Hasn't the stock market been a "Ponzi scheme" since its inception?

S

Sanaz3

This post could be offensive to many who have been told by investing in the stock market, you are going "to own a piece of the company" and as the company grows, so does your investment. But I am just a layperson and you must have heard of what Madoff did to his clients by pulling off a ponzi Scheme. As long as the money is flowing in, then investors make money, consequently if people stop investing, then there is no profits anymore. So compare this to the stock market in general. As long as people bring in money to buy stocks (the demand), the Yesterday's investors make a profit, and the Todays' investors or traders, will only make money if there will be any Tomorrow's investors. Money comes in as investment and goes out as profit and everybody hopes that this process continues, not realizing that we are all involved a "Ponzi scheme" called the "stock market". It's just a closed system or circle with inputs and outputs equally in value, inside which nothing is generated. One's loss is actually someone else's profit. Money is not being generated and the company's whose shares are being traded on the stock market don't pump money into the market, expect for the small dividend some not all companies pay. And the worse thing is when they go out of business their shareholders would be wiped out completely.

And just think about this so-called "recession" or "market crash" or "market melt-down" phenomenon that happens frequently. This is part of the stock market's Ponzi scheme as shares would have gone up to sky had there never been such a "brake" to stop and control them, and bring them back to zero to start the game all over again.

Imagine just due to such "recessions", how many people got laid-off, lost their jobs, and were kicked out of their homes as a result and the subsequent miserable life they have to live everyday.




So do you think that the stock market is a "decent and legitimate investing tool", and that what we have been told about how it works is "true"?
OR do you think it's nothing but a hidden Ponzi Scheme which reveals itself when the market begins to crash and shares start to nose-dive?

I trust this thread will be informative if one thinks deep, deeper than the "the wall street's Madoffs."
 
This is a trading forum so I wouldn't actually expect anyone to understand what buying a stock really means. You are buying a stake in the company, that is the bottom line. If the stock market ceased to exist you would invest in a company that is looking for investors and have a stake, or "take stock" in the company. All the stock market does is make it much easier to invest in a company instead of the long and difficult process of doing it privately. Manipulation would take place whether it's a public stock market or a private market of investors, arguably the manipulation would be worse if there was less liquidity etc so no, the stock market is not a ponzi scheme, however through a traders viewpoint it could certainly be seen that way because simply you need another investor to pay more than you to make money.
 
That's an interesting way of thinking about it, but there are several points you may be missing.

Longer-term investors mainly focus on dividends. A company does not need its stock price to go up to be profitable (the relationship is vice versa obviously because good earnings will generally increase the stock price), and hence, pay dividends. So investors get paid from dividends over many years.

Another point I disagree on is that cashflow is required to have a stocks price to go up (for bullish traders to make a profit). Trader A is short and Trader B is long... if Trader A desperately wants to get out of a big short position (especially in a less liquid name) Trader B (and all other participants) may only put very high offers... If Trader A is willing to cover at those high prices... the stock price goes up and Trader B makes a lot of money. So cashflow from Trader C who is on the sidelines was not required whatsoever to raise the stock's price.
 
Sanaz,

A better question might be:

What ISNT a scam?

There is no profit margin in being a "Square John"
 
Quote from southbeach4me:

Another retarded thread..... its no wonder this site is going to the shitter....:mad:
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I don't think so. This is a valid question. We need to welcome all traders, no matter where they are as far as experience and understanding of the markets. So chill out!

On to the question...

I do see some correlations, except in a ponzi, all players see a guaranteed return as long as new players keep coming in. When the well dries up, that is when everything collapses. In the stock market, there are always the losers at any given point in time.
 
Excellent Question and I have spent many nights thinking over it. Stock market can be a Ponzi scheme if the companies are not generating any real economic value. But most companies in stock markets are generating values. So, the market as a whole is not a ponzi scheme. However, even if the companies are generating value, but if most of that value is distributed by the company officers and the boards, then stock market is a ponzi scheme.

Individual stocks can be ponzi scheme more often. The whole dot com was a ponzi scheme.

But if one buys value plays like J&J, altria that also pay dividend, at if the purchase is at suitable prices, almost all who invest in such companies are not ponzi.

Now, there are other companies that generate a lot of value like Cisco, Yahoo, MSFT etc, but they do not pay dividend and I doubt they ever will pay a dividend in the name of growth. Also true is that all companies will eventually die in 50, 100, 200, 300 years at most. If these companies never pay a dividend and they will eventually die, that is a Ponzi scheme.
 
Quote from ashatet:

Excellent Question and I have spent many nights thinking over it. Stock market can be a Ponzi scheme if the companies are not generating any real economic value. But most companies in stock markets are generating values. So, the market as a whole is not a ponzi scheme. However, even if the companies are generating value, but if most of that value is distributed by the company officers and the boards, then stock market is a ponzi scheme.

Individual stocks can be ponzi scheme more often. The whole dot com was a ponzi scheme.

But if one buys value plays like J&J, altria that also pay dividend, and if the purchases are at suitable prices, this investment does not become a ponzi since the investors do not need new investments since they have that dividend coming.

Now, there are other companies that generate a lot of value like Cisco, Yahoo, MSFT etc, but they do not pay dividend and I doubt they ever will pay a dividend in the name of growth. Also true is that all companies will eventually die in 50, 100, 200, 300 years at most. If these companies never pay a dividend and they will eventually die, that is a Ponzi scheme.
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