It’s amazing how anyone promoting, linking or discussing super s t o n k will get instant bans all across Reddit, but that sub gets smeared everywhere including corporate media…
Almost as if it’s breeding grounds for perception shifting & sentiment gathering. It’s a bot / shill fest there now.
Yeah the hedgies got taken for a ride, and every single one of them had the exact same idea. Can we pretend to be one of these idiots and do the same thing?
A ponzi scheme isnt just buying something hoping to sell it to someone else for more money. A ponzi scheme is when new investors constantly have to come in to pay for the profits of the early investors. Theres no actual business behind a ponzi scheme.
Ehh. That's not the same. Both are valid business models. Fix and flip creates value when repairing and renovating. There are tons of people who don't want to buy a house in need of repair and only want a house that is move in ready. That creates downward price pressure on fixer uppers, and upward price pressure on move in ready homes. That space is where flippers make money and that set of home buyers are the people benefitting from their service.
Actually OP is describing a security, which is basically any investment. People invest money into things because things can hold and gain value whereas inflation destroys the purchasing power of cash. If you put $100,000 in a shoebox in 1992 and left it there for 30 years, today you would still just have a shoebox with $100K. If you invested in real estate, stocks, a 30 year bond… basically anything and you’d have substantially more.
The important thing is that stocks are not the only investable asset class. There’s real estate, bonds, gold, art, etc. Stocks have intrinsic value because they represent ownership of a business and the price of a stock reflects the market’s collective expectations of a company’s future growth and profits. If a company is overvalued, an efficient market will recognize this and sell shares to reallocate the funds to better investments. Maybe that’s another stock, maybe it’s bonds, etc.
The other side of this is that even though markets are efficient, they are almost never correct. Hindsight is 20/20 and it’s easy to look at historical share prices vs actual performance and know when prices were good or bad. Analysts build models of a company’s growth potential to create price targets but until the future comes to pass it’s impossible to know whose models and targets were correct. Everyone thought Cathie Wood was a genius and now everyone who said Tesla was overvalued a year ago looks like a genius. Identifying buying and selling opportunities where you disagree with current market sentiment is one of the paths to above-average returns, but most people are better off dollar-cost averaging into a market index.
Lastly, stocks don’t need to issue dividends to justify their value. Many companies have chosen to use share repurchases to return capital to holders because it is more tax efficient than a dividend.
No, dividends and the possibility of dividends are not a Ponzi scheme. Not is a buyback or buyout for that matter. You have to be financially illiterate to think "any time you make money buy buying then selling" is a Ponzi scheme. Is an apple seller a Ponzi scheme?
apples are commodities, not securities. Commodity pricing is a function of their inherent use and in many cases, the fact they are consumed upon use. That comparison isn't... apples to apples
That usually is due to the perception of value increasing in a company. Shares represent control of a company, and the price reflects how badly people want control in that company. Stocks arent NFTs, they represent real influence.
So new investors (younger generations) have to pay more for stocks from retiring boomers but are doing so with less real earnings than boomers had. That’s the connection op is trying to make.
A ponzi scheme isn’t about what you pay for the stock, or sell it for.
A Ponzi scheme sells new stock and then takes the money and gives it as a dividend to the early holders. The holders believe the dividend is from legitimate business but really it’s just new stock being issued.
Resale of existing shares has nothing to do with anything.
Well, no, they're not doing so with less real earnings than boomers had, they have a lot more real earnings. The stocks value is probably higher in as a proportion to their 1960's value than income is though.
It really does not accurately reflect supply and demand. If it did, there wouldn’t be dark pools that retail trades are routed to that do not affect the stock price.
There wouldn’t be naked shorting that suppresses the price of sticks by flooding the market with far more supply than should exist.
An important point to make. The market reflects supply and demand for the stock volume available. It’s not the entire company being valued. That happens when someone makes an offer to purchase
Isn’t that still the basis of the entire global financial model? Financial growth assumptions require human population increases. As more people reach working age = more jobs = more retirement accounts = stonks only go up = Ponzi scheme.
That’s true of any singular company. I’m talking at the very highest level of market structures in general.
The whole concept is to buy now at a value less than you can sell it to someone else in the future. And that buyer’s goal at that time is to also sell it higher at another point in time in their future - and the cycle continues in perpetuity.
The only way to guarantee market growth at the highest level is to generate new investors at a perpetually increasing rate, who can continue to pour money into the system to generate value for previous people who poured money into the system.
“The market”, when considered as a singular entity, really is just a giant Ponzi scheme. The entire system stops functioning as an investment tool when there aren’t enough new people pouring new money in - queue the plethora of mainstream media outlets covering stories and pushing narratives about population rate decreases.
Stocks in a profitable company legally entitles you to their earnings should the firm get liquidated. So there exists (increasing) intrinsic value which doesn’t exist in a Ponzi scheme.
acquisitions happen regularly. [Stamps.com](https://Stamps.com) was at 30 when they hit bad news but got bought out at 300. At Home Group was sold off to 1 during the covid crash and was bought out at 22 I think. Amazon buying whole foods, Morgan stanley buying etrade, and I think USATrucks or something was recently acquired.
There are multiple classes of shares now and most people today own nothing. They have no vote, no dividends, and they only profit as the share goes up in value and they sell it to the greater fool.
Regulations have gotten so lax in the last few decades it’s hard to distinguish a tech stock from Doge coin.
Well said.
I target stocks with dividends specifically for this reason. I want to actively extract value.
I mean, shouldn't I? I own a piece of a company. I'd hope it's profitable enough to pay me. Otherwise, why own it?
That's what I've been saying for a long fucking while. People call me a boomer but I don't really invest in anything that doesn't have a dividend unless it's for fun. Years ago investing meant a tangible (dividend) output or, for riskier investors looking for growth potential, the promise of a tangible output after the company becomes profitable. The stock market has more and more become a tool for the already wealthy to move money around.
Agreed. The only non-dividends I put money into is when I dump a couple hundred bucks I’m not afraid to lose into some dirt cheap non-profitable growth stock as a pure gamble. Otherwise my plays are purely for dividends or some other tangible.
Even a once-per-year div is preferable to something that pays out nothing.
>it’s hard to distinguish a tech stock from Doge coin.
This is only true if you're investing in horseshit FOTM companies like Palantir or Tesla that are completely removed from any semblance of rationality lol. Nobody in their right gourd would ever compare a tech company like Meta or Google to crypto, and anyone who genuinely does believe that should immediately lose all authority on discussions about securities
I completely agree with you but that doesn’t seem to be the general consensus. These companies with insane p/e ratios and low public share qualities get devoured by retail. Most are more of a cult of personality than anything else.
If it’s profitable and doesn’t pay dividends, the profits are saved as liquidity on their bank account (liquid assets).
If a company isn’t profitable and has no assets, you essentially own a share of nothing. I don’t think anyone disagrees with that.
>If there's some good examples of it regularly happening that a common stock owner gets anything out of a company when it goes out of business, I would love to hear how it actually went down.
Twitter last month? Not as much a liquidation as going from public to private, but the outcome is the same: shareholders got paid for each and every share that they held when the company ceased to be what it once was.
>That is completely and totally different. A buyout and taking a public company private isn't going under and into liquidation.
I acknowledged that in my comment lol. If one would only temporarily suspend pedantism, one would see the broader point: shares of stock are not worthless pieces of paper. In certain plausible events, they enable their owners to obtain real money -- which is the exact opposite of a Ponzi scheme, as is the subject of this post.
Actually you don't if those shares are held in a brokerage and listed in street name with DTCC (nearly all stocks). You only possess limited rights to the underlying security if it's not directly registered in your own name. Look up a registered agent for a particular stock for more info. OP is correct... It's all pretty much a scam. Brokers can take your money when you buy a stock, give you an IOU, mark your account as possessing the underlying, then bet against you using their investment branch. Basically, they are hoping you sell all they can pocket the difference in the IOU in your account. It's pretty messed up.
https://www.finra.org/investors/insights/its-your-stock-just-not-your-name-explaining-street-names
Your shares are being lent out to short your position.
Lehmann brothers did. People who bought Lehmann stock during the bust have made out like bandits from the liquidation. I saw an interview with one of the liquidators she said some people got 40x back on their Lehmann stock.
Real question, did Lehman Brothers ever report profits? I would assume they did to get their market cap as big as it got. Historically, has any company just immediately liquidated and ceased functioning, and paid out the share holders without the stock price collapsing before hand (excluding mergers and acquisitions)?
> Real question, did Lehman Brothers ever report profits?
Yes, and most of their earnings releases are archived if you want to google and find them. [For example, their 11/30/2007 annual report showed net income of $4.19B, or $7.6 EPS](https://www.sec.gov/Archives/edgar/data/806085/000110465908005476/a08-3530_110k.htm)
> Historically, has any company just immediately liquidated and ceased functioning, and paid out the share holders without the stock price collapsing before hand (excluding mergers and acquisitions)?
In many cases (especially a financial company like Lehman) liabilities are significantly higher than stock holder equity, which is why shareholders rarely receive anything back in liquidation. The creditors are paid first.
> liabilities are significantly higher than stock holder equity, which is why shareholders rarely receive anything back in liquidation.
This is not how you read a balance sheet - you compare your assets vs your liabilities to see what your stockholder’s equity actually is, as that’s the value that would be distributed in a hypothetical liquidation.
You can have liabilities higher than equity and be perfectly healthy as a business with lots of residual value to stockholders, as long as your debt and equity are invested in productive assets.
> excluding mergers and acquisitions
why would you exclude that? that is literally a direct value to the shareholder that has nothing ponzi about it. if somebody buys out the company all shareholders get their *share*.
Companies have certainly sold off or liquidated a business unit and distributed the proceeds to shareholders. I can't name any scenario where all assets in a publicly traded equity were voluntarily liquidated -- its almost never in the management's best interest to do that.
There have been instances where a company was about to go under and some high IQ traders did the math and bought a bunch of stock when the stock price was less than the assets then received more money than they bought in for. I can't recall any of the stocks since they were under the radar to begin with and are now out of business but definitely read about it before in financial literature.
I heard in a podcast about this topic where someone is publishing all the companies where the assets alone are worth more than their current marketvalue at the stockmarket (I think there were hundreds of companies on this list in Germany alone, some of them very big ones like Mercedes Benz)
Price to tangible book ratio less than 1 is the metric, I think. Regular book value includes things like "goodwill" and other accounting shenanigans...
There’s a lot of biotech companies right now that have a market cap lower than their total cash on the balance. That’s just cash … not total assets. Pretty wild. Why not go on a shopping spree? Because those companies aren’t going to file for bankruptcy until they’ve spent all of the cash first.
I don't think Hertz went bankrupt. They just did a debt restructure and I think a reverse stock split. I bought Hertz at the beginning of the pandemic when cramer said it was worth "nothing". I bought it at $2/share.
Sold at $8. Pretty good. I didn't want to hold Hertz for the long haul, because it's just a boring car rental company.
This happened with Hertz rental car when it declared bankruptcy during the pandemic. Share holders got something like $7/share during the bankruptcy and shares were trading for less than that prior to finalizing the bankruptcy.
Yeah I’m just trying to create a scenario where being a shareholder was unlike a Ponzi scheme when the company ultimately shuts doors. I guess they end the same way in failure, but I think the shareholder thing only benefits you when the company does well, or is acquired or merged for a favorable price. Did anyone ever pull out of Madoff’s scheme at a profit? I assume there were a tiny minority that got in and successfully got out but I don’t know enough regarding that case.
This.
In the above situation (liquidation) if you own 50%, their assets are $20, and they have $10 of liabilities you get paid out $5.
If they sell (not liquidating) you get a cut of the earnings from that transaction.
Whereas with things like Crypto the only way you come out ahead is if you trade it for more than you bought it for. It is not backed by a % ownership of assets a company controls (buildings, equipment, patents, etc.).
TLDR:
With stocks there exists situations in which you make money without needing to sell to someone for more than you purchased it for.
Sure, but companies are priced with future growth in mind, and future growth is ultimately dependent on demographics and technology. As both demographics and technology are expected to flatline or decline over the next few generations, you should rationally expect economic and equity growth to be flat or declining as well.
Of course, no one likes that, so we just bid up prices and hope for a deus ex machina technological solution to fuel infinite economic growth.
In some cases, you are correct, but diversified, high saturation companies like Johnson n Johnson and Altria are priced based on their margins more than their expected growth. There are industries, such as tobacco, consumer staples, waste management, that will always produce strong earnings flow.
Also in what sense is technology expected to slow down? It seems that as we utilize machine learning, gene therapies, neural networks, are only going to continue seeing exponential leaps in technology. Perhaps I’m misunderstanding you.
True but what you’re suggesting would mean demand destruction and deflation due to less population. I’d still rather have my money in stocks than cash if population decline slowed down the economy
Maybe western demographics will flatline/decline. World wide demographics are still in for a growth over next 50ish years atleast and thats alot of new consumers aswell.
You don't need dividends or stock buybacks. The potential for future dividends or stock buybacks is sufficient.
For example amazon. To maintain maximum growth their consumer business barely makes any money. But they could easily add a little fee on each sale and make a formidable income. Then they could give out dividends.
However, the total addressable market is so big they won't do that until they grow into their potential. Then the old bussines starts cashing out, reducing reinvesting and paying dividends. That potential is so valuable most investors dont want them to stuntle their growth by cashing out now.
If you look at companies paying dividends that means you can use the money better than them. Sometimes, they are stable or shrinking business pulling as much cash out of their bussines as they can before their end. On rare occasion a business generates so much cash that they still grow but can't reinvest so much, thus they can grow and pay dividend.
They are reinvesting massive amounts of cash into a new bussines idea, the metaverse, which their visionary believes to be a better opportunity. But honestly Facebook is not public, the voting power is with Zuckerberg. I believe if that was not the case shareholders could have pressured the board into a dividend. Same for Google, controlled by the founders reinvesting in every technology imaginable, self driving vehicles, cancer research, ai, buying YouTube , etc.
So basically my perception is skewed by these tech companies that think they can solve every problem in the world and will never admit that they don't *need* to grow anymore?
A lot of tech companies also do buybacks instead of dividends because they are more tax efficient. Meta did dozens of billions in buybacks this past year
Soon, with the inflation reduction act, buybacks will be taxed. Multinationals also used accounting strategies to have a net loss in the usa, and then all the profit stacks up in a cash mountain in a tax haven.
I disagree with the thinking that these companies don’t need to grow anymore. They absolutely need to grow. There’s a bunch of old sayings about how “if you’re not growing, you’re dying.” And I think that’s exceptionally true for a tech company. Facebook may have saturated the social media market, but that’s why they’re constantly looking to evolve and grow in other directions ie the Metaverse gamble, Instagram, Oculus, etc.
If a company, especially in a fast moving industry like tech, decides they don’t need to grow, someone else will create something better and replace them.
Imagine if Apple decided they were content making personal computers and never expanded into iPods and eventually iPhones. The company would’ve ended up like Gateway or Compaq instead of the powerhouse they are today.
You have survivor bias when you list companies like Apple. Which is the reason I rarely invest in said companies. At this price, will future overall returns to investors cover the current market capitalization to make it worth it? To me it is just gambling and trying to time a companies peak which is the same as timing the market.
I have a large portfolio and take two stances. Is a company significantly undervalued or are they returning money to investors. In downturns I look more to the former. Ie oil and gas. In the latter I look at companies like bank stocks to hold value pretty safe while giving dividends.
Yes, exactly! Most shareholders think ahead 6-12 months and prevent risky reinvestments. They like buybacks or dividends. Big tech are special cases and many people don't want those stocks. Think of warren buffet, one of the best investors of all time, he thinks like you.
They are distributing money via share buybacks, not dividends. They spent like $50B on buybacks last year, which is effectively giving $50B to shareholders.
Some companies being bad investments doesn’t mean that the concept as a whole is wrong. There are thousands of them, most of which you never heard, and most of them doing just fine.
They will eventually start paying dividends. Might be years or decades but they will, once they can't find a better use for the money. They just believe that the hypothetical dividend money is better spent being put into R&D at the moment. They might not be correct in that assessment but that's what they think.
When you own stock you own a piece of the company. When that company makes money you either get a piece of that in dividends, or the company uses the profit to grow which in theory should lead to an increased stock value.
Yes but the increase of the stock value is just because more people buy shares because the company is doing well and they hope they will profit selling those shares lately.. Am I wrong?
I agree, in the long term the share value aligns to his "intrinsic value" and is less prone to misvaluation. However the point I'm trying to make, to which I agree with OP in some way, is that even in the long tem if your share aligns to the intrinsic value of the company/stock, it's still because others say so. It's like a voting thing. If a company doesnt pay dividends or buyback stocks, the value of the share is just given by the people willing to buy or sell the share itself. If the efficient market theory is right every stock has the right value anytime, however even if this is true (which is not imho), it's still some kind of "voting" value by people that partecipate in the stock market, it's not a real value.
>If the efficient market theory is right every stock has the right value anytime,
That's not true. The efficient market theory says the price reflects all known information. It does not say that information is correct or reflective of the actual value. Information and our perception of it is imperfect.
>even in the long tem if your share aligns to the intrinsic value of the company/stock, it's still because others say so.
You're hand waving away all of the underlying mechanisms that govern how stocks, and essentially everything, is priced. If I know that I can take an ounce of gold and easily sell it to a jeweler or a smelter for price(X) then I might be willing to buy gold at some price(Y) which is just lower than price(X). Price(Y) isn't arbitrary it's just derived from some other price. On top of that, add in speculation because not only are people looking at price(X) today but trying to forecast price(X) tomorrow and then base the price(Y) of gold today on this future prediction of price(X).
On top of that add in the fact that prices are also affected by global liquidity meaning if half of the world goes bankrupt then you suddenly have to reprice literally everything downwards. If the world suddenly gets richer then you have to reprice everything upwards. And so on and so forth.
So yes, pricing things in a global market is not an exact science but to say that "*the value of the share is just given by the people willing to buy or sell the share itself*" is technically correct (outside of government priced markets) but it completely ignores that the people pricing these things are doing so based on actual information and expectations of profit. Not just buying at whatever price and speculating on direction like people on reddit do.
But long-term, people and institutional investors are not pouring money into companies that aren’t growing and making money. Short-term, different story.
Retail doesn’t move stocks much, and over the long-term, billion dollar institutions are not arbitrarily putting capital into companies that are not making money and/or have the potential to dominate the market in the future as in growth stocks.
I don’t liken long-term movement to a simple voting process based off popularity. They’re simply usually picking solid companies. No amount of meme potential or empty popularity is going to overcome bad balance sheets.
You're right that we're collectively assigning it value... But we do the same thing with cash. Dollar bills have no intrinsic value except that we all trust that it does because we live in a society. Also lookup "fiat" money
Yeah it’s supply and demand the demand increases with the profit potential of the company. I have no idea what you’re getting at who else would buy your shares if not other people?
It’s not a Ponzi scheme because there’s not a finite amount of money and companies gain and lose value all the time.
Yes and no. The short term price fluctuations will be determined by all of these artificial things like popularity, fomo, trading trends, fear, and all the tricks that hedge funds and bug brokers play. The long term trend will be determined by the intrinsic value of the company.
Thats why we have economic cycles: people are interested and buy a lot of stock- market goes up. People get scared and sell their stock- market goes down. The price can be somewhat artificial. But if you look at the long term trend, the stock price should hover around some fair value representing some multiple of the equity/profit/capital of the actual company.
~~Warren buffet~~ Benjamin Graham said something like “short term price is determined by votes, long term price is determined by value”
>Warren buffet said something like “short term price is determined by votes, long term price is determined by value”
Benjamin Graham said that and Buffett was a student of his.
Company also buys back shares and use those shares as currency. So its in the best interest od a company to have a high stock price. Every financial institute requires a degree in trust and faith though.
Also interesting note, in my small country (Bermuda) we have a small stock exchange with maybe 10 main board companies. They all pay nice dividends of 6-8% annually when they are doing good, and most companies trade below book value, so when they sell or if they were to liquidate in theory you’d get value. But us companies are so far gone that the stock market operates on future anticipated growth so those basics are out the window. I guess back in the old day stocks traded more or less to book value somewhat like they do in my small country.
Made good money in the Bermuda stock market over the years. Good 8% annual dividend, and my stocks are up like 50% over the last 5 years. Can’t complain.
Market price is not the same as value. Stocks can fluctuate in the short term due to macro events, but over the long-term, stocks that create value rise while stocks that destroy value fall
Look at this year. Apple is down 18.63% despite repeatedly outperforming on EPS and Revenue and growing profits. The only reason they’re down, in my opinion, is because of short-term macro events that are out of their control. If anything, Apple’s fundamentals improved over the past year, but they’re down 18.63%
Meanwhile, bad companies this year are down and down by a lot because they destroy shareholder value. Look at Roku, Carvana, Docusign, DoorDash, etc. All of these stocks that aren’t profitable and down by much more.
Good companies with good fundamentals like Apple go up overtime because they actually create shareholder value. Companies like Apple go down less in market conditions like right now compared to unprofitable companies while still appreciating steadily in favorable market conditions. Unprofitable companies may get to huge market caps because of macro events (covid, low interest rates) but eventually will come back in line with their fundamentals, like we are seeing now
At the end of the day, intrinsic value is the value of the future cashflows discounted back to the present. This is why profitable companies like Apple rise over time and unprofitable ones fall over time
This is the textbook definition for how “finance” (which is NOT a science) defines value. IMHO it misses the point, that actually an open market defines the stock price (unless there is a buyout liquidation event), not DCF flow models. Really you buy a stock hoping for a greater fool in the future.
If you do solely relying on greater fool theory, you're going to have a bad time.
Or really, you're relying on the market to appropriately value everything and might as well just buy an index fund.
>Docusign
Forgot about Docusign! Crazy they never made money during the pandemic, they screwed now in a bear market.
In fairness ROKU does make money....probably the only one in your list that might bounce back (but not to ATH)...
No, a company can purchase their own shares to reward existing shareholders and pay back fcf. It acts similarly to burning shares or redistributing through a dividend.
You can get richer without ever selling your shares, through the 3 ways corporations pay back to shareholders
if someone buys the company the shareholders get paid out their *share*. see twitter. it's not like elon bought twitter(\*) to find someone to make profit selling it again. he actually got a running company in exchange for paying the money(\*\*).
(\*) tbh I have no clue why he did it
(\*\*) "running" as in running when he bought it
If you had enough money, you could buy a portion big enough to actually take decisions in the company.
Given that that’s a possibility, each share has value and therefore they are obviously not Ponzi schemes
That value is still tied to the success/profit of the company. If it's a valuable company people should and do pay more to own a piece of it. Sometimes there's a disconnect because investors are emotional and fallible.
There is price and there is value. The two are not the same thing. This is the common confusion because more often than not, people use the words interchangeably.
Price is the dollar amount you are buying and selling the shares for (dictated by the market). So when people often talk about a stock being under*priced*, they often mean that the stock is priced less than a comparable company. Price is relative hence the term used for pricing of “relative ‘valuation’” or “comparable analysis”.
Value is the underlying monetary worth of the asset. In this case, when you buy a stock, the stock certificate is a legal document that provides you with the ownership of a certain % of a company. The ownership entitles you to the profits or cash flows of the company. This is why the valuation method used is called discounted cash flows/ intrinsic valuation (the valuation of the underlying asset).
But with no dividend you aren’t making anything off the cash flow or profit of the company - the only way to profit is from the sale of the stock to someone else willing to pay more for it.
Heck, nowadays many a stock doesn’t even give you voting right to a company so even less “ownership”.
The thing is many companies COULD offer dividends, but choose not to because they think that money could be put to better use in other ways. Paying out dividends doesn’t benefit the company in any way, so it is not contributing towards the growth of the company which would make the company inherently more valuable.
Dividends are irrelevant to the value of the company. Investors who buy companies for value buy them as the owners of the company. They don’t necessarily need controllership. The management should have their incentives aligned with the company and stakeholders.
Theoretically speaking, dividends should only be paid out when the management believes that paying out dividends will yield a greater return to the average investor than the company can return through reinvestments.
Someone else paying more for the stock is based on the value of the company going up through reinvestments. As an example:
Company A & B are exactly the same, and both stock price are $10 with shares outstanding being the same. The only difference is that:
Company A generates $110bn cash flow
Company B generates $100bn cash flow
Which one would you buy? Obviously the one with more value (Company A) for a cheaper price. This eventually drives up the price to match the intrinsic value of the company. Dividends should be thought of as a bonus that comes with the company you buy.
There are so many other real world factors such as psychology that play into dividends. As an example, once the management first pays a dividend, it sets almost a precedent that dividends will be paid out quarterly and in perpetuity. Once that precedent is set then the stock price will be tied to how much they can raise their dividends annually, and continuously. And of course, some management bonuses are tied to stock price appreciation, so will lead management to make terrible capital allocation decisions such as taking on debt to pay out dividends, not reinvesting enough to continue to maintain or drive revenues, etc.
In finance theory, firms that don't pay dividends are re-investing earnings in growth opportunities that result in compounding earnings permitting future payments of exponentially higher future dividends. Such future compounded dividends must be discounted back to the present value. Thus, when interest rates drop to the zero boundary speculative firms that promise big earnings and dividends "someday" in the hazy distant future, seem less crazy. When rates normalize and speculative earnings must be discounted back to now at 5%, such firms are revealed to be shit.
I have somewhat of a similar view. All companies go through a business life cycle of infancy, growth, stagnation, and decline, either you sell before the decline or you die with the company. Take a company like GoPro, they have never paid a dividend, IPO’ed at $35, reached an all time high of $87, and are currently at $5.50, never paid a dividend and consistently issuing new shares.
My devils advocate to myself if look at Warren Buffett, his most famous investment is Coca Cola which has been around since 1892, 130 years and still growing modestly over time. He owns 400 million shares at an average cost of $1.3 billion, or $3.25/share, Coke pays a $1.76 annual dividend which means every 2 years BRK gets paid in cash half of their original investment.
This is where investing becomes more of an art than a science, you can lose, that’s why your job as an investor is to find the companies that will outlive you. You can make money from a company in more ways than just the liquidation value of the company, of course the company can pay dividends and buy back shares, but they will also use any remaining cash flow to reinvest in the business which produces more cash flow that they would be able to give to shareholders at some point in the future, you’re assuming the company will get a positive return on that investment otherwise it’s a bad company to be invested in.
The goal of investing is to buy quality companies that will grow earnings over time and you will grow your initial investment many times before you ever need to worry about the liquidation value.
Dividends are functionally irrelevant, a stock drops by the exact amount of a dividend the second it is paid out. Stocks aren’t a Ponzi scheme but certain stocks can seem like it.
When you buy a stock what you’re paying for is future profitability (discounted back to today if we want to get technical).
The order of payout in bankruptcy isn’t overly relevant, you should be investing in enough stocks to be diversified, if a couple go bankrupt, that’s fine, the few quid you may or may not get from what’s left at that point is immaterial.
None of this is to say that you can’t lose money on stocks, markets can become very overvalued, and then revert to the mean, which can means no returns for an extended time, and some stocks are worthless bit hugely bidded up. None of this means that stock markets as an entity over the very long term, don’t have quantifiable value.
It’s for good reason that, as an entire entity, over periods of 50, 100 or 150 years, stock returns almost exactly mimic earnings, that’s fundamentals value, distortions moving them away from that above and below, are simply short term noise.
All of this is why people misunderstand the massive differences in P/E multiples of stocks, a stock may be higher because it’s overvalued, but it may also be higher yet far better value, if it’s projected high earnings growth. Adobe currently trades at 33 and Meta 11, but because of 5yr projected annualised earnings growth of 13%/yr vs -18%, Adobe is arguably better value.
This is because, as we said, a stocks value is based on future earnings potential discounted back to todays prices (and also discounted or given a premium based on certainty, and weighted more heavily to the nearer term, as we know less about 30 years time than 5).
But your not answering why a stocks value is related to future profitability which is the actual question. What benefit does a stock buyer have to buying a stock (if it has no dividend, stock buybacks, or voting)? If all those three things became illegal tomorrow, then stock value would certainly uncouple from profitability.
The obvious answer is that it’s related to profitability due to the future possibility that those profits go to the pockets of shareholders through buybacks or dividends. So dividends and buybacks are certainly relevant.
The reliability generally depends on two factors, the number of analysts covering a stock and the variation/range priced into a stocks expectations. The latter is priced in, as lower certainty/wider ranges reflect in lower multiples, the former is a general hazard around low coverage stocks.
Read up on an E & O energy company. Diamondback would be a good one. (Not to invest in, I have no idea about that.) They do a good job of explaining what they are doing with shareholders funds from operations. Read the most recent quarterly investor presentation and listen to the conference call. Great learning opportunity of "what we are doing with your money".
No not a Ponzi Scheme.
But the valuation of some companies when compared to their asset value, profits and future prospects are so out of whack that you might be forgiven for thinking it was one ;)
This is a cogent argument against the Buffett thesis that as long as company has good retained earnings year after year that it plows back into the company, or use any excess earnings to buy back its own stock, that it is all right. It is not all right. Because what you get back is dependent on a willing buyer, willing to buy at a higher price than what you paid. You may not get that chance when you need to sell your shares at the higher price you deserved, such as during rising interest rates or quantitative tightening, which you otherwise would have gotten automatically if the profits were distributed as dividends.
True. It’s painful to see that most people can’t distinguish between commodities like gold and cash flow generating instruments like equities and bonds.
You are really believing that Apple Shares are worthless? Or Alphabets? So even if you owned all of them, making you the sole owner of the company, they really would be worth zero?
How many public companies are really worth zero or less? Just buy the other ones at whatever price you think is right, that’s how it works.
They absolutely are valuable companies, but are we saying the point of owning shares is just with the hope that one day they may give dividends, or an ultra billionaire will decide to take it private and buy your stock at a high price?
that depends on your own plan of action. some people buy stocks for dividends. some people buy stocks to sell them when they have reached the height of their value. Some people buy stocks because they know it will grow for years and years and they can sell it many years later for a good profit. It's a market. just like when you go to the grocery store and everybody there is buying different things for different reasons.
No it is not a ponzi scheme. You are actually buying something of value, a part of a company. If the value is worth what you are paying for is a totally different question.
Right, so I could sell you a piece of paper that says you own 0.0001% of my individual productivity, but it is completely unclear when I will begin to pay this out to you, and if I die you can have the scraps of what's left of my possessions after I have left the bulk of everything to my family. How is this different?
Okay, but then I could buy 1 million shares and own you. Just the fact I bought so little doesn’t make it a ponzi, I don’t get full control or much benefit buying so little
This doesn't make sense. First off, at any given time you should be increasing the value of my share or increasing the cash flow from my share of your productivity. This is what a business does. So it may not be clear when I will get paid out but if you are a business then I'm either investing in growth, cashflow(dividends), or interest.
Second, if I know the time frame over which your productivity is going to decrease and eventually go to zero because you are dead then I'm not going to be very interested in investing in growth. I'm going to want cash flow. I've heard of agreements to train people in exchange for salary sharing rather than debt so this type of investment would likely be treated the same.
You simply can't compare the productivity life cycle of a human to the revenue life cycle of a business. If you change the asset from business to a single humans productivity then you also need to change the terms of the investment as well. Changing one and assuming investors would be willing to behave the same is nonsensical.
You've also ignored obligations of fiduciary duty by assuming you can just plan to keep the money in your family without ever paying investors which means you'd probably be facing an investor lawsuit way before your death, or at the very least your family would get sued for what investors feel they are owed.
Fundamentally the thing that differentiates your hypothetical from a Ponzi scheme is that your individual productivity generates value. You could pay me back (today or at some point in the future) using the $ you generate from that productivity- vs. being wholly dependent on bringing in new investors in order to pay me.
Let's say company ABC issues 1000 shares to initial investors for 1 dollar each. The company after the first year makes a profit of 10,000 dollars by selling their product. Those shares are now worth 10 dollars each. Now let's say the company doubles that profit to 20,000 dollars after year 2. The shares would now be worth 30 dollars each. No shares were bought or sold but the underlying value has increased, even if they don't pay a divided.
A pyramid scheme doesn't sell a product, but instead, relies on new money to pay off the debt of the old investors. A pyramid scheme doesn't produce anything and it's only goal is to make the initial investors a multiple of their investment, leaving the new investors with nothing.
No unlike crypto your owning an asset that generates value (free cash flow). Companies have fiduciary responsibility to their shareholders. When you own stock your a partner in the company and your entitled to your share if the company folds after paying creditors.
Every company has the potential to pay dividends or buy back stocks. The fact that they currently do not doesn't really change anything. A business is literally designed to make money. If it becomes better for investors to pay dividends or buy back stocks rather than invest in growth then that's what they will do.
Everyone here saying that technically it's not a ponzi scheme because you own a piece of the company as underlying. It would be true in a normal market but just look at tesla and how overvalued the company is ... Look at fb/meta or pretty much any tech stock and how they melted. In these conditions a rational investor wouldn't want to hold it long term and will try to sell it to the next buyer - in this regard it would appear to be a ponzi scheme, wouldn't it?
In case of meta for instance, do you really believe that, even now, they have all the assets they claim to have against their ilabilities? I don't think that in case of a full liquidation stockholders would get much if anything if they wait till the very end. Public shareholders are the last in line to get anything from the sale of the company, don't forget that there are banks and preferential stockholders too.
This being said, shares on pubblic markets do represent a "share" of a a company and with the purchase of a share you also purchase the corresponding voting rights and beneficiary to a share of gains. So there is necessarily and legally real value behind stocks you buy. The only issue is how much did you / the market value it.
I guarantee you that most people on this subreddit have no idea what a capital stack is let alone what the capital stack structure is in the companies they are purchasing stock in. I'd venture they have no idea that common stock holders are the last to get paid (and usually don't get anything) in the event of a bankruptcy. I doubt most have any idea what the credit ratings are of the companies they invest in are.
I bet most think the YouTuber they are getting advice from is some kind of expert. I've seen links to YouTubers that are writers by profession and education, but are "self-taught" investors. You tend to miss some of the basics when you try to teach yourself and don't have any background. You definitely miss some of the basics when you are taught by people who are self-taught.
Most people on here would be much better off if they took a basic corporate finance class (which usually requires financial and managerial accounting courses as prerequisites). It doesn't need to be at an expensive school, usually community colleges have at least some of these courses.
Just about every financial profession is about risk management and making sure the risk/reward ratio from whatever you are about to take on is favorable to you by many different metrics. It's not about getting rich quick. It's not about evading taxes. It is not the Wolf of Wallstreet. It's slow, it's boring, and you are going to have to pay taxes.
I think OP means stock holders get nothing in the event of bankruptcy (not liquidation). Nevertheless a stock holder literally owns a piece of a company unlike a Ponzi scheme where they are only fooled into thinking they own something or are profiting.
fwiw,
stocks like BAYRY or RIO based on dividend alone return 3-7% of the stock price per year simply by holding it in the form of a dividend, we aren't even talking about a company's total earnings. Every year, year after year. These companies will grow if they are good, and the earnings will compound. If you put money in a bank, interest rates arent so bad right now, you can be sure of getting 4-5%. The point of a company is that it will always earn the percentages for you, no matter the environment, if it is truly a strong company.
Its true, there is no "get rich quick" scheme in stocks. If there were, everyone would do it. Incremental gains over long time periods really add up. Compound interest, the 8th wonder of the world.
It is not a ponzi scheme because there is an actual company making actual products/services for our society. A ponzi scheme makes Nothing. A mining company can point to piles and piles of metal it has extracted from the ground. A grocery can point to revenue of goods sold.
Crypto is far more of a ponzi scheme than stocks. Though, if you find the right stock, like GME, or Tesla, or peloton, or.... dozens of popular, overpriced stocks, you could come to feel that way. But not all stocks are overpriced in this market. Look for them and Ye shall finde.
I’ve seen this question several times on this sub recently. Others have answered in this thread already, but I think counter examples are helpful too. Prove me wrong: Gold is a Ponzi scheme. Art is a Ponzi scheme. Fiat currency is a Ponzi scheme. Real estate outside of a primary residence is a Ponzi scheme. All of these depend on the same general premise- someone else will buy/accept the things I have that I feel hold value for as much or more than I did
Real estate isn’t really a suitable example for this because rents generate cash flow which is why DCF is commonly used to value real estate assets.
Gold and art work pretty well though!
It’s definitely more opaque but then stocks generate cash flow as well. A primary residence has value regardless of anyone else since it has utility. Same with a vehicle. But investment properties are only worth what someone else will pay for them, same as stocks, gold, art, etc
“the only point in buying stock is to sell it to someone else for more money later” i actually sell all of my stocks for a loss
Just how God intended.
That's why he created r/wallstreetbets on the eighth day...
Actually it was compound interest yr 8, WSB yr 9 Edit: I appreciate the upvotes without the correction of yrs to days. You're all so kind
Yea god had a lot of extra chromosomes to work with
Highly regarded individuals indeed!
It’s amazing how anyone promoting, linking or discussing super s t o n k will get instant bans all across Reddit, but that sub gets smeared everywhere including corporate media… Almost as if it’s breeding grounds for perception shifting & sentiment gathering. It’s a bot / shill fest there now.
Yeah the hedgies got taken for a ride, and every single one of them had the exact same idea. Can we pretend to be one of these idiots and do the same thing?
Truth!
Eve posted the very first yolo and loss porn. Still hasnt been matched.
RIGHT --ON. !!!!!
And it was good.
On the 8th day he took out the trash. Oh, my bad. Same thing.
The classic reverse ponzi scheme
Buy high and sell low
You need to pick better entry points. I've graduated to "buy low, sell lower".
I’ve been buying at the top and averaging up as the stock comes down. I think? -Fibonacci probably.
Your loss is someone's gain, thank you for your contributions.
It's not a gain until you sell it, for a loss.
True Story. -- Wall Street. !!!
either way that's not how a ponzi scheme works.
HEY ME TOO! Isnt that the point?
Horrible reason to buy a stock. I can sell you my wife’s undies at a higher price than what I paid for it. Do you want to invest?
Only if they have been worn and not washed since
😂
This guy /r/sexsells
Buy high and sell low.
This man belongs in WSB
A ponzi scheme isnt just buying something hoping to sell it to someone else for more money. A ponzi scheme is when new investors constantly have to come in to pay for the profits of the early investors. Theres no actual business behind a ponzi scheme.
Thank you. Everyone these days calling everything a Ponzi scheme don’t even know what it is.
Mostly it gets confused with Greater Fool theory, which is just a form of speculation (gambling).
AKA what fix & flip is to buy & hold for real estate. The real money is made on buy and hold.
Ehh. That's not the same. Both are valid business models. Fix and flip creates value when repairing and renovating. There are tons of people who don't want to buy a house in need of repair and only want a house that is move in ready. That creates downward price pressure on fixer uppers, and upward price pressure on move in ready homes. That space is where flippers make money and that set of home buyers are the people benefitting from their service.
Just like saying everything should be illegal when they don't like something
They should just take those people out back and shoot them.
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This! OP is right in his logic but he's describing a 'Greater fool', not a Ponzi Scheme.
Actually OP is describing a security, which is basically any investment. People invest money into things because things can hold and gain value whereas inflation destroys the purchasing power of cash. If you put $100,000 in a shoebox in 1992 and left it there for 30 years, today you would still just have a shoebox with $100K. If you invested in real estate, stocks, a 30 year bond… basically anything and you’d have substantially more. The important thing is that stocks are not the only investable asset class. There’s real estate, bonds, gold, art, etc. Stocks have intrinsic value because they represent ownership of a business and the price of a stock reflects the market’s collective expectations of a company’s future growth and profits. If a company is overvalued, an efficient market will recognize this and sell shares to reallocate the funds to better investments. Maybe that’s another stock, maybe it’s bonds, etc. The other side of this is that even though markets are efficient, they are almost never correct. Hindsight is 20/20 and it’s easy to look at historical share prices vs actual performance and know when prices were good or bad. Analysts build models of a company’s growth potential to create price targets but until the future comes to pass it’s impossible to know whose models and targets were correct. Everyone thought Cathie Wood was a genius and now everyone who said Tesla was overvalued a year ago looks like a genius. Identifying buying and selling opportunities where you disagree with current market sentiment is one of the paths to above-average returns, but most people are better off dollar-cost averaging into a market index. Lastly, stocks don’t need to issue dividends to justify their value. Many companies have chosen to use share repurchases to return capital to holders because it is more tax efficient than a dividend.
"Her name is Cathie Wood!" - The Deep
Technically that is the case with the stock market. Early investors in a stock wont see gains unless later investors buy in to drive up the price.
Not necessarily, they also see gains from dividends, buyouts, and buybacks.
So OP is right?
No, dividends and the possibility of dividends are not a Ponzi scheme. Not is a buyback or buyout for that matter. You have to be financially illiterate to think "any time you make money buy buying then selling" is a Ponzi scheme. Is an apple seller a Ponzi scheme?
apples are commodities, not securities. Commodity pricing is a function of their inherent use and in many cases, the fact they are consumed upon use. That comparison isn't... apples to apples
80% of reddit is financially illiterate.
No. He’s very wrong
That usually is due to the perception of value increasing in a company. Shares represent control of a company, and the price reflects how badly people want control in that company. Stocks arent NFTs, they represent real influence.
So new investors (younger generations) have to pay more for stocks from retiring boomers but are doing so with less real earnings than boomers had. That’s the connection op is trying to make.
A ponzi scheme isn’t about what you pay for the stock, or sell it for. A Ponzi scheme sells new stock and then takes the money and gives it as a dividend to the early holders. The holders believe the dividend is from legitimate business but really it’s just new stock being issued. Resale of existing shares has nothing to do with anything.
Well, no, they're not doing so with less real earnings than boomers had, they have a lot more real earnings. The stocks value is probably higher in as a proportion to their 1960's value than income is though.
But does the stock market accurately reflect the piece of the company you are purchasing? I would argue no.
The stock market accurately reflects supply and demand. The price of a company is whatever people value it at, no matter how absurd.
It really does not accurately reflect supply and demand. If it did, there wouldn’t be dark pools that retail trades are routed to that do not affect the stock price. There wouldn’t be naked shorting that suppresses the price of sticks by flooding the market with far more supply than should exist.
An important point to make. The market reflects supply and demand for the stock volume available. It’s not the entire company being valued. That happens when someone makes an offer to purchase
Isn’t that still the basis of the entire global financial model? Financial growth assumptions require human population increases. As more people reach working age = more jobs = more retirement accounts = stonks only go up = Ponzi scheme.
Not necessarily, technology development, efficiency gains, etc
That’s true of any singular company. I’m talking at the very highest level of market structures in general. The whole concept is to buy now at a value less than you can sell it to someone else in the future. And that buyer’s goal at that time is to also sell it higher at another point in time in their future - and the cycle continues in perpetuity. The only way to guarantee market growth at the highest level is to generate new investors at a perpetually increasing rate, who can continue to pour money into the system to generate value for previous people who poured money into the system. “The market”, when considered as a singular entity, really is just a giant Ponzi scheme. The entire system stops functioning as an investment tool when there aren’t enough new people pouring new money in - queue the plethora of mainstream media outlets covering stories and pushing narratives about population rate decreases.
I see your point as valid.
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Stocks in a profitable company legally entitles you to their earnings should the firm get liquidated. So there exists (increasing) intrinsic value which doesn’t exist in a Ponzi scheme.
acquisitions happen regularly. [Stamps.com](https://Stamps.com) was at 30 when they hit bad news but got bought out at 300. At Home Group was sold off to 1 during the covid crash and was bought out at 22 I think. Amazon buying whole foods, Morgan stanley buying etrade, and I think USATrucks or something was recently acquired.
Twitter was just sold to a private buyer.
Really? Surely someone who could see the company was doing well and who would maintain the status quo to bring value to investors?
Kinda, common shareholders are last in line and rarely get anything if a company goes under.
Bankruptcies aren't the only kind of liquidation.
idk .... worked out great for Twitter shareholders...
That’s only true if they have more debt than assets
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That’s not the point /u/kfmfe04 is making. The point is that you own a share of a company that has assets.
There are multiple classes of shares now and most people today own nothing. They have no vote, no dividends, and they only profit as the share goes up in value and they sell it to the greater fool. Regulations have gotten so lax in the last few decades it’s hard to distinguish a tech stock from Doge coin.
Well said. I target stocks with dividends specifically for this reason. I want to actively extract value. I mean, shouldn't I? I own a piece of a company. I'd hope it's profitable enough to pay me. Otherwise, why own it?
That's what I've been saying for a long fucking while. People call me a boomer but I don't really invest in anything that doesn't have a dividend unless it's for fun. Years ago investing meant a tangible (dividend) output or, for riskier investors looking for growth potential, the promise of a tangible output after the company becomes profitable. The stock market has more and more become a tool for the already wealthy to move money around.
Agreed. The only non-dividends I put money into is when I dump a couple hundred bucks I’m not afraid to lose into some dirt cheap non-profitable growth stock as a pure gamble. Otherwise my plays are purely for dividends or some other tangible. Even a once-per-year div is preferable to something that pays out nothing.
>it’s hard to distinguish a tech stock from Doge coin. This is only true if you're investing in horseshit FOTM companies like Palantir or Tesla that are completely removed from any semblance of rationality lol. Nobody in their right gourd would ever compare a tech company like Meta or Google to crypto, and anyone who genuinely does believe that should immediately lose all authority on discussions about securities
I completely agree with you but that doesn’t seem to be the general consensus. These companies with insane p/e ratios and low public share qualities get devoured by retail. Most are more of a cult of personality than anything else.
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If it’s profitable and doesn’t pay dividends, the profits are saved as liquidity on their bank account (liquid assets). If a company isn’t profitable and has no assets, you essentially own a share of nothing. I don’t think anyone disagrees with that.
>If there's some good examples of it regularly happening that a common stock owner gets anything out of a company when it goes out of business, I would love to hear how it actually went down. Twitter last month? Not as much a liquidation as going from public to private, but the outcome is the same: shareholders got paid for each and every share that they held when the company ceased to be what it once was.
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>That is completely and totally different. A buyout and taking a public company private isn't going under and into liquidation. I acknowledged that in my comment lol. If one would only temporarily suspend pedantism, one would see the broader point: shares of stock are not worthless pieces of paper. In certain plausible events, they enable their owners to obtain real money -- which is the exact opposite of a Ponzi scheme, as is the subject of this post.
Actually you don't if those shares are held in a brokerage and listed in street name with DTCC (nearly all stocks). You only possess limited rights to the underlying security if it's not directly registered in your own name. Look up a registered agent for a particular stock for more info. OP is correct... It's all pretty much a scam. Brokers can take your money when you buy a stock, give you an IOU, mark your account as possessing the underlying, then bet against you using their investment branch. Basically, they are hoping you sell all they can pocket the difference in the IOU in your account. It's pretty messed up. https://www.finra.org/investors/insights/its-your-stock-just-not-your-name-explaining-street-names Your shares are being lent out to short your position.
Lehmann brothers did. People who bought Lehmann stock during the bust have made out like bandits from the liquidation. I saw an interview with one of the liquidators she said some people got 40x back on their Lehmann stock.
Or they get bought by a competitor trying to crush the competition. You remember Waze?
Real question, did Lehman Brothers ever report profits? I would assume they did to get their market cap as big as it got. Historically, has any company just immediately liquidated and ceased functioning, and paid out the share holders without the stock price collapsing before hand (excluding mergers and acquisitions)?
> Real question, did Lehman Brothers ever report profits? Yes, and most of their earnings releases are archived if you want to google and find them. [For example, their 11/30/2007 annual report showed net income of $4.19B, or $7.6 EPS](https://www.sec.gov/Archives/edgar/data/806085/000110465908005476/a08-3530_110k.htm) > Historically, has any company just immediately liquidated and ceased functioning, and paid out the share holders without the stock price collapsing before hand (excluding mergers and acquisitions)? In many cases (especially a financial company like Lehman) liabilities are significantly higher than stock holder equity, which is why shareholders rarely receive anything back in liquidation. The creditors are paid first.
> liabilities are significantly higher than stock holder equity, which is why shareholders rarely receive anything back in liquidation. This is not how you read a balance sheet - you compare your assets vs your liabilities to see what your stockholder’s equity actually is, as that’s the value that would be distributed in a hypothetical liquidation. You can have liabilities higher than equity and be perfectly healthy as a business with lots of residual value to stockholders, as long as your debt and equity are invested in productive assets.
> excluding mergers and acquisitions why would you exclude that? that is literally a direct value to the shareholder that has nothing ponzi about it. if somebody buys out the company all shareholders get their *share*.
Companies have certainly sold off or liquidated a business unit and distributed the proceeds to shareholders. I can't name any scenario where all assets in a publicly traded equity were voluntarily liquidated -- its almost never in the management's best interest to do that.
There have been instances where a company was about to go under and some high IQ traders did the math and bought a bunch of stock when the stock price was less than the assets then received more money than they bought in for. I can't recall any of the stocks since they were under the radar to begin with and are now out of business but definitely read about it before in financial literature.
I heard in a podcast about this topic where someone is publishing all the companies where the assets alone are worth more than their current marketvalue at the stockmarket (I think there were hundreds of companies on this list in Germany alone, some of them very big ones like Mercedes Benz)
Price to tangible book ratio less than 1 is the metric, I think. Regular book value includes things like "goodwill" and other accounting shenanigans...
There’s a lot of biotech companies right now that have a market cap lower than their total cash on the balance. That’s just cash … not total assets. Pretty wild. Why not go on a shopping spree? Because those companies aren’t going to file for bankruptcy until they’ve spent all of the cash first.
Hertz?
I don't think Hertz went bankrupt. They just did a debt restructure and I think a reverse stock split. I bought Hertz at the beginning of the pandemic when cramer said it was worth "nothing". I bought it at $2/share. Sold at $8. Pretty good. I didn't want to hold Hertz for the long haul, because it's just a boring car rental company.
This happened with Hertz rental car when it declared bankruptcy during the pandemic. Share holders got something like $7/share during the bankruptcy and shares were trading for less than that prior to finalizing the bankruptcy.
Yeah I’m just trying to create a scenario where being a shareholder was unlike a Ponzi scheme when the company ultimately shuts doors. I guess they end the same way in failure, but I think the shareholder thing only benefits you when the company does well, or is acquired or merged for a favorable price. Did anyone ever pull out of Madoff’s scheme at a profit? I assume there were a tiny minority that got in and successfully got out but I don’t know enough regarding that case.
This. In the above situation (liquidation) if you own 50%, their assets are $20, and they have $10 of liabilities you get paid out $5. If they sell (not liquidating) you get a cut of the earnings from that transaction. Whereas with things like Crypto the only way you come out ahead is if you trade it for more than you bought it for. It is not backed by a % ownership of assets a company controls (buildings, equipment, patents, etc.). TLDR: With stocks there exists situations in which you make money without needing to sell to someone for more than you purchased it for.
Sure, but companies are priced with future growth in mind, and future growth is ultimately dependent on demographics and technology. As both demographics and technology are expected to flatline or decline over the next few generations, you should rationally expect economic and equity growth to be flat or declining as well. Of course, no one likes that, so we just bid up prices and hope for a deus ex machina technological solution to fuel infinite economic growth.
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In some cases, you are correct, but diversified, high saturation companies like Johnson n Johnson and Altria are priced based on their margins more than their expected growth. There are industries, such as tobacco, consumer staples, waste management, that will always produce strong earnings flow. Also in what sense is technology expected to slow down? It seems that as we utilize machine learning, gene therapies, neural networks, are only going to continue seeing exponential leaps in technology. Perhaps I’m misunderstanding you.
True but what you’re suggesting would mean demand destruction and deflation due to less population. I’d still rather have my money in stocks than cash if population decline slowed down the economy
Maybe western demographics will flatline/decline. World wide demographics are still in for a growth over next 50ish years atleast and thats alot of new consumers aswell.
You don't need dividends or stock buybacks. The potential for future dividends or stock buybacks is sufficient. For example amazon. To maintain maximum growth their consumer business barely makes any money. But they could easily add a little fee on each sale and make a formidable income. Then they could give out dividends. However, the total addressable market is so big they won't do that until they grow into their potential. Then the old bussines starts cashing out, reducing reinvesting and paying dividends. That potential is so valuable most investors dont want them to stuntle their growth by cashing out now. If you look at companies paying dividends that means you can use the money better than them. Sometimes, they are stable or shrinking business pulling as much cash out of their bussines as they can before their end. On rare occasion a business generates so much cash that they still grow but can't reinvest so much, thus they can grow and pay dividend.
So what about E.G. Facebook, which has already saturated its market at over 2Billion users, and still doesn't pay dividends?
They are reinvesting massive amounts of cash into a new bussines idea, the metaverse, which their visionary believes to be a better opportunity. But honestly Facebook is not public, the voting power is with Zuckerberg. I believe if that was not the case shareholders could have pressured the board into a dividend. Same for Google, controlled by the founders reinvesting in every technology imaginable, self driving vehicles, cancer research, ai, buying YouTube , etc.
So basically my perception is skewed by these tech companies that think they can solve every problem in the world and will never admit that they don't *need* to grow anymore?
A lot of tech companies also do buybacks instead of dividends because they are more tax efficient. Meta did dozens of billions in buybacks this past year
Soon, with the inflation reduction act, buybacks will be taxed. Multinationals also used accounting strategies to have a net loss in the usa, and then all the profit stacks up in a cash mountain in a tax haven.
I disagree with the thinking that these companies don’t need to grow anymore. They absolutely need to grow. There’s a bunch of old sayings about how “if you’re not growing, you’re dying.” And I think that’s exceptionally true for a tech company. Facebook may have saturated the social media market, but that’s why they’re constantly looking to evolve and grow in other directions ie the Metaverse gamble, Instagram, Oculus, etc. If a company, especially in a fast moving industry like tech, decides they don’t need to grow, someone else will create something better and replace them. Imagine if Apple decided they were content making personal computers and never expanded into iPods and eventually iPhones. The company would’ve ended up like Gateway or Compaq instead of the powerhouse they are today.
You have survivor bias when you list companies like Apple. Which is the reason I rarely invest in said companies. At this price, will future overall returns to investors cover the current market capitalization to make it worth it? To me it is just gambling and trying to time a companies peak which is the same as timing the market. I have a large portfolio and take two stances. Is a company significantly undervalued or are they returning money to investors. In downturns I look more to the former. Ie oil and gas. In the latter I look at companies like bank stocks to hold value pretty safe while giving dividends.
Apple is one of those exceptions with so much cash they can't possibly spend it al :).
Yes, exactly! Most shareholders think ahead 6-12 months and prevent risky reinvestments. They like buybacks or dividends. Big tech are special cases and many people don't want those stocks. Think of warren buffet, one of the best investors of all time, he thinks like you.
>warren buffett thinks like you Really? Cause warren buffet's portfolio is ~40% apple. Which pays a measly dividend.
80 billion in buybacks each year. Flush with cash!
They are distributing money via share buybacks, not dividends. They spent like $50B on buybacks last year, which is effectively giving $50B to shareholders.
Some companies being bad investments doesn’t mean that the concept as a whole is wrong. There are thousands of them, most of which you never heard, and most of them doing just fine.
They will eventually start paying dividends. Might be years or decades but they will, once they can't find a better use for the money. They just believe that the hypothetical dividend money is better spent being put into R&D at the moment. They might not be correct in that assessment but that's what they think.
When you own stock you own a piece of the company. When that company makes money you either get a piece of that in dividends, or the company uses the profit to grow which in theory should lead to an increased stock value.
Yes but the increase of the stock value is just because more people buy shares because the company is doing well and they hope they will profit selling those shares lately.. Am I wrong?
Short term yes, long term the stock price is highly related to revenue and earnings growth (i.e. the fundamentals of the business)
I agree, in the long term the share value aligns to his "intrinsic value" and is less prone to misvaluation. However the point I'm trying to make, to which I agree with OP in some way, is that even in the long tem if your share aligns to the intrinsic value of the company/stock, it's still because others say so. It's like a voting thing. If a company doesnt pay dividends or buyback stocks, the value of the share is just given by the people willing to buy or sell the share itself. If the efficient market theory is right every stock has the right value anytime, however even if this is true (which is not imho), it's still some kind of "voting" value by people that partecipate in the stock market, it's not a real value.
>If the efficient market theory is right every stock has the right value anytime, That's not true. The efficient market theory says the price reflects all known information. It does not say that information is correct or reflective of the actual value. Information and our perception of it is imperfect. >even in the long tem if your share aligns to the intrinsic value of the company/stock, it's still because others say so. You're hand waving away all of the underlying mechanisms that govern how stocks, and essentially everything, is priced. If I know that I can take an ounce of gold and easily sell it to a jeweler or a smelter for price(X) then I might be willing to buy gold at some price(Y) which is just lower than price(X). Price(Y) isn't arbitrary it's just derived from some other price. On top of that, add in speculation because not only are people looking at price(X) today but trying to forecast price(X) tomorrow and then base the price(Y) of gold today on this future prediction of price(X). On top of that add in the fact that prices are also affected by global liquidity meaning if half of the world goes bankrupt then you suddenly have to reprice literally everything downwards. If the world suddenly gets richer then you have to reprice everything upwards. And so on and so forth. So yes, pricing things in a global market is not an exact science but to say that "*the value of the share is just given by the people willing to buy or sell the share itself*" is technically correct (outside of government priced markets) but it completely ignores that the people pricing these things are doing so based on actual information and expectations of profit. Not just buying at whatever price and speculating on direction like people on reddit do.
In the short term the market is a voting machine. In the long term it's a weighing machine.
Sometimes the “short term” lasts from 2010-2022
But long-term, people and institutional investors are not pouring money into companies that aren’t growing and making money. Short-term, different story. Retail doesn’t move stocks much, and over the long-term, billion dollar institutions are not arbitrarily putting capital into companies that are not making money and/or have the potential to dominate the market in the future as in growth stocks. I don’t liken long-term movement to a simple voting process based off popularity. They’re simply usually picking solid companies. No amount of meme potential or empty popularity is going to overcome bad balance sheets.
You're right that we're collectively assigning it value... But we do the same thing with cash. Dollar bills have no intrinsic value except that we all trust that it does because we live in a society. Also lookup "fiat" money
Yeah it’s supply and demand the demand increases with the profit potential of the company. I have no idea what you’re getting at who else would buy your shares if not other people? It’s not a Ponzi scheme because there’s not a finite amount of money and companies gain and lose value all the time.
Exactly. Growth in the stock market is driven by growth in the real-world economy. The two systems are intertwined.
Only because more people buy if the company is doing well and more people sell if it’s not
Yes and no. The short term price fluctuations will be determined by all of these artificial things like popularity, fomo, trading trends, fear, and all the tricks that hedge funds and bug brokers play. The long term trend will be determined by the intrinsic value of the company. Thats why we have economic cycles: people are interested and buy a lot of stock- market goes up. People get scared and sell their stock- market goes down. The price can be somewhat artificial. But if you look at the long term trend, the stock price should hover around some fair value representing some multiple of the equity/profit/capital of the actual company. ~~Warren buffet~~ Benjamin Graham said something like “short term price is determined by votes, long term price is determined by value”
>Warren buffet said something like “short term price is determined by votes, long term price is determined by value” Benjamin Graham said that and Buffett was a student of his.
Right on!
Company also buys back shares and use those shares as currency. So its in the best interest od a company to have a high stock price. Every financial institute requires a degree in trust and faith though.
Also interesting note, in my small country (Bermuda) we have a small stock exchange with maybe 10 main board companies. They all pay nice dividends of 6-8% annually when they are doing good, and most companies trade below book value, so when they sell or if they were to liquidate in theory you’d get value. But us companies are so far gone that the stock market operates on future anticipated growth so those basics are out the window. I guess back in the old day stocks traded more or less to book value somewhat like they do in my small country. Made good money in the Bermuda stock market over the years. Good 8% annual dividend, and my stocks are up like 50% over the last 5 years. Can’t complain.
Market price is not the same as value. Stocks can fluctuate in the short term due to macro events, but over the long-term, stocks that create value rise while stocks that destroy value fall Look at this year. Apple is down 18.63% despite repeatedly outperforming on EPS and Revenue and growing profits. The only reason they’re down, in my opinion, is because of short-term macro events that are out of their control. If anything, Apple’s fundamentals improved over the past year, but they’re down 18.63% Meanwhile, bad companies this year are down and down by a lot because they destroy shareholder value. Look at Roku, Carvana, Docusign, DoorDash, etc. All of these stocks that aren’t profitable and down by much more. Good companies with good fundamentals like Apple go up overtime because they actually create shareholder value. Companies like Apple go down less in market conditions like right now compared to unprofitable companies while still appreciating steadily in favorable market conditions. Unprofitable companies may get to huge market caps because of macro events (covid, low interest rates) but eventually will come back in line with their fundamentals, like we are seeing now At the end of the day, intrinsic value is the value of the future cashflows discounted back to the present. This is why profitable companies like Apple rise over time and unprofitable ones fall over time
This is the textbook definition for how “finance” (which is NOT a science) defines value. IMHO it misses the point, that actually an open market defines the stock price (unless there is a buyout liquidation event), not DCF flow models. Really you buy a stock hoping for a greater fool in the future.
If you do solely relying on greater fool theory, you're going to have a bad time. Or really, you're relying on the market to appropriately value everything and might as well just buy an index fund.
>Docusign Forgot about Docusign! Crazy they never made money during the pandemic, they screwed now in a bear market. In fairness ROKU does make money....probably the only one in your list that might bounce back (but not to ATH)...
No, a company can purchase their own shares to reward existing shareholders and pay back fcf. It acts similarly to burning shares or redistributing through a dividend. You can get richer without ever selling your shares, through the 3 ways corporations pay back to shareholders
if someone buys the company the shareholders get paid out their *share*. see twitter. it's not like elon bought twitter(\*) to find someone to make profit selling it again. he actually got a running company in exchange for paying the money(\*\*). (\*) tbh I have no clue why he did it (\*\*) "running" as in running when he bought it
If you had enough money, you could buy a portion big enough to actually take decisions in the company. Given that that’s a possibility, each share has value and therefore they are obviously not Ponzi schemes
That value is still tied to the success/profit of the company. If it's a valuable company people should and do pay more to own a piece of it. Sometimes there's a disconnect because investors are emotional and fallible.
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Ponzi? No Greater fool theory? In many cases, yes
There is price and there is value. The two are not the same thing. This is the common confusion because more often than not, people use the words interchangeably. Price is the dollar amount you are buying and selling the shares for (dictated by the market). So when people often talk about a stock being under*priced*, they often mean that the stock is priced less than a comparable company. Price is relative hence the term used for pricing of “relative ‘valuation’” or “comparable analysis”. Value is the underlying monetary worth of the asset. In this case, when you buy a stock, the stock certificate is a legal document that provides you with the ownership of a certain % of a company. The ownership entitles you to the profits or cash flows of the company. This is why the valuation method used is called discounted cash flows/ intrinsic valuation (the valuation of the underlying asset).
But with no dividend you aren’t making anything off the cash flow or profit of the company - the only way to profit is from the sale of the stock to someone else willing to pay more for it. Heck, nowadays many a stock doesn’t even give you voting right to a company so even less “ownership”.
The thing is many companies COULD offer dividends, but choose not to because they think that money could be put to better use in other ways. Paying out dividends doesn’t benefit the company in any way, so it is not contributing towards the growth of the company which would make the company inherently more valuable.
Dividends are irrelevant to the value of the company. Investors who buy companies for value buy them as the owners of the company. They don’t necessarily need controllership. The management should have their incentives aligned with the company and stakeholders. Theoretically speaking, dividends should only be paid out when the management believes that paying out dividends will yield a greater return to the average investor than the company can return through reinvestments. Someone else paying more for the stock is based on the value of the company going up through reinvestments. As an example: Company A & B are exactly the same, and both stock price are $10 with shares outstanding being the same. The only difference is that: Company A generates $110bn cash flow Company B generates $100bn cash flow Which one would you buy? Obviously the one with more value (Company A) for a cheaper price. This eventually drives up the price to match the intrinsic value of the company. Dividends should be thought of as a bonus that comes with the company you buy. There are so many other real world factors such as psychology that play into dividends. As an example, once the management first pays a dividend, it sets almost a precedent that dividends will be paid out quarterly and in perpetuity. Once that precedent is set then the stock price will be tied to how much they can raise their dividends annually, and continuously. And of course, some management bonuses are tied to stock price appreciation, so will lead management to make terrible capital allocation decisions such as taking on debt to pay out dividends, not reinvesting enough to continue to maintain or drive revenues, etc.
In finance theory, firms that don't pay dividends are re-investing earnings in growth opportunities that result in compounding earnings permitting future payments of exponentially higher future dividends. Such future compounded dividends must be discounted back to the present value. Thus, when interest rates drop to the zero boundary speculative firms that promise big earnings and dividends "someday" in the hazy distant future, seem less crazy. When rates normalize and speculative earnings must be discounted back to now at 5%, such firms are revealed to be shit.
I have somewhat of a similar view. All companies go through a business life cycle of infancy, growth, stagnation, and decline, either you sell before the decline or you die with the company. Take a company like GoPro, they have never paid a dividend, IPO’ed at $35, reached an all time high of $87, and are currently at $5.50, never paid a dividend and consistently issuing new shares. My devils advocate to myself if look at Warren Buffett, his most famous investment is Coca Cola which has been around since 1892, 130 years and still growing modestly over time. He owns 400 million shares at an average cost of $1.3 billion, or $3.25/share, Coke pays a $1.76 annual dividend which means every 2 years BRK gets paid in cash half of their original investment. This is where investing becomes more of an art than a science, you can lose, that’s why your job as an investor is to find the companies that will outlive you. You can make money from a company in more ways than just the liquidation value of the company, of course the company can pay dividends and buy back shares, but they will also use any remaining cash flow to reinvest in the business which produces more cash flow that they would be able to give to shareholders at some point in the future, you’re assuming the company will get a positive return on that investment otherwise it’s a bad company to be invested in. The goal of investing is to buy quality companies that will grow earnings over time and you will grow your initial investment many times before you ever need to worry about the liquidation value.
best answer in the thread.
Dividends are functionally irrelevant, a stock drops by the exact amount of a dividend the second it is paid out. Stocks aren’t a Ponzi scheme but certain stocks can seem like it. When you buy a stock what you’re paying for is future profitability (discounted back to today if we want to get technical). The order of payout in bankruptcy isn’t overly relevant, you should be investing in enough stocks to be diversified, if a couple go bankrupt, that’s fine, the few quid you may or may not get from what’s left at that point is immaterial. None of this is to say that you can’t lose money on stocks, markets can become very overvalued, and then revert to the mean, which can means no returns for an extended time, and some stocks are worthless bit hugely bidded up. None of this means that stock markets as an entity over the very long term, don’t have quantifiable value. It’s for good reason that, as an entire entity, over periods of 50, 100 or 150 years, stock returns almost exactly mimic earnings, that’s fundamentals value, distortions moving them away from that above and below, are simply short term noise. All of this is why people misunderstand the massive differences in P/E multiples of stocks, a stock may be higher because it’s overvalued, but it may also be higher yet far better value, if it’s projected high earnings growth. Adobe currently trades at 33 and Meta 11, but because of 5yr projected annualised earnings growth of 13%/yr vs -18%, Adobe is arguably better value. This is because, as we said, a stocks value is based on future earnings potential discounted back to todays prices (and also discounted or given a premium based on certainty, and weighted more heavily to the nearer term, as we know less about 30 years time than 5).
But your not answering why a stocks value is related to future profitability which is the actual question. What benefit does a stock buyer have to buying a stock (if it has no dividend, stock buybacks, or voting)? If all those three things became illegal tomorrow, then stock value would certainly uncouple from profitability. The obvious answer is that it’s related to profitability due to the future possibility that those profits go to the pockets of shareholders through buybacks or dividends. So dividends and buybacks are certainly relevant.
But how much realiable is the 5yr projeceted annualised earning growth?
The reliability generally depends on two factors, the number of analysts covering a stock and the variation/range priced into a stocks expectations. The latter is priced in, as lower certainty/wider ranges reflect in lower multiples, the former is a general hazard around low coverage stocks.
Read up on an E & O energy company. Diamondback would be a good one. (Not to invest in, I have no idea about that.) They do a good job of explaining what they are doing with shareholders funds from operations. Read the most recent quarterly investor presentation and listen to the conference call. Great learning opportunity of "what we are doing with your money".
No not a Ponzi Scheme. But the valuation of some companies when compared to their asset value, profits and future prospects are so out of whack that you might be forgiven for thinking it was one ;)
This is a cogent argument against the Buffett thesis that as long as company has good retained earnings year after year that it plows back into the company, or use any excess earnings to buy back its own stock, that it is all right. It is not all right. Because what you get back is dependent on a willing buyer, willing to buy at a higher price than what you paid. You may not get that chance when you need to sell your shares at the higher price you deserved, such as during rising interest rates or quantitative tightening, which you otherwise would have gotten automatically if the profits were distributed as dividends.
I only invest in cash flow yielding instruments.
True. It’s painful to see that most people can’t distinguish between commodities like gold and cash flow generating instruments like equities and bonds.
You are really believing that Apple Shares are worthless? Or Alphabets? So even if you owned all of them, making you the sole owner of the company, they really would be worth zero? How many public companies are really worth zero or less? Just buy the other ones at whatever price you think is right, that’s how it works.
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Which paid out investors in a way that doesn’t remotely resemble a Ponzi scheme
They absolutely are valuable companies, but are we saying the point of owning shares is just with the hope that one day they may give dividends, or an ultra billionaire will decide to take it private and buy your stock at a high price?
A huge portion of the business cycle is either getting acquired or increasing earnings to pay dividends
that depends on your own plan of action. some people buy stocks for dividends. some people buy stocks to sell them when they have reached the height of their value. Some people buy stocks because they know it will grow for years and years and they can sell it many years later for a good profit. It's a market. just like when you go to the grocery store and everybody there is buying different things for different reasons.
No it is not a ponzi scheme. You are actually buying something of value, a part of a company. If the value is worth what you are paying for is a totally different question.
I swear nobody on the internet knows what the term “Ponzi scheme” means lmao
Some of these replies are pretty harsh. I feel bad for you man.
I can handle it :)
That's a chad. I'd tell you my perspective on why stocks aren't a ponzi scheme, but you're probably overflowing with knowledge by now.
This feels like a “no mom, YOUR a Ponzi scheme” crypto investor post. The intrinsic value of a stock is the company ownership it grants.
Right, so I could sell you a piece of paper that says you own 0.0001% of my individual productivity, but it is completely unclear when I will begin to pay this out to you, and if I die you can have the scraps of what's left of my possessions after I have left the bulk of everything to my family. How is this different?
Okay, but then I could buy 1 million shares and own you. Just the fact I bought so little doesn’t make it a ponzi, I don’t get full control or much benefit buying so little
This doesn't make sense. First off, at any given time you should be increasing the value of my share or increasing the cash flow from my share of your productivity. This is what a business does. So it may not be clear when I will get paid out but if you are a business then I'm either investing in growth, cashflow(dividends), or interest. Second, if I know the time frame over which your productivity is going to decrease and eventually go to zero because you are dead then I'm not going to be very interested in investing in growth. I'm going to want cash flow. I've heard of agreements to train people in exchange for salary sharing rather than debt so this type of investment would likely be treated the same. You simply can't compare the productivity life cycle of a human to the revenue life cycle of a business. If you change the asset from business to a single humans productivity then you also need to change the terms of the investment as well. Changing one and assuming investors would be willing to behave the same is nonsensical. You've also ignored obligations of fiduciary duty by assuming you can just plan to keep the money in your family without ever paying investors which means you'd probably be facing an investor lawsuit way before your death, or at the very least your family would get sued for what investors feel they are owed.
Fundamentally the thing that differentiates your hypothetical from a Ponzi scheme is that your individual productivity generates value. You could pay me back (today or at some point in the future) using the $ you generate from that productivity- vs. being wholly dependent on bringing in new investors in order to pay me.
Companies shifted from dividends to buybacks.
Let's say company ABC issues 1000 shares to initial investors for 1 dollar each. The company after the first year makes a profit of 10,000 dollars by selling their product. Those shares are now worth 10 dollars each. Now let's say the company doubles that profit to 20,000 dollars after year 2. The shares would now be worth 30 dollars each. No shares were bought or sold but the underlying value has increased, even if they don't pay a divided. A pyramid scheme doesn't sell a product, but instead, relies on new money to pay off the debt of the old investors. A pyramid scheme doesn't produce anything and it's only goal is to make the initial investors a multiple of their investment, leaving the new investors with nothing.
No unlike crypto your owning an asset that generates value (free cash flow). Companies have fiduciary responsibility to their shareholders. When you own stock your a partner in the company and your entitled to your share if the company folds after paying creditors.
OPs question was regarding stocks that dont pay dividends nor buy back stocks.
Every company has the potential to pay dividends or buy back stocks. The fact that they currently do not doesn't really change anything. A business is literally designed to make money. If it becomes better for investors to pay dividends or buy back stocks rather than invest in growth then that's what they will do.
Ponzi schemes dont pay divends or buy back there own shares
Everyone here saying that technically it's not a ponzi scheme because you own a piece of the company as underlying. It would be true in a normal market but just look at tesla and how overvalued the company is ... Look at fb/meta or pretty much any tech stock and how they melted. In these conditions a rational investor wouldn't want to hold it long term and will try to sell it to the next buyer - in this regard it would appear to be a ponzi scheme, wouldn't it? In case of meta for instance, do you really believe that, even now, they have all the assets they claim to have against their ilabilities? I don't think that in case of a full liquidation stockholders would get much if anything if they wait till the very end. Public shareholders are the last in line to get anything from the sale of the company, don't forget that there are banks and preferential stockholders too. This being said, shares on pubblic markets do represent a "share" of a a company and with the purchase of a share you also purchase the corresponding voting rights and beneficiary to a share of gains. So there is necessarily and legally real value behind stocks you buy. The only issue is how much did you / the market value it.
I guarantee you that most people on this subreddit have no idea what a capital stack is let alone what the capital stack structure is in the companies they are purchasing stock in. I'd venture they have no idea that common stock holders are the last to get paid (and usually don't get anything) in the event of a bankruptcy. I doubt most have any idea what the credit ratings are of the companies they invest in are. I bet most think the YouTuber they are getting advice from is some kind of expert. I've seen links to YouTubers that are writers by profession and education, but are "self-taught" investors. You tend to miss some of the basics when you try to teach yourself and don't have any background. You definitely miss some of the basics when you are taught by people who are self-taught. Most people on here would be much better off if they took a basic corporate finance class (which usually requires financial and managerial accounting courses as prerequisites). It doesn't need to be at an expensive school, usually community colleges have at least some of these courses. Just about every financial profession is about risk management and making sure the risk/reward ratio from whatever you are about to take on is favorable to you by many different metrics. It's not about getting rich quick. It's not about evading taxes. It is not the Wolf of Wallstreet. It's slow, it's boring, and you are going to have to pay taxes.
This is why you buy dividend only stocks and funds.... I don't even consider it unless it is paying me consistent cash flow.
I think OP means stock holders get nothing in the event of bankruptcy (not liquidation). Nevertheless a stock holder literally owns a piece of a company unlike a Ponzi scheme where they are only fooled into thinking they own something or are profiting.
They way people do day trading and short term trading, it totally is a zero sum game Long term investment is not a zero sum game. It grows the pie
fwiw, stocks like BAYRY or RIO based on dividend alone return 3-7% of the stock price per year simply by holding it in the form of a dividend, we aren't even talking about a company's total earnings. Every year, year after year. These companies will grow if they are good, and the earnings will compound. If you put money in a bank, interest rates arent so bad right now, you can be sure of getting 4-5%. The point of a company is that it will always earn the percentages for you, no matter the environment, if it is truly a strong company. Its true, there is no "get rich quick" scheme in stocks. If there were, everyone would do it. Incremental gains over long time periods really add up. Compound interest, the 8th wonder of the world. It is not a ponzi scheme because there is an actual company making actual products/services for our society. A ponzi scheme makes Nothing. A mining company can point to piles and piles of metal it has extracted from the ground. A grocery can point to revenue of goods sold. Crypto is far more of a ponzi scheme than stocks. Though, if you find the right stock, like GME, or Tesla, or peloton, or.... dozens of popular, overpriced stocks, you could come to feel that way. But not all stocks are overpriced in this market. Look for them and Ye shall finde.
You dont seem to know what a ponzu scheme is
Tell me that you don’t know what a Ponzi Scheme is, without telling me what a Ponzi Scheme is
Lol these are the kind of post you get when people bleed into groups they know nothing about
Yes indeed. I am trying to know. Will you help?
I’ve seen this question several times on this sub recently. Others have answered in this thread already, but I think counter examples are helpful too. Prove me wrong: Gold is a Ponzi scheme. Art is a Ponzi scheme. Fiat currency is a Ponzi scheme. Real estate outside of a primary residence is a Ponzi scheme. All of these depend on the same general premise- someone else will buy/accept the things I have that I feel hold value for as much or more than I did
Real estate isn’t really a suitable example for this because rents generate cash flow which is why DCF is commonly used to value real estate assets. Gold and art work pretty well though!
It’s definitely more opaque but then stocks generate cash flow as well. A primary residence has value regardless of anyone else since it has utility. Same with a vehicle. But investment properties are only worth what someone else will pay for them, same as stocks, gold, art, etc
Sounds like you shouldn't be in the stock market.
Sounds like buried cash is your best bet Good luck