks go. Major market indices pretty much flat, inflation 11% over 24 months.
alexawarrior 3y ago
“It would, in fact, take a catastrophic event involving the total dissolution of the US government and economic system for this to occur.” As Hamlet would say, aye, there’s the rub. Economic collapse is actually far more frequent than is commonly believed, here survivorship bias of the US economy plays a staring role. In the past century Chinese and Russian investments went to zero, not just stock but land, businesses, private property, it all went to zero. This is the largest country by land area and the largest by population. Given the average lifespan of empires is around 250 years, and the USA is going to be that soon in 2026, it may be even more likely. Mathematically, do you believe perpetual growth in stock values and in concomitant asset inequality is feasible or even possible? Dubito ergo sum.
x-complexity 3y ago
- If trading's only done between individuals, - AND there are no market makers / liquidity pools, - AND none of the holders of a stock have external pressures to sell (futures/options), - AND the business itself hasn't filed for bankruptcy Then no: The last traded price will be non-zero, and all sellers will have withdrawn from that market, as without external pressures, sellers will just wait out until buyers return to the market. In the interim, the price would remain fixed to the last traded price until trades resume. It is fundamentally irrational to sell a stock at 0 under these narrow circumstances, when compared to the infinitely better option of just waiting until market trades resume. Otherwise, yes. - MMs/LPs create 'synthetic buyers' by facilitating order fulfillments, taking on some risk in hopes of making a return via the spreads in between buy & sell orders. Their participation, even in extreme circumstances, mean that price discovery continues even when everyone wants to withdraw from the market. - Futures & options create obligations for buys/sells in the future due to the nature of said instruments. - The bankruptcy portion is self-explanatory: A stock is worthless is there's no business to back the claim up.
- krab 3y ago
  The last price may be non zero but the papers or electronic records your purchased may be worth zero because there will be no future buyer. That's what happened with the described revolutions.
TekMol 3y ago
So the stock markets of two of the biggest countries in the world (Russia and China) went to zero quite recently (1917 and 1949). And the author summarizes that stock markets can't go to zero? How does that make sense? Even his closing statement contradicts itself: So in conclusion, rest assured that as long as you are properly diversified, your stock investments won’t go to zero. If you should diversify, then that shows that each piece of your portfolio has a chance to go to zero. So the combined chance of going to zero is not zero either. This brings up an interesting question: How high is this long-tail risk of a European investor who invests in US stocks? The risk that Europe at some point decides to seize their peoples stocks. Or that the US decides to not respect holdings by Europeans anymore. What happened to Chinese and Russian people who held US stocks which they bought via the Chinese/Russian stock market? Did those investments got wiped out too? Did their governments seize those? Or did the remeining investors in the US had a gain from the Chinese/Russian investors "disappearing"?
- chii 3y ago
  > who held US stocks which they bought via the Chinese/Russian stock market it would depend on what it means to hold stock "via the stockmarket". If those chinese/russian citizens had a legal entity in the US, and purchased via a US broker, then they ought to be able to claim legal ownership of those stocks they purchased. If, on the other hand, the stock was purchased on custody by a chinese/russian entity, then the govt would've been able to seize that ownership.
  - TekMol 3y ago
    I meant the latter. Stocks purchased on custody by a chines/russian entity. Because that is how the world works today. People from all around the world buy shares of companies all around the world. But the companies don't know those people. If Europe decides to seize all stocks of their citizens, it could do so by just seizing the brokers.
  - bboygravity 3y ago
    > via a US broker, then they ought to be able to claim legal ownership of those stocks they purchased. This is a funny sentence if you know how US brokers operate, because: -- The stock is registered at Cede and Co. In your broker's name (not the client's name). -- Most US brokers don't hold all the stock that their clients "have" in their account. They lend out stock with or without the client's approval. -- It has happened that a broker doesn't own the stock that any of their clients bought through them at all. -- Brokers can buy unsettled stock for clients which subsequently "fails to deliver". Meaning: the client gave the broker money to buy a stock, the broker gave nothing in return (but claims that the client has a stock even though it was never delivered). -- In the US it is entirely possible that a company on the stock market offers x amount of stock and market participants short 2x while 3x amount of call options are in the money to be delivered and brokers are on the hook for that. That means that 5*x of stock can "exist" even though that amount was never issued by the company. Source: this is what happened during January 2021 short squeeze. So yeah, you have legal ownership. Until you suddenly don't at some point in the future.
fallingfrog 3y ago
Everything goes to zero eventually. But it’s more likely though that the stock market will be replaced by something else, rather than all companies simultaneously going bankrupt. (Which doesn’t have to be communism as practiced in the 20th century) Time goes on forever, and present day capitalism is not the most effective economic system possible nor is it indefinitely sustainable, so in that sense it’s eventually guaranteed to go to zero.
daniel-cussen 3y ago
[dead]
nologic01 3y ago
Electricity prices can go negative, interest rates can go negative, so yeah, there are conceivable circumstances where the "stock market" can go not just to zero but negative. I.e., people paying something to get rid of their stock ownership. Argumemts about rationality and arbitrage are good for quantitative finance books and the make-believe worlds they construct. They dont define the limits of what can actually happen in human economies.
- misja111 3y ago
  > there are conceivable circumstances where the "stock market" can go not just to zero but negative No there are not. As a shareholder you cannot be held accountable for losses of the company you're holding the shares of. In the worst case, your share becomes worthless.
  - patmcc 3y ago
    >>>As a shareholder you cannot be held accountable for losses of the company This is true. This could also change on the whim of a government. I don't think that's likely, but in a revolution? Who can say.
  - nologic01 3y ago
    imagine a scenario where a pitchfork crowd is banging outside your doors claiming you are owning stock in an abominable entity you frantically try to sell but there are no buyers at any positive price finally a dodgy person shows up and is willing to "relieve" you of your stock, but at a price
- hcks 3y ago
  All the examples you give can be perfectly explained using arguments about rationality.
  - nologic01 3y ago
    ex-post an extraordinary event a lot of people are wise and can "rationalise" how it did happen. the question is whether one can rationalize what can happen before it does. that requires understanding in depth what the system is and how it might behave in extremes open any quantitative finance book older than a few years and it will tell you that interest rates cannot go negative because... blah blah... some cash arbitrage it turns out that arbitrage is not implementable...
mkl95 3y ago
> Can both the government and the economic system fail in the United States to such an extent that all existing companies on the stock exchange become valueless with no prospects of any future business? Perhaps. Stock market != economy. If the stock market crashed overnight, the economy would take a hit, but the expectation would be for it to be functional.
- solatic 3y ago
  Only because the stock market doesn't include private businesses, sole proprietorships, etc. If, hypothetically, all economic activity was securitized, and the price of those securities collectively went to zero, then yeah, that's what an observation would look like of a non-functional economy.
  - mkl95 3y ago
    I wonder how much Fortune 500 companies would tank as a result, considering they generate a large chunk of the world's GDP.
leopard777 3y ago
The final "happy trading!" denounced the text probably was written by ChatGPT.
osigurdson 3y ago
Of course stock markets can go to zero but they probably will not. It is impossible to prepare for myriad near-zero-probability Armageddon events so don't waste time thinking about them. Strengthen the cognitive noise gate, focus on things within your locus of control.
- NovaDudely 3y ago
  It is like theoretically you could just fall through the floor by just atomically shifting through it. It is possible but very unlikely before the heat death of the universe. Stock markets are more likely than that but it is also something I wouldn't lose any sleep over.
mrcwinn 3y ago
A stock is a contract. Can you have a contract when money isn’t exchanged? Or, can you a price change (from $0.01 to $0.00) when presumably there’s no more liquidity? I’m going with no, a stock cannot go to zero.

42 points by XxDeathManxX 3y ago

No, it can't. I am the backstop. If the stock market goes to $1 I will personally buy all public companies in the US using the change I found underneath my couch. I am willing to make this personal sacrifice to maintain the financial stability of the free world. It's not a burden I take lightly, but it's one I take of my own volition.

stevenjgarner 3y ago
I offer to buy your position for $2.00 giving you a 100% upside profit and doubling the value of the US stock market. Capitalism is awesome!
- contingencies 3y ago
  I offer to charge for advice, regardless of its utility. Alternatively, I offer to corrupt the regulatory oversight such that the entire thing becomes a pay-to-play arrangement whereby I am guaranteed a return but no liability for my selfless work.
  - boeingUH60 3y ago
    Post-apocalypse Goldman Sachs CEO.
atq2119 3y ago
If you actually read the article, do you think your strategy would have worked in China when communism took over? The article itself presents a much better reasoned account of all this than your comment.
bruce511 3y ago
Ironically, that's not how it would play out. When a company goes bust it isn't worth 0. Its actually worth way less year 0. (In other words it owes creditors money.) Yes, it'll own some assets, customer lists, trade marks, copyrights, maybe even property, vehicles, desks, a coffee machine, whatever [1]. The liquidator will come in, assess quickly how much everything is worth, then plan how to spend as much time as possible disposing those things so their bill more-or-less matches the money raised. (Cynicism maybe... but as a stiffed creditor it sure seems that way.) So you can't "buy" the company for $1. The company has lots of (hopefully) valuable assets. But it also has lots of creditors. [1] one of my distributors declared bankruptcy, leaving us an unpaid (thankfully software) bill. The liquidator sold all the assets and surprisingly the most gained was on their customer list. That alone would have made all the creditors whole. Instead the liquidator bill swallowed 95% of all the monies raised. There's a lesson in there somewhere for creditors and owners to work together to extract maximum value -before- formal bankruptcy starts. Probably easiest to do if the big creditor is not a bank.
- J_cst 3y ago
  "so their bill more-or-less matches the money raised." Absolutely true.
- Earw0rm 3y ago
  The company may be worth less than 0, but the stock can't be (thanks to limited liability). I've seen scenarios where creditors and owners work together. In practice what this means is that one or two big creditors - usually friends with the owner, or unofficial partnership - get their money back, dozens of small suppliers and other unsecured creditors get shafted.
globalise83 3y ago
Not if a totalitarian regime decides that you cannot own stock and live at the same time.
- justrealist 3y ago
  It's kind of pedantic but I would say that the market ceases to exist in those circumstances, not that it went to $0.
  - bloak 3y ago
    Yes, it's pedantic, but I think you're right. A price of $0 should mean that people are buying and selling for $0, which isn't as stupid as it sounds because prices (of some things at least) can be negative, so why shouldn't they sometimes be exactly zero? If there is no prospect of people buying and selling the thing any more, or the thing doesn't even exist any more, then the price went to $NaN, obviously!

greesil 3y ago

Can an asteroid hit the earth?

arcticbull 3y ago

Yes, if everyone dies. Next question?

NovaDudely 3y ago
The crazy thing is, if everyone suddenly vanished the stock market would continue while the power grid is still up and the automated high frequency trading continues. There is no value because there are no people to infer value but the structure of it would persist for a little while.

bruce511 3y ago

>> According to statista.com, somewhere between 19,000 to 60,000 businesses file for bankruptcy every year in the United States, although not all of these are publicly traded companies. Understatement of the year? About 20-200 public companies go bankrupt in a year [1]. So about 0.01% of the numbers quoted. "Not all" is doing some heavy lifting there. [1] https://www.jonesday.com/en/insights/2022/01/the-year-in-bankruptcy-2021#:~:text=Public%20Company%20Bankruptcies,plummeted%20to%2022%20in%202021 https://www.jonesday.com/en/insights/2022/01/the-year-in-ban....

kens 3y ago
I don't understand your math. 0.01% of 60,000 is 6.
- bmitc 3y ago
  I don't think the point is lost by correcting the value to 0.1%.

steve1977 3y ago

The currency stocks are traded in could probably get devalued by hyperinflation so that it’s effectively zero. But not nominally. But that would only affect one market (well, ir depends on how one defines market).

bruce511 3y ago
In a hyperinflation world it's the opposite. Stocks go up in value (in proportion to the inflation) since they become a better vehicle of wealth than cash. Indeed this is true for normal inflation too. Stocks, commodities, and so on are hood hedges against inflation primarily because the thing they are based on is "not cash". In an inflation world it is -only- cash which deflates. Everything else (that is real), more or less, has steady value.
- Earw0rm 3y ago
  Hasn't exactly been true the last couple of years, granted that's a bit of a short term view as far as stocks go. Major market indices pretty much flat, inflation 11% over 24 months.

alexawarrior 3y ago

“It would, in fact, take a catastrophic event involving the total dissolution of the US government and economic system for this to occur.” As Hamlet would say, aye, there’s the rub. Economic collapse is actually far more frequent than is commonly believed, here survivorship bias of the US economy plays a staring role. In the past century Chinese and Russian investments went to zero, not just stock but land, businesses, private property, it all went to zero. This is the largest country by land area and the largest by population. Given the average lifespan of empires is around 250 years, and the USA is going to be that soon in 2026, it may be even more likely. Mathematically, do you believe perpetual growth in stock values and in concomitant asset inequality is feasible or even possible? Dubito ergo sum.

x-complexity 3y ago

- If trading's only done between individuals, - AND there are no market makers / liquidity pools, - AND none of the holders of a stock have external pressures to sell (futures/options), - AND the business itself hasn't filed for bankruptcy Then no: The last traded price will be non-zero, and all sellers will have withdrawn from that market, as without external pressures, sellers will just wait out until buyers return to the market. In the interim, the price would remain fixed to the last traded price until trades resume. It is fundamentally irrational to sell a stock at 0 under these narrow circumstances, when compared to the infinitely better option of just waiting until market trades resume. Otherwise, yes. - MMs/LPs create 'synthetic buyers' by facilitating order fulfillments, taking on some risk in hopes of making a return via the spreads in between buy & sell orders. Their participation, even in extreme circumstances, mean that price discovery continues even when everyone wants to withdraw from the market. - Futures & options create obligations for buys/sells in the future due to the nature of said instruments. - The bankruptcy portion is self-explanatory: A stock is worthless is there's no business to back the claim up.

krab 3y ago
The last price may be non zero but the papers or electronic records your purchased may be worth zero because there will be no future buyer. That's what happened with the described revolutions.

TekMol 3y ago

So the stock markets of two of the biggest countries in the world (Russia and China) went to zero quite recently (1917 and 1949). And the author summarizes that stock markets can't go to zero? How does that make sense? Even his closing statement contradicts itself: So in conclusion, rest assured that as long as you are properly diversified, your stock investments won’t go to zero. If you should diversify, then that shows that each piece of your portfolio has a chance to go to zero. So the combined chance of going to zero is not zero either. This brings up an interesting question: How high is this long-tail risk of a European investor who invests in US stocks? The risk that Europe at some point decides to seize their peoples stocks. Or that the US decides to not respect holdings by Europeans anymore. What happened to Chinese and Russian people who held US stocks which they bought via the Chinese/Russian stock market? Did those investments got wiped out too? Did their governments seize those? Or did the remeining investors in the US had a gain from the Chinese/Russian investors "disappearing"?

chii 3y ago
> who held US stocks which they bought via the Chinese/Russian stock market it would depend on what it means to hold stock "via the stockmarket". If those chinese/russian citizens had a legal entity in the US, and purchased via a US broker, then they ought to be able to claim legal ownership of those stocks they purchased. If, on the other hand, the stock was purchased on custody by a chinese/russian entity, then the govt would've been able to seize that ownership.
- TekMol 3y ago
  I meant the latter. Stocks purchased on custody by a chines/russian entity. Because that is how the world works today. People from all around the world buy shares of companies all around the world. But the companies don't know those people. If Europe decides to seize all stocks of their citizens, it could do so by just seizing the brokers.
- bboygravity 3y ago
  > via a US broker, then they ought to be able to claim legal ownership of those stocks they purchased. This is a funny sentence if you know how US brokers operate, because: -- The stock is registered at Cede and Co. In your broker's name (not the client's name). -- Most US brokers don't hold all the stock that their clients "have" in their account. They lend out stock with or without the client's approval. -- It has happened that a broker doesn't own the stock that any of their clients bought through them at all. -- Brokers can buy unsettled stock for clients which subsequently "fails to deliver". Meaning: the client gave the broker money to buy a stock, the broker gave nothing in return (but claims that the client has a stock even though it was never delivered). -- In the US it is entirely possible that a company on the stock market offers x amount of stock and market participants short 2x while 3x amount of call options are in the money to be delivered and brokers are on the hook for that. That means that 5*x of stock can "exist" even though that amount was never issued by the company. Source: this is what happened during January 2021 short squeeze. So yeah, you have legal ownership. Until you suddenly don't at some point in the future.

fallingfrog 3y ago

Everything goes to zero eventually. But it’s more likely though that the stock market will be replaced by something else, rather than all companies simultaneously going bankrupt. (Which doesn’t have to be communism as practiced in the 20th century) Time goes on forever, and present day capitalism is not the most effective economic system possible nor is it indefinitely sustainable, so in that sense it’s eventually guaranteed to go to zero.

daniel-cussen 3y ago

[dead]

nologic01 3y ago

Electricity prices can go negative, interest rates can go negative, so yeah, there are conceivable circumstances where the "stock market" can go not just to zero but negative. I.e., people paying something to get rid of their stock ownership. Argumemts about rationality and arbitrage are good for quantitative finance books and the make-believe worlds they construct. They dont define the limits of what can actually happen in human economies.

misja111 3y ago
> there are conceivable circumstances where the "stock market" can go not just to zero but negative No there are not. As a shareholder you cannot be held accountable for losses of the company you're holding the shares of. In the worst case, your share becomes worthless.
- patmcc 3y ago
  >>>As a shareholder you cannot be held accountable for losses of the company This is true. This could also change on the whim of a government. I don't think that's likely, but in a revolution? Who can say.
- nologic01 3y ago
  imagine a scenario where a pitchfork crowd is banging outside your doors claiming you are owning stock in an abominable entity you frantically try to sell but there are no buyers at any positive price finally a dodgy person shows up and is willing to "relieve" you of your stock, but at a price
hcks 3y ago
All the examples you give can be perfectly explained using arguments about rationality.
- nologic01 3y ago
  ex-post an extraordinary event a lot of people are wise and can "rationalise" how it did happen. the question is whether one can rationalize what can happen before it does. that requires understanding in depth what the system is and how it might behave in extremes open any quantitative finance book older than a few years and it will tell you that interest rates cannot go negative because... blah blah... some cash arbitrage it turns out that arbitrage is not implementable...

mkl95 3y ago

> Can both the government and the economic system fail in the United States to such an extent that all existing companies on the stock exchange become valueless with no prospects of any future business? Perhaps. Stock market != economy. If the stock market crashed overnight, the economy would take a hit, but the expectation would be for it to be functional.

solatic 3y ago
Only because the stock market doesn't include private businesses, sole proprietorships, etc. If, hypothetically, all economic activity was securitized, and the price of those securities collectively went to zero, then yeah, that's what an observation would look like of a non-functional economy.
- mkl95 3y ago
  I wonder how much Fortune 500 companies would tank as a result, considering they generate a large chunk of the world's GDP.

leopard777 3y ago

The final "happy trading!" denounced the text probably was written by ChatGPT.

osigurdson 3y ago

Of course stock markets can go to zero but they probably will not. It is impossible to prepare for myriad near-zero-probability Armageddon events so don't waste time thinking about them. Strengthen the cognitive noise gate, focus on things within your locus of control.

NovaDudely 3y ago
It is like theoretically you could just fall through the floor by just atomically shifting through it. It is possible but very unlikely before the heat death of the universe. Stock markets are more likely than that but it is also something I wouldn't lose any sleep over.

mrcwinn 3y ago

A stock is a contract. Can you have a contract when money isn’t exchanged? Or, can you a price change (from $0.01 to $0.00) when presumably there’s no more liquidity? I’m going with no, a stock cannot go to zero.