Stocks represent ownership of business producing goods and services and selling them for profit. Cash, bonds, and precious metals are just an accounting mechanism. The value is created by business. So it pretty much is universal truth.
Do any of us actually believe that Snap's stock price is reflective of its value to society?
Today, stock prices are all about perception and company image. Most shares are non-voting, and don't pay dividends. And you can't take your stock and march to a company headquarters to demand that they give you something of value in exchange.
To an average small investor, shares in almost every company might as well be Magic cards. Their only value is to sell them later to a different collector.
Equities are a piece of creative energy applied to capital.
I am not saying you can’t lose money with wallstreetbets or that you can’t make a business of cash. But a creative business around money transmission and risk management is equities not cash itself.
> Do any of us actually believe that Snap's stock price is reflective of its value to society?
of course not. the stock price doesn't represent the value to society; it represents the (perceived) value to investors, taking into account potential for growth. ford is an established, stable company, but it's hard to see any avenues for massive growth over the next decade. I don't personally believe snapchat will grow massively, but it's more likely than ford to do that or get purchased for a huge amount of money by a tech giant.
In context, the GGP is positing that stocks should have a higher rate of return than other modes of investment because, to paraphrase, "companies create value". The point of the GP is that perceived value to investors drives the stock price more than value to society, thus countering the notion that stocks are inherently "better".
first of all, whether or not a company "creates value for society" is a red herring. it doesn't matter to an individual looking for an investment vehicle.
> To an average small investor, shares in almost every company might as well be Magic cards. Their only value is to sell them later to a different collector
this is true to the extent that thinking of stocks this way probably wouldn't hurt you as a small investor, but it obscures the reason why stocks have value and are different from bonds. when you buy a stock, you are locking in a fraction of future real productivity, whether or not you can derive cashflow from it directly. with a bond, you are locking in a nominal return, which could result in a real loss over time. although stocks have significantly outperformed bonds historically, I would hesitate to say that one is inherently better than the other; they just carry different risks.
as an aside, I'm really not sure why non-voting shares that don't pay dividends are valuable, but AFAIK, these are not as common as nrclark suggests.
80% of S&P 500 companies pay a dividend [0] and non-voting shares are actually very rare. In fact, Snap even wrote in its IPO paperwork that "to our knowledge, no other company has completed an initial public offering of non-voting stock on a U.S. stock exchange" [1].
[0]: https://www.forbes.com/sites/investor/2019/11/20/20-bargain-...
[1]: https://www.vox.com/2017/2/21/14670314/snap-ipo-stock-voting...
Cash is more than an accounting system too, especially since the end of the gold standard. There isn't a fixed supply of dollars that businesses just move around.
Also, with regards to both cash and precious metals: their value is as media for economic transactions; their value increases each time they change hands. Would you want to barter to buy shares of a company? Trade sheep to invest in Microsoft?
You're saying that businesses generate value. No disagreement from me there.
But then you're saying that stocks are the only way to share the value that businesses create. That's where you lose me. Selling shares is not the only way for a company to raise funds to operate. Companies can also sell bonds or take out loans (i.e. cash). Your argument that stocks are inherently more valuable would only make sense if stocks were the only way to invest in a company.
Someone already owns a company before company sells (issues / dilutes) shares. That ownership is just shares. No shares need to ever be sold for them to exist. Founders create shares out of nothing when they create a business.
If companies don't sell shares, then there's no stock market. If there's no stock market, then there's no rate of return for stocks. If there's no rate of return for stocks, then stocks aren't an inherently superior investment to bonds, cash, or goods.
If someone founds a company that's 100% owned by that one person, then you (as an outside investor) aren't partaking in any of the value that that business creates. Let's say you want part of the ownership of that company. Companies don't just give out shares of ownership because they feel like it. Companies give out shares because they need liquidity. They can exchange fractional ownership for liquidity directly (e.g. selling shares) or indirectly (e.g. giving employees stock options instead of salary). However, shares are not the only way for companies to gain liquidity.
Ownership that is not traded has no value to investors. Ownership that is traded is traded for a reason, and must be compared to alternatives. Those alternatives are not inherently less valuable than shares.
Companies get funding from two sources, equity and debt. The sum of those are equal to assets in the balance sheet. Both represent different forms of ownership of the company. Equity holders decide how the company is managed, debt holders have priority in income distribution and in liquidation.
The highway down the street from me was funded using Bonds. I even own a few Hospital bonds, which were used to construct hospitals.