Comment by throw0101c | Hacker News Reader

Comment by throw0101c | Hacker News Reader

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> If you exclude dividend paying stocks, then the entire stock market starts to look like a giant pyramid scheme casino.

Stocks can start paying dividends in the future: MSFT did not in the past, and does now. AAPL did, stopped in the 1990s, and started doing so again.

You should be indifferent to the company's dividend scheme since it's the underlying business activity that drives total returns, and not its distribution policy. There is all sorts of magical thinking when it comes to dividends:

* https://canadiancouchpotato.com/2011/01/18/debunking-dividen...

* https://pwlcapital.com/the-irrelevance-of-dividends-still-a-...

A pyramid scheme can run out of people to keep it going: the stock market is in a sense a 'savings scheme' for future consumption. Younger people work and turn their cash into savings, older people take their savings and turn it back into cash: as long as young people need to think about the future, and older people / retirees need to pay bills, there's a mechanism to maintain this cycle.

> A pyramid scheme can run out of people to keep it going

And then you describe how the secondary stock market requires 'fresh blood' to whom to sell stock to cash-out.

It's precisely a legalised pyramid scheme that always needs someone to come in at the bottom hold the bag to let someone else cash-out. In turn they need someone to come in 30 years later. That's exactly how a pyramid scheme works.

> In turn they need someone to come in 30 years later. That's exactly how a pyramid scheme works.

The entire economy is a pyramid scheme: the expenses of some people (shelter, food, clothing, entertainment, etc) are the income of other people (landlords/mortgages/property taxes, farmers/grocers, etc). It's why, during economic downturns, personal virtues (saving) can become vices from macroeconomic perspective: if everyone is saving, no one is spending, and so producers/suppliers lose their income (and generally start laying people off, which causes more saving / less spending).

At any given point in time, if no one spends, then no one has income.

This was the 'innovation' of Keynes in the 1930s: use government spending to 'induce' demand to get the cycle going again:

* https://archive.nytimes.com/krugman.blogs.nytimes.com/2015/0...

For a stocks point of view: if no one is currently saving, then those that need income will lose it. At any given point there are folks who need to save/buy and those that need to spend/sell.

Exchange of goods with money isn’t a pyramid scheme imo. Financial system is a pyramid scheme, economy isn’t

A typical pyramid/Ponzi scheme falls apart when (new) people stop putting money into the system.

What happens to the economy when people stop putting into the system (by saving, and not spending on goods/services)?

> it's the underlying business activity that drives total returns, and not its distribution policy

That's exactly the question, though, since a lot of stocks seem priced disproportionately to their business activities.

> A Keynesian beauty contest is a metaphorical beauty contest in which judges are rewarded for selecting the most popular choices among all judges, rather than those they may personally find the most attractive. This idea is often applied in financial markets, whereby investors could profit more by buying whichever stocks they think other investors will buy, rather than the stocks that have fundamentally the best value, because when other people buy a stock, they bid up the price, allowing an earlier investor to cash out with a profit, regardless of whether the price increases are supported by its fundamentals and theoretical arguments.

* https://en.wikipedia.org/wiki/Keynesian_beauty_contest

Plenty of folks may think these companies are garbage but are 'playing along' because it's not necessarily what they themselves think that is important, but what others think. You can make money in a bubble, even when it eventually pops. What we're seeing now is hardly new, either:

* https://en.wikipedia.org/wiki/Technological_Revolutions_and_...

This is why I stick with index funds, as I don't really can't be bothered playing the game:

* https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

I generally check my portfolio once a year, in January, when I top things up when new contribution room becomes available with the new year. It's 'fun' to follow along with the gyrations and drama as things happen, but I don't sleep over it. If you're reasonably diversified you can generally weather storms and come out okay on the other side:

* https://awealthofcommonsense.com/2014/02/worlds-worst-market...

* https://www.forbes.com/sites/advisor/2010/09/13/its-not-real...

> A Keynesian beauty contest

No shit. That's why, even if it's an exaggeration to call the entire stock market a pyramid scheme, you can't justify the claim that it's entirely "underlying business activity that drives total returns". That's the real question (from which dividends are, yes, a distraction).

> […] you can't justify the claim that it's entirely "underlying business activity that drives total returns".

The S&P 500 index tracks earnings per share (EPS) fairly closely over the decades:

* https://www.macrotrends.net/1324/s-p-500-earnings-history

A lot of folks think the top ten stocks in the S&P 500 making up ~40% of the capitalization is bonkers, but they also make up ~40% of the net income share:

* https://en.macromicro.me/collections/34/us-stock-relative/14...

So from an earnings/income perspective, there appears to be a link between the two.

Perhaps worth noting that the US markets seem to (only?) outperform when tech is outperforming, with other US non-tech sectors basically performing the same as out countries' non-tech sectors:

* https://ofdollarsanddata.com/do-you-need-to-own-internationa...

What do you think you're arguing against?

I don't have better ideas than you to do anything except "buy indexes".

Everyone is happy enough to give Elon (and others) more and more leverage to buy politically strategic companies (this is not that, this is probably just an ego buy for him, something to kill time because he can).

I was worried about him selling out (from an overall market and even index perspective when they were going to bend rules), but it looks like largely the whole situation is predicated on the idea that he can't or won't sell. I don't know how exposed the market is but it doesn't feel good.

Well, if we taxed the top percentages of income/wealth more, and actually enforced anti-monopoly rules, perhaps we wouldn't be in this situation.

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