Why isnt the stock market a SCAM?

[Miramonti]

Originally posted by: LegendKiller

Originally posted by: jjsole
I've done portfolio and security instrument trading representing a firms trading and investment goals, making my own decisions, as well as managing others doing the same. I've also worked for myself as a trader for almost double-digit years.

Don't get me wrong, there's no brag in me about it, only a response to being challenged by what I refer to an 'ignorant wet under the collar schoolboy fvck.'. 😛 There's plenty that I haven't done and plenty about the vast securities industry that I lack knowledge and expertise in, but I'm pretty well versed on how it trades and what the fundamental factors are. 🙂

1. I doubt that anybody with that experience would be saying such moronic things. Your knowledge (or at least your evidence of knowledge) is that of a preschoolder.

"Hey, if everybody left the market, it would die, therefore it must be a ponzi scheme"

Wow, great idea sparky!

2. I may be "wet under the collar", I have progressed further than most people in 3 years, but at least I don't say stupid crap and I back my stuff up with logic, not only theoretical but applied.

I recently saw a case where some guy was trading bonds for 30 years, his company was merged into another and he was fired for losing money. Just because you do something for a long time doesn't mean you are good at it.

Experience doesn't necessarily make anyone anything. Take for example if you continue doing this for 20 years, you'll probably still be a d!ckhead, since your were undoubtedly one before you started 3 years ago. Sparky. 😕

 

[JS80]

Originally posted by: jjsole

Originally posted by: LegendKiller

Originally posted by: jjsole
I've done portfolio and security instrument trading representing a firms trading and investment goals, making my own decisions, as well as managing others doing the same. I've also worked for myself as a trader for almost double-digit years.

Don't get me wrong, there's no brag in me about it, only a response to being challenged by what I refer to an 'ignorant wet under the collar schoolboy fvck.'. 😛 There's plenty that I haven't done and plenty about the vast securities industry that I lack knowledge and expertise in, but I'm pretty well versed on how it trades and what the fundamental factors are. 🙂

1. I doubt that anybody with that experience would be saying such moronic things. Your knowledge (or at least your evidence of knowledge) is that of a preschoolder.

"Hey, if everybody left the market, it would die, therefore it must be a ponzi scheme"

Wow, great idea sparky!

2. I may be "wet under the collar", I have progressed further than most people in 3 years, but at least I don't say stupid crap and I back my stuff up with logic, not only theoretical but applied.

I recently saw a case where some guy was trading bonds for 30 years, his company was merged into another and he was fired for losing money. Just because you do something for a long time doesn't mean you are good at it.

Experience doesn't necessarily make anyone anything. Take for example if you continue doing this for 20 years, you'll probably still be a d!ckhead, since your were undoubtedly one before you started 3 years ago. Sparky. 😕

We're all d!ckheads and a$$holes on the intarweb

 

[LegendKiller]

Originally posted by: jjsole
"No crap"? You just conceded that its the additional buying that keeps the market up, which is part of what makes it a fvcking pyramid scheme, lol! :roll: Thank you.

Now stfu insecure schoolboy, you were the first to call people ignorant due to your shallow arrogance, and you can now go play pickup sticks on your nearest highway onramp.

Wow, buying milk props up cows, so therefore all cows must be the masters of a pyramid scheme, or those dang farmers, burn the farms! Get your pitch forks, tar and feathers!

By that logic, old (and senile) codger who went nowhere, we should just label everything in life a pyramid scheme and a scam and just quit.

 

[LegendKiller]

Originally posted by: jjsole

Experience doesn't necessarily make anyone anything. Take for example if you continue doing this for 20 years, you'll probably still be a d!ckhead, since your were undoubtedly one before you started 3 years ago. Sparky. 😕

I will no doubt be a d!chkhead, but at least I won't be one like you who has no idea about how things work.

Go kill some cows, I hear they have a nasty pyramid scheme going.

 

[Miramonti]

Originally posted by: LegendKiller

Originally posted by: jjsole
"No crap"? You just conceded that its the additional buying that keeps the market up, which is part of what makes it a fvcking pyramid scheme, lol! :roll: Thank you.

Now stfu insecure schoolboy, you were the first to call people ignorant due to your shallow arrogance, and you can now go play pickup sticks on your nearest highway onramp.

Wow, buying milk props up cows, so therefore all cows must be the masters of a pyramid scheme, or those dang farmers, burn the farms! Get your pitch forks, tar and feathers!

By that logic, old (and senile) codger who went nowhere, we should just label everything in life a pyramid scheme and a scam and just quit.

Cows, and milk? whew. 😕

 

[ahurtt]

Originally posted by: jjsole

Originally posted by: LegendKiller

Originally posted by: jjsole
"No crap"? You just conceded that its the additional buying that keeps the market up, which is part of what makes it a fvcking pyramid scheme, lol! :roll: Thank you.

Now stfu insecure schoolboy, you were the first to call people ignorant due to your shallow arrogance, and you can now go play pickup sticks on your nearest highway onramp.

Wow, buying milk props up cows, so therefore all cows must be the masters of a pyramid scheme, or those dang farmers, burn the farms! Get your pitch forks, tar and feathers!

By that logic, old (and senile) codger who went nowhere, we should just label everything in life a pyramid scheme and a scam and just quit.

Cows, and milk? whew. 😕

Get a room you two. I move for a lock on this thread. It is getting out of hand.

 

[AccruedExpenditure]

Originally posted by: OS

Originally posted by: JS80
OK
Ponzi scheme: You're paying for essentially nothing
Stock Market: You're paying for part ownership in a company that generates/will generate future earnings

i think that's the best way to describe it simply.

In a simplified theory, when a company earns money, the money must go somewhere, a pay out as a dividend, into the company bank account, or reinvested back into the company to improve future earnings. Or of course, some combination of the above.

So the share price is overall dictated by earnings, from which a P/E ratio can be derived. This is used as a valuation tool, so if earnings increase, the value of the stock becomes more attractive and more buyers buy into it. So the market is self balancing.

replace dictated with influenced and you have something...

 

[bennylong]

I'm another $3,000 richer today after the market went up another 1%! You stick to your CD and Money Market Fund while I retire before I'm 50

 

[alkemyst]

Originally posted by: biggerRIG

I fail to see how my age has anything to do with this?

We are hoping you have an excuse for your stupidity.

 

[SampSon]

LegendKiller and jjsole need to get their little slap fight moved into the PM arena.

LegendKiller, you are acting just like a typical fresh out of the box badass, wagging your cute little penis around thinking that someone actually gives a sh!t.
jjsole, you're just egging the kid on.

 

[BoberFett]

Originally posted by: dullard

Originally posted by: biggerRIG
Yes but for stocks that dont pay dividends, profits have nothing to do with share price. Share price is based off supply and demand. This is why we had stocks like pets.com going for 100's per share and yet pets.com was negative in profits.

Even if a stock doesn't pay dividends, profits have EVERYTHING to do with share price. Demand for a stock is a function of profits. If a company does well, people want to own the stock, so demand increases. If a company does poorly, people want to sell that stock, so demand decreases. And since supply of stock is usually constant, the stock price is a function of only demand which is a function of profit.

Have you ever heard of P/E ratios? Many, many people base their stock purchases on this P/E number.

Demand isn't only a function of price however, as you have pointed out. There is also irrational exubberance to think about. People chase unrealistic dreams - this is irrational.

You haven't answered the question, simply reiterated the problem. Profits are meaningless if they aren't redistributed to the owners (the shareholders) as dividends. So his question stands, without dividends what value is there to a shareholder? The only value is in being able to sell it someone else for more than it was purchased. Why should someone want to buy those shares from another shareholder? Because they hope to be able to sell them later to someone else for more than they paid.

I'm in full agreement with the OP on his first point. I see the modern stock market as little more than a government sponsored ponzi scheme. Get in on the ground floor of a new company and sell either A) before it goes under or B) when it gets bought out by Microsoft.

 

[puffff]

Originally posted by: BoberFett

Originally posted by: dullard

Originally posted by: biggerRIG
Yes but for stocks that dont pay dividends, profits have nothing to do with share price. Share price is based off supply and demand. This is why we had stocks like pets.com going for 100's per share and yet pets.com was negative in profits.

Even if a stock doesn't pay dividends, profits have EVERYTHING to do with share price. Demand for a stock is a function of profits. If a company does well, people want to own the stock, so demand increases. If a company does poorly, people want to sell that stock, so demand decreases. And since supply of stock is usually constant, the stock price is a function of only demand which is a function of profit.

Have you ever heard of P/E ratios? Many, many people base their stock purchases on this P/E number.

Demand isn't only a function of price however, as you have pointed out. There is also irrational exubberance to think about. People chase unrealistic dreams - this is irrational.

You haven't answered the question, simply reiterated the problem. Profits are meaningless if they aren't redistributed to the owners (the shareholders) as dividends. So his question stands, without dividends what value is there to a shareholder? The only value is in being able to sell it someone else for more than it was purchased. Why should someone want to buy those shares from another shareholder? Because they hope to be able to sell them later to someone else for more than they paid.

I'm in full agreement with the OP on his first point. I see the modern stock market as little more than a government sponsored ponzi scheme. Get in on the ground floor of a new company and sell either A) before it goes under or B) when it gets bought out by Microsoft.

stocks DO have value in that they represent partial ownership of the company. hypothetically, if someone were to collect all the shares of a company, they can just stuff all the company profits into their pocket. then, are shares of profitable or possibly profitable businesses worth something? yes.

of course, thats very unlikely scenario. i doubt we'll ever see an individual hold 100% of the shares of a company. that doesnt mean your shares are worthless. shares give voting rights. if stockholders are dissatisfied that they arent seeing a share of the profits in dividends, they can vote in a new board that will institute dividends. i believe this happened with microsoft a few years back. stockholders actually put enough pressure on the company that the software giant starting paying out of their coffers.

 

[halik]

This thread is great... this whole time I though I work with the most brilliant people from the top-of-the-line schools because forecasting equities requires all that intellect. But I guess you're right, we're totally shooting in the dark.

<- works for a prominent ibank

 

[AccruedExpenditure]

Originally posted by: puffff

stocks DO have value in that they represent partial ownership of the company. hypothetically, if someone were to collect all the shares of a company, they can just stuff all the company profits into their pocket. then, are shares of profitable or possibly profitable businesses worth something? yes.

of course, thats very unlikely scenario. i doubt we'll ever see an individual hold 100% of the shares of a company. that doesnt mean your shares are worthless. shares give voting rights. if stockholders are dissatisfied that they arent seeing a share of the profits in dividends, they can vote in a new board that will institute dividends. i believe this happened with microsoft a few years back. stockholders actually put enough pressure on the company that the software giant starting paying out of their coffers.

While we haven't seen an individual take a company private by himself we have certainly seen institutions like hedge funds and private equity firms do it...

And on the oppisite side of the spectrum we have seen individuals head and own 100 percent of a privately held company that generates many hundreds of millions of dollars a year.

There probably are examples of such firms buying smaller publically held companies but none come to mind.

 

[LegendKiller]

Originally posted by: SampSon
LegendKiller and jjsole need to get their little slap fight moved into the PM arena.

LegendKiller, you are acting just like a typical fresh out of the box badass, wagging your cute little penis around thinking that someone actually gives a sh!t.
jjsole, you're just egging the kid on.

Frankly, I couldn't give a flying fluck through a rolling donut whether I impress you or not. I do hate the spread of FUDD.

If you had actually read any of my replies rather than "Ohh boy, lets take the side of the old fart and pick on the "new" kid rather than listening to the truth" while bashing somebody you *think* doesn't know as much because I don't have 20 years of experience. Wow, you are *REALLY* cool!

Instead of doing that, why not read what I posted, then come back.

 

[LegendKiller]

Originally posted by: halik
This thread is great... this whole time I though I work with the most brilliant people from the top-of-the-line schools because forecasting equities requires all that intellect. But I guess you're right, we're totally shooting in the dark.

<- works for a prominent ibank

The magic 8-ball comes in handy!?

 

[halik]

Originally posted by: LegendKiller

Originally posted by: halik
This thread is great... this whole time I though I work with the most brilliant people from the top-of-the-line schools because forecasting equities requires all that intellect. But I guess you're right, we're totally shooting in the dark.

<- works for a prominent ibank

The magic 8-ball comes in handy!?

It's hard to make 1.6bil in one quarter with just random guesses...

 

[mchammer]

Someone tell me why a person should not invest in the inflation indexed Treasuries and then forget about all of this stock market BS, while the rest of you spend many hours of your time moving your money around.

 

[mchammer]

Originally posted by: LegendKiller

Originally posted by: biggerRIG
In order for the price of a stock an established stock to go up 7% (adjusted for inflation) then the demand for that stock must increase 7%

Since the stock market is yielding a return over the long term of 5% inflation adjusted (indentical to if you took out a 5% inflation adjusted bond back in 1900) then the demand must also be increasing at 5% per year. The demand cant possibly such a high growth rate like this.

Demand has nothing to do with growth.

Stock prices appreciate because companies generate more returns, those returns are either returned (dividends) or reinvested. That reinvestment *ALSO* increases the worth of every stock, retained earnings is *EQUITY* if it increases and shares do not, then EACH SHARE IS WORTH MORE!


For example, if company A had an original book value of $100 and it had 10 investors, then each share is worth $10. Now, if that company earns $10 and DOES NOT PAY DIVIDENDS, it retains $10. Therfore, the company is now worth $110 and there are STILL TEN INVESTORS!!! Therefore, each share is now worth $11. Hmmm...(11-10)/10 = 10%


WOW, HOLY F'ING SHIZZLE! Simple math works!

None of this makes any sense for a publicly held company IMO. The market cap of a company and the value of a company are not the same.

 

[everman]

Originally posted by: mchammer
Someone tell me why a person should not invest in the inflation indexed Treasuries and then forget about all of this stock market BS, while the rest of you spend many hours of your time moving your money around.

I can't say that you shouldn't, it depends on the individual investor and their goals along with other characteristics.

I certainly have no information about you, so I cannot say. If it's what you want to do then go ahead. It may be a perfectly valid thing for you to do.

 

[mchammer]

Originally posted by: everman

Originally posted by: mchammer
Someone tell me why a person should not invest in the inflation indexed Treasuries and then forget about all of this stock market BS, while the rest of you spend many hours of your time moving your money around.

I can't say that you shouldn't, it depends on the individual investor and their goals along with other characteristics.

I certainly have no information about you, so I cannot say. If it's what you want to do then go ahead. It may be a perfectly valid thing for you to do.

Well tell me why everone says that it is better for the average working stiff to go stocks rather then what I said. What would I stand to lose compared to someone who went stocks?

 

[AccruedExpenditure]

Originally posted by: mchammer

Originally posted by: everman

Originally posted by: mchammer
Someone tell me why a person should not invest in the inflation indexed Treasuries and then forget about all of this stock market BS, while the rest of you spend many hours of your time moving your money around.

I can't say that you shouldn't, it depends on the individual investor and their goals along with other characteristics.

I certainly have no information about you, so I cannot say. If it's what you want to do then go ahead. It may be a perfectly valid thing for you to do.

Well tell me why everone says that it is better for the average working stiff to go stocks rather then what I said. What would I stand to lose compared to someone who went stocks?

mmmmm, TIPS!

But you tell me why should we take advice from someone whose handle is MCHammer... perhaps one of the greatest squanderers of wealth known to mankind.

 

[BoberFett]

Originally posted by: puffff

Originally posted by: BoberFett

Originally posted by: dullard

Originally posted by: biggerRIG
Yes but for stocks that dont pay dividends, profits have nothing to do with share price. Share price is based off supply and demand. This is why we had stocks like pets.com going for 100's per share and yet pets.com was negative in profits.

Even if a stock doesn't pay dividends, profits have EVERYTHING to do with share price. Demand for a stock is a function of profits. If a company does well, people want to own the stock, so demand increases. If a company does poorly, people want to sell that stock, so demand decreases. And since supply of stock is usually constant, the stock price is a function of only demand which is a function of profit.

Have you ever heard of P/E ratios? Many, many people base their stock purchases on this P/E number.

Demand isn't only a function of price however, as you have pointed out. There is also irrational exubberance to think about. People chase unrealistic dreams - this is irrational.

You haven't answered the question, simply reiterated the problem. Profits are meaningless if they aren't redistributed to the owners (the shareholders) as dividends. So his question stands, without dividends what value is there to a shareholder? The only value is in being able to sell it someone else for more than it was purchased. Why should someone want to buy those shares from another shareholder? Because they hope to be able to sell them later to someone else for more than they paid.

I'm in full agreement with the OP on his first point. I see the modern stock market as little more than a government sponsored ponzi scheme. Get in on the ground floor of a new company and sell either A) before it goes under or B) when it gets bought out by Microsoft.

stocks DO have value in that they represent partial ownership of the company. hypothetically, if someone were to collect all the shares of a company, they can just stuff all the company profits into their pocket. then, are shares of profitable or possibly profitable businesses worth something? yes.

of course, thats very unlikely scenario. i doubt we'll ever see an individual hold 100% of the shares of a company. that doesnt mean your shares are worthless. shares give voting rights. if stockholders are dissatisfied that they arent seeing a share of the profits in dividends, they can vote in a new board that will institute dividends. i believe this happened with microsoft a few years back. stockholders actually put enough pressure on the company that the software giant starting paying out of their coffers.

Exactly. Shares represent partial ownership. So why would anybody want to own a part of a company that makes zero profit? Because without paying dividends, that's what owning stock is. It's a company without profit. The only way to profit from that partial ownership is to hope somebody else will purchase your partial ownership for more than you did. And why would they do that? Because they in turn hope to find somebody else to purchase it for more than they did.

Yes, with enough pressure from the "owners" (the shareholders) company policy can be changed. But let's not kids ourselves about the average investors ability to actually do something like that. Unless a person is playing with huge sums of money, there is little that the average investor can do with their share of a company other than hope that somebody else will pay more for that share.

 

[B00ne]

Originally posted by: biggerRIG

Originally posted by: dullard

3) Companies profits and revenues tend to go up ~7% year after year. So why shouldn't the value of the company also go up in a similar fashion? Heck, GDP goes up roughly 7% year after year (note: this 7% is before adjusting for inflation, after inflation the real GDP growth is more like 3%).

Yes but for stocks that dont pay dividends, profits have nothing to do with share price. Share price is based off supply and demand. This is why we had stocks like pets.com going for 100's per share and yet pets.com was negative in profits.

Profits have very much to do with share price. Also dividends actually decrease the stock price technically (by the amount of dividend payed). But that off course can easily be offset by market expectations (demand for that stock).
But off course stocks arent formulaic: If x happens to the company then y will happen to the stock price.
The price has alot to do withmarket expectation, image of a company, the profile of a company. A company can be publically traded, have a perfectly good buisness with increasing profits and all and still fail (as in not increasing in stock price) in the market - if it is unknown fo ex. or the sector not en vogue....

 

[LegendKiller]

Originally posted by: BoberFett

Exactly. Shares represent partial ownership. So why would anybody want to own a part of a company that makes zero profit? Because without paying dividends, that's what owning stock is. It's a company without profit. The only way to profit from that partial ownership is to hope somebody else will purchase your partial ownership for more than you did. And why would they do that? Because they in turn hope to find somebody else to purchase it for more than they did.

Yes, with enough pressure from the "owners" (the shareholders) company policy can be changed. But let's not kids ourselves about the average investors ability to actually do something like that. Unless a person is playing with huge sums of money, there is little that the average investor can do with their share of a company other than hope that somebody else will pay more for that share.

Shares represent partial ownership, not only in the company today but cashflows in the future. If those cashflows grow (higher profit or reinvestment in R&D) through retained earnings, then your portion of those cashflows also increase. While companies may not pay them out immediately, the intrinsic value of your share still increases as your equity share (retained earnings) increases.

Companies that do not have any positive NPV projects should pay out dividends, look at Microsoft. Mostly mature companies pay them out, since they ahve fewer +NPV projects to undertake and do not need the cash. Growth companies will not pay out earnings since they need it for reinvestment in the future.

I don't see why it's such a hard concept.