this post was submitted on 02 Aug 2024
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I've always thought that stocks have to pay dividents, like that's the whole point of having it? I.e you get paid by the company regularly some of their profit, based on how much stock you have.
Does this mean that the only way how to make money from their stock now is to sell them to someone else? But then, it has nothing to do with the actual company and money they make, but you are paid by someone totally unrelated - the guy who buys the stock from you. I don't get it, I suppose I'm missing something.
At least for the US, yes you are correct that this was the conventional logic that governed the average joe's investment into a stock, up until... roughly the 60s or 70s.
I am not going to write a dissertation on the history of American financial investment, but yeah nowadays, the way you invest in the stock market is ... you buy a stock, hope that its value increases by more than inflation, and then sell it later for what is called a capital gain, ie, profit from the difference between the price you bought vs the price you sold.
So yes, your the second half of your post is correct:
You buy Stock A for 100 from Some Guy 1, then later you hope to be able to sell Stock A to Some Guy 2 for 150.
The specifics of this can easily get absurdly complicated with exceptionally complex and advanced math and mountains of rules and regulations, but basically, what still holds true is this:
Literally a goldfish swimming to the left or right side of a tank to indicate what stocks should be bought or sold, this outperforms the average financial 'wizard' on wall street making your investment decisions.
BUT, basically at no time in the past 20 or 30 years has putting your money into a bank's savings account to earn interest managed to beat the inflation rate, so if you want a chance to actually be rewarded for setting aside money, you put it into stocks, a mutual fund, an index fund, and well if you ever need to pull some cash out for an emergency, you get fucked by fees.
What you really do is buy real estate. But you have to already have a good deal of money to do that.
Isn't capitalism fun?
I see, stonks are way more bullshit than I thought. Is there anything else you can do with your stock, other than sell it to someone else? I always thought that crypto is such a scam especially because in the end, it has no value in itself, and the only thing you can do with it is sell it to someone else. If noone wants to buy it, well, you are fucked. Does it mean that stocks are exactly the same concept? I always thought it has something to do with the vaule of the company and the profits it earns, but if there is no way how to cash them out other than selling your piece of paper to someone, then it's really the same? I suppose that unlike crypto, the stock price increases if the company is turning profit, but you still have to find someone to sell it to, right, so the price is increasing only because the demand from people willing to buy it is increasing due to it turning profit, but it's not really tied to the actual value of the company, so it's exactly like crypto? Or is the price set by some different mechanism than crypto is - pure demand from people willing to buy?
The huge difference is that a stock is a stake of actual ownership in the company. You can attend and vote in shareholder meetings so with enough stocks you can actually influence what the company does. And unlike crypto there is a natural non-zero price floor, which is the value of all of the tangible assets of the company which could be sold off if the company shut down (less any liabilities).
That's not to say that the majority of investors, especially algorithmic traders, treat it any different than crypto/gambling.
Sure, one share is one vote, but uh that means that whoever has the most shares wins the vote. IE: one or two very wealthy individuals or groups votes count for as much as potentially millions of other people.
The average working class joe investor basically never has the power to really influence anything.
There are also tons and tons of different kinds of shares and different kinds of voting power, and often there are setups that basically mandate some particular entity always has a significantly large portion of shares.
Basically, its not democratic at all, unless you subscribe to the 'some pigs are more equal than other pigs' kind of democracy.
EDIT: A metaphor one can use is killstreaks in COD vs TF2s randomized damage.
In the long run, given a set of purely equally skilled players, CODs kill streak mechanic will functionally randomly choose certain players and elevate their score higher and higher. A positive feedback loop. You end up with a very uneven distribution of scores because mild success is rewarded with wild success.
Whereas in the same situation with TF2, the semi randomized damage across players of equal skill basically would result in a much more even scattering of overall player scores.
Capitalism rewards you more the more money you have, and the more money you have, the easier it is to make even more money, which leads to the haves and the have nots.
In a Co-Op business model, by contrast, its often one person, one vote. There are barely any of these in the US though... we love our entrenched wealth divide between those bastard wealthy asshats and all of us temporarily embarrassed millionaires who will get rich one day.
Those small handful of people also want to make as much money as possible though, so typically their goals will align with yours as a shareholder.
Not if they disagree with a business strategy on profit potential, moral/ethical ramifications, debt management, buying out another business, doing a stock split or stock buyback, where to source a needed material or service from, whether or not to massively raise executive compensation, environmental concerns, or if they're going to get fucked by a hostile takeover, or being acquired by a private equity firm, maybe they do want to outsource some part of this business or spin off a part, maybe they don't...
You say that as if its just always immediately obvious to everyone what the correct path is, and that the primary focus of that path should be to maximize profit, which in and of itself is a bad assumption on its face and is also a matter of contention: do you want to keep doing bandaid solutions to ensure short term profitability, or do you want to cut back on profitability for a year to shore up your market position or develop a new branch of the business, or engage in a capital intensive plan that will likely guarantee profit in the long term?
Businesses are a bit more complicated than 'the richest guys always agree and always know how to make the mostest money and they would never ever have conflicting opinions or interests with me!'
I see. So, you having shares basically means you own part of the company assets, and if it were to for example shut down or get into huge trouble (so no one sensible would want to buy their shares), you'll still get kind of compensated from the value of their remaining assets being sold? That kind of makes sense, and is the difference I was looking for.
It's still weird, but a little bit more understandable than crypto, which is only literally stealing and scamming money from others (who will eventually in the end end up left with all the literally valueless crypto, and whose money basically paid for all your profit from it)