Quote from Angrycat:
Holy crap, are you ever bathed in ignorance.
I am not the one who never heard of Pets.com or Webvan...
If you know how to value a security
Who really knows that? I can get you the economic Nobel prize if you come up with a formula. The point is that companies without any earnings can go up 500% (see bubbles) and companies with decent background can go down. (See capital outflow or bearmarket)
IF the stock market were nothing but a Ponzi scheme, then NO wealth would have been created in the hundreds of years such markets
First we didn't say it is nothing but. Second, you still haven't made any good argument why a tech bubble stock was any different from a Ponzi coupon?
One of the hallmarks of an advanced economy and a wealthy people is a developed financial market.
Russia improved a lot between 1920-1980 without a stock market. So did China....
Go ahead and educate yourself on Pets.com.
P.S.: Since you seem to know so well, stock economy/history, could you tell us:
1. The % of stocks paying dividends in the last 30 years?
2. The % of stocks that went out on their high when the company got bought or finished its business?
Are Stock Markets biggest ponzis?
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stock markets are ponzi schemes...but the <b>biggest</b> of all is not the stock market but the <b>monetary system</b>.
think about it...
money is created out of thin air and the only way to operate the monetary system is by perpetually increasing the money supply to cover the deficit inherent to the fractional reserve policies.
in these circumstances, bankruptcy is inevitable, as well as inflation through currency devaluation.
like in any other ponzi scheme, when the bubble bursts, the top of the pyramid (the greatest fools) pay the bill. an analogy to the actual situation, would be the consumers and corporations that were increasing their debt levels in the latest years.
think about it...
money is created out of thin air and the only way to operate the monetary system is by perpetually increasing the money supply to cover the deficit inherent to the fractional reserve policies.
in these circumstances, bankruptcy is inevitable, as well as inflation through currency devaluation.
like in any other ponzi scheme, when the bubble bursts, the top of the pyramid (the greatest fools) pay the bill. an analogy to the actual situation, would be the consumers and corporations that were increasing their debt levels in the latest years.
The whole article from 'Time magazine' is based on "unrealized gains".
Stock markets always displays "unrealized gains" which attracts new investors.
But the moment the investor tries to sell and realize the gain, demand disappears, and the asset crashes. Again, investors withdrawing early get better returns over that time period than those who waited until later.
So what does this mean?
The business is not a valid investment if customers change how much they are prepared to pay for its products and services, or employees change how much they will demand to work there, or the government changes how much it will tax it, or if it will even let it operate at all. Business and trade is just as vulnerable to shifting opinion, and relies just as much on other people's preferences as any stock price.
Your entire argument basically amounts to saying "stock prices depend on how people value the stock". Gee, thanks for that insight, Einstein.
Obviously it is NOT this obvious, otherwise Angrycat wouldn't say such a things as valuating stocks by a formula and such.
By the way strangely, tulip prices are exactly the same, their value depends on what people think they worth. How strange!!! :eek:
..and although tulips are nice to look at, but their calorie value isn't much, in time of famine their prices tend to fail....
There is a very simple proof of the market working on the bigger fool principle:
Since most stocks don't pay dividends and they don't go out of their existence on their highs, you need to find a bigger fool who is willing to pay for it more than what you bought it for.
P.S.: I bought GOOG at $700, (Hey it was up 700%!!!) and all I got this nice T-shirt for it saying: If you don't know who the fool is in the market, then it is YOU!
I did not mention customers, employees, taxes or regulations so maybe you need some basic reading comprehension. I am making a basic comparison, while keeping other factors constant, considering they affect all commerce.
I am talking about buyers & sellers of BUSINESSES. If you had the insight, you would realize that there is an established marketplace where businessmen buy & sell small private businesses.
Apparently you need some basic logic as well. My argument is that public company stock nowdays is based on what the other guy is willing to buy it from you while the actual operations are irrelevant as you will never get cash from it like you do from a small business. When you invest in a small business, you expect to gain from cash flow generated by that business. When you invest in a public stock, you expect to gain by selling it higher to someone else, aka, new investors.
If you create amazing expectations and research reports of a small business, you won't profit from it. If you try to sell it to someone else for an inflated price while borderline lying about its operations, you will be sued for fraud.
If you do the same in the stock market, like what IB analysts, finance personalities & gurus do everyday, you can profit and never be at fault.
BREAKING NEWS-: Biggest Scam In Indian Corporate History
Chairman 'Raju' of 'Satyam Computers' 4th largest Indian software company and listed on NYSE, has resigned from the board. In his letter to the board, Raju admitted that the IT major's balance sheet has inflated cash and bank balance of $1.04 Billion.
Accrued interest of $78 million in books is non-existent. $256 million was arranged to Satyam, but was not reflected in the books."
Raju, unsuccessfully tried to sell two companies to Satyam last month in a final attempt to plug 50.4 billion rupees ($1.04 billion) of âfictitious assetsâ on the companyâs balance sheet, Hyderabad-based Satyam said in a statement today. Profits from the main business have been inflated âover a period of last several years.
http://www.bloomberg.com/apps/news?pid=20601080&sid=a37YOX1irBus&refer=asia