georgephillip
Diamond Member
- Dec 27, 2009
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- #121
Ponzi Scheme | Investor.gov
"A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk..."
"With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse."
"A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk..."
Exactly. Glad you agree that buying/selling stock in the secondary market doesn't fit that definition.Tan Liu: Why Many Of Today's Most-Owned Stocks Are Ponzi Schemes | Seeking AlphaExactly. Glad you agree that buying/selling stock in the secondary market doesn't fit that definition.
"When one person buys low and sells high, another is also buying high and needs to sell for even higher. And a system where current investors' profits are dependent on cash from new investors is by definition how a Ponzi scheme works.
"Stocks provide a return to today's investors via two mechanisms: dividends and capital gains.
"Dividends provide and income stream which can be quantitatively valued.
"Capital gains result from speculation - an expectation that future dividends will be higher than the market currently expects."
Capital gains is not exclusively the result of speculation. Investors are looking at a number of factors, only some of which are based on assumed future value. For example, they look at the companies current, and historical profit. They look at current and historical dividends. They look at growth trends, and other factors.
Those things are not speculation, anymore than getting a job is based on speculation. There is always risk when getting a job, that you will not fit with the company, that the company could close your department, or even that the company could close entirely.
None of which is speculation. But if you know the company wishes to expand into a different market, you are speculating that this expansion will succeed.... or you wouldn't take the job would you?
Now obviously there are some parts that are speculation. Such as if you hear that Google is starting up a new product line, you could buy the stock under the assumption the product line will be successful, and thus the value of the company will grow.
However that is still not a ponzi scheme.
The entire point of a ponzi scheme, is that there is no underlying asset. You are pretending to have an investment, when in reality there is nothing. You are just taking money from one person, to give to another.
With stocks though, there is an underlying asset. You own stock in a company. That is in fact an asset. No matter what happens, there is a real investment involved. No one was being duped, or defrauded.
Saying that "It is still dependent on someone else buying it"..... is irrelevant. All value that exists anywhere on this planet.... only exists because someone is willing to pay for it.
If no one is willing to buy your food.... your food has no value. If no one will buy your car, your car has no value. Where you work, if no one is willing to buy the product or service you provide, then your product or service has no value.
If you are suggesting that anything that is dependent on others buying it, is a ponzi scheme, then absolutely everything in the world is a ponzi scheme. And if everything is, then nothing is.Is this a definition of "speculation" you can subscribe to: an expectation future dividends will be higher than the market currently expects?Capital gains is not exclusively the result of speculation. Investors are looking at a number of factors, only some of which are based on assumed future value. For example, they look at the companies current, and historical profit. They look at current and historical dividends. They look at growth trends, and other factors
If so, what's the value of a company that continuously pays no dividends and does not appear as if it ever will?
WeWork’s Unraveling Is Another Indictment of Wall Street’s Universal Bank Model
Dividends alone is not a determining factor.
Again... you own a share of the company itself. That has value, even without dividends. Warren Buffet's company, Berkshire Hathaway, pays no dividends. But the company itself has grown. That growth has value. You as owner, have part ownership in that company, which has value.
Let's spin this around into something easier.
I own a house. Do I get dividends? No. But that house is an investment. Why? Because it has value that increases. Even without dividends showing me direct value, I know that over time property values do increase. Again... why? Because we all know that people need places to live. We can look at the history of property values, and see the increase.
Just like we know that people will need a car, so owning shares in a car company will have value.
Just like we know that people will need food, so owning shares in a food company will have value.
Now I am NOT saying... 'there is no speculation'. Again, everything has some amount of speculation. Democrats could take over my city, and put in place section 8 housing in my area, and the value of my house will drop like a rock. It could happen.
Government could put in place terrible protectionism, that could kill the auto market, and the car company I own shares in, could close.
But again, there is a huge difference between speculating on a real assets, and a ponzi scheme that has no assets.
Even if the car and food company are not paying dividends?Just like we know that people will need a car, so owning shares in a car company will have value.
Just like we know that people will need food, so owning shares in a food company will have value.
Tan Liu: Why Many Of Today's Most-Owned Stocks Are Ponzi Schemes | Seeking Alpha
"So when one person buys low and sells high, another is also buying high and needs to sell for even higher. And a system where current investors' profits are dependent on cash from new investors is by definition how a Ponzi scheme works.
"What's wrong with that is a lot of stocks don't pay dividends and why are you an owner of a company if the company never pays the so-called owners?
"that's exactly how it works because when a stock doesn't pay dividends, there is no monetary connection between the revenues and profits of the company and the actual shares."