Ponzi

[Spectre2007]

https://www.barchart.com/etfs-funds/volume-leaders/daily-leaders

 

[ironchef]

Fast forward 20 years, the dumb retails who were holding the bag but too dumb to sell are now looking at book value of $112 instead of $20. You see, the S&P annualized return is 9% per year so the $20 appreciated to $112. Been there done that.

It is a Ponzi only if the underlying has no intrinsic value.

Cheers.

 

[Spectre2007]

Fast forward 20 years, the dumb retails who were holding the bag but too dumb to sell are now looking at book value of $112 instead of $20. You see, the S&P annualized return is 9% per year so the $20 appreciated to $112. Been there done that.

It is a Ponzi only if the underlying has no intrinsic value.

Cheers.

 

[Spectre2007]

It's much worse if you failed to index properly and got stuck in dog shit stock ABC...

 

[Spectre2007]

 

[Spectre2007]

If you pick a stock that's been taken out to the woodshed and shot.. And this is conservative pick.

 

[Spectre2007]

10 year note yields 2.48%... That's why equities are in trouble, if you don't exit now, you become the bag holder.

Risk free 2.48% or chase indexes. Statistically what it says is wait for a significant standard deviation move to the downside before making equity allocations.

 

[Spectre2007]

http://www.businessinsider.com/sp-500-annualized-returns-2014-12

10% myth.. it depends on entry and exit.

 

[CyJackX]

Security A book value = 20

Current Market Value = 35


100 Participants

98 retail = 8 billion in cash (75% static) (25% volatile)
2 banks = 2 billion in cash (75% volatile) ( 25% static)

100 participants trade security A, @ 35

bank (a) buys 1000000 shares
bank (b) buys 1000000 shares
98 retail buys 2000000 shares = 20, 408 shares each

bank (a) buys from bank (b) @ 45 = 1,000,000 shares
bank (b) 10,000,000 profits
bank (a) holds 2,000,000 shares @ 45
bank (b) buys from bank (a) @ 55 = 2,000,000 shares
bank (a) 20,000,000 profits

retail buys from bank (b) 2,000,000 shares @ 55
bank (a) & bank (b) no security exposure to security A
bank (a) & bank (b) short security A, through shares/options
security A plummets to 35
retail has 40,000,000 in losses
bank (a) & bank (b) 40,000,000 in profits plus 30,000,000 in profits form the trend sales to each other
bank (a) & bank (b) pay out bonus of 7,000,000 to its top echelon

retail sits on 110,000,000 - 70,000,000 = 40,000,000 in losses

rinse & repeat

Who do the 100 participants buy the initial shares from in the first step?

Who buys the shorts that the banks sell short in the last step?

 

[Spectre2007]

Who do the 100 participants buy the initial shares from in the first step?

Who buys the shorts that the banks sell short in the last step?

IPO have accredited subscriber placement, usually banks.

Shorting is a borrowed trade, shares are borrowed and sold to the public or other banks who hedge out the position using options. Ultimately the bag holder is anyone but the two banks.