Are Stock Markets biggest ponzis?

[EMRGLOBAL]

I agree with your capital inflow theory.

Biggest fool theory, no.

There are plenty of reason's that one would by a stock at a higher price. Market flow, breaks out of a range, makes higher highs, good earnings, etc.

But the most important is SPECULATION.

It sounds like you do not trade or have never traded.

SPECULATION is the key reason. Just because your wrong on your "SPECULATION" makes you a fool? It may make your wrong but not a Fool.


Now, a Broker, Agent, etc may make a Fool out of you by promising you XYZ and you fall for it. That has nothing to do with SPECULATION.

The FOOL is one who leaps into the Markets not knowing why, how or what.

The SPECULATOR makes a informed decision and is no fool.

The Market provids both the SPECULATOR and the "FOOL" opportunities to make or loose money. Yet, the Market is just a tool that is it.


So, yes there are plenty of FOOLS in the Market but that does not make the market "Based on BIGGER FOOL THEORY".

 

[Pekelo]

The reason WHY you buy into a Ponzi is irrelevant (your brother told you so, you want to make big money, speculation) it is the characteristics of the system what makes it Ponzi-like.

Anaconda is right, as long as the stock doesn't pay dividends, it is pretty much a Ponzi.

Quote from EMRGLOBAL:

Biggest fool theory, no.

Disagreement is OK, although I would prefer an ARGUMENT instead of personal attacks.

There are plenty of reason's that one would by a stock at a higher price. Market flow, breaks out of a range, makes higher highs, good earnings, etc.

Completely irrelevant, as I pointed it out earlier.

But the most important is SPECULATION.

So? There is no speculation in Ponzi? I speculate that I can find a bigger fool who can be under me in the pyramid scheme (what basicly a Ponzi is).

The SPECULATOR makes a informed decision and is no fool.

I can enter a Ponzi knowing it is a Ponzi, no problem. As long as I believe that I am going to be high enough in the pyramid, I can expect a profit..

So, yes there are plenty of FOOLS in the Market but that does not make the market "Based on BIGGER FOOL THEORY".

Unfortunately, you haven't stated anything to the contrary...

 

[Pekelo]

It is really simple, as long as there is real value or usefulness behind the product, it is not a bigger fool game, the price doesn't necesserily have to express its correct value. (if there is such a thing)

You can live in a house, you can drive a car, you can live on dividends. Even if your house lost half of its value, you still can live in it, even when your car got a huge amortization as long as you can drive it, it has value for you.

In "bigger fool" games there is no real value behind the transaction except the expectation that the value of the exchanged item will increase in the future.

Pretty simple....

 

[Anaconda]

Quote from EMRGLOBAL:

There are plenty of reason's that one would by a stock at a higher price. Market flow, breaks out of a range, makes higher highs, good earnings, etc.

You are helping Pekelo prove his point. You would buy the stock because you expect it to go up and then resell it to someone else. There is no actual value gain unless someone else buys it from. Whatever delusions that someone else puts on himself/herself, it's still the "greater fool" complex.
The stock may have great earnings, but do any of those earnings pass onto the shareholders? Rarely.

It's quite simple, really. Show Me the Money. Few of these companies can, their executives just blab on about shareholder value while they are sucking out absurd compensations.

 

[Compulsive]

Social Security is the biggest pyramid or ponzi program. The only thing that keeps it alive are new borns....so it is almost guaranteed as long as human produce

 

[Angrycat]

Quote from Pekelo:

Except when they are. The analogy is correct because both Ponzis and stock markets are based on the "principle of bigger fool", that in the future you will be able to sell your stock to an even bigger fool at a higher price. The only difference is that with stocks most of the time there is a real value behind the transaction. (not always, see dotcom start ups)

Since prices can not go up forever, with basicly every stock there will be a time when somebody is going to be holding the bag and lose...

P.S.: Tell me that buying shares in Pets.com wasn't a Ponzi!

Holy crap, are you ever bathed in ignorance. The public market does not operate on the bigger fool theory. It is a meeting place to increase liquidity and thereby make capital raising more efficient. If you know how to value a security (and I doubt many of you know how to perform a basic discounted cash flow analysis), then you will buy it because you think that is undervalued and you will sell it because you think it is at least fairly valued. The guy selling it to you or buying from you disagrees. It's debatable which of you is the fool and which of you is just not clairvoyant and is valuing from a set of different assumptions about the future.

IF the stock market were nothing but a Ponzi scheme, then NO wealth would have been created in the hundreds of years such markets have been around and we would all be living at about the same level we were 1,000 years ago. One of the hallmarks of an advanced economy and a wealthy people is a developed financial market. Are you living in a grass hut? No? Then perhaps you should rethink your position on the market. However, if you do think it's a Ponzi scheme, then by all means stick your money under a mattress where it's safe.

I know exactly nothing about Pets.com and you haven't inspired enough confidence in your understanding of finance and economics for me to rely on your analysis. So, I won't comment on that.

 

[Pekelo]

Quote from Compulsive:

Social Security is the biggest pyramid or ponzi program. The only thing that keeps it alive are new borns....so it is almost guaranteed as long as human produce

We already had a thread about it. Every SS is eventually doomed to fail, because one country can not increase the population beyond limits. Furthermore, those damn boomers tend to live longer and their kids are having less kids, so the original 16 paying workers for every retired ratio is down to 3:1. In Sweden it is 2:1 already.

One easy way to see SS being a pyramid scheme is the lady who paid in some $20 and got $20K out of it until her death. As with every pyramid scheme, early birds get the worms...

 

[Angrycat]

Quote from Compulsive:

Social Security is the biggest pyramid or ponzi program. The only thing that keeps it alive are new borns....so it is almost guaranteed as long as human produce

Exactly. However, unlike other Ponzi schemes, you don't have a choice <i>not</i> to participate.

The key phrase is "...as long as humans produce (and reproduce)". But if more and more output is confiscated to pay the previous generation, the younger generation has less and less incentive to produce. Combine that with the growth of the welfare state and that's when the Ponzi collapses.

 

[Anaconda]

Quote from Angrycat:

If you know how to value a security (and I doubt many of you know how to perform a basic discounted cash flow analysis), then you will buy it because you think that is undervalued and you will sell it because you think it is at least fairly valued.

As a shareholder you rarely, if ever, get access to that cash flow. Paying dividends is frowned upon when originally, it was an expectation.

You can value the company any way you want. At the end of the day, which of them can show you the money? Not many. What does DCF really mean to the investor when none of that cash passes down?

If you try to equate purchasing your average stock to purchasing a business, you will notice one key difference. The business generates cash (or at the least has realistic expections of doing so). The stock is simply expected to appreciate so that someone else can buy it higher, providing you with gains. The business is a valid investment whether other buyers & sellers of that type of business exist or not. The stock is a valid investment ONLY if there are other buyers & sellers of stocks.

The Ponzi scheme label is valid to the current stock markets, to most stocks to be exact. But it needs to be remembered that back in the day when stock markets were developing, dividends were very important as justification of the stock price. Nowdays, they are frowned upon.

 

[nassau]

Quote from Compulsive:

Social Security is the biggest pyramid or ponzi program. The only thing that keeps it alive are new borns....so it is almost guaranteed as long as human produce

absolutely imo
as the market is based upon perception and the oppinions of others who give stocks value without recourse (analyst), board of directors, accountants, brokers who must have stocks in their portfolio and then are also MM's.

Once you receive a dividend on a preceived value you are imo part of the scheme. How else can one explain billions changed in value daily in stocks like goog, rimm, aapl.
Obviously like Madoff they did not start out as a true ponze scheme but sooner or later they look like one. Enron, Crox, GM
the problem is that the gov'ts intervention mirrors the true picture like the over leveraged of banks who have the ability to write off, adjust etc etc their books and still lend out money on their perception of being liquid.

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