What value does the secondary market for equities serve the economy...

What value does the secondary market for equities serve the economy? I honestly don't understand if there is any value to it beyond speculation.

What I would think would give it value is dividends as an investment opportunity, and the ability as a shareholder to decide how the business is managed to ensure your investment pays off. Of course, you also technically have a claim to the company's assets if it goes under, but in practice that isn't any real kind of insurance given the low priority of common stock. However, in the case of dividends the highest dividends on the DOW are around 3%, and the S&P has a similar profile with the vast majority of stocks yielding below 3%. That seems to imply that most people don't hold investments in the stock market for their dividends, since you could hold Treasury bonds, effectively an asset with zero risk, and get similar yields. The only other thing anybody could want is capital gains, but that is just a process of shuffling money around that is sourced in profits elsewhere.

By contrast, AAA corporate bonds have had a yield of 4% for the past couple of years, and 6% even during the recession. They also directly finance business activity, and if the business actually goes under (unexpected for a highly rated bond, of course) you have a higher priority claim to a company's assets.

This isn't to be a polemic, I actually want to know if there is any legitimacy to most stock market activity. It appears as though it really is a culturally legitimized betting institution that tends to push money to a few people for not doing much. Sorry if this is written badly.

Important to have liquidity for company stock vests.

My employer gives me stock each quarter and I need to be able to sell it.

Yeah, but that still means stock is just a collectively supported, speculative zero sum game that everybody pools their money into. I want to know how that supports the economy anymore than real investment like bonds do.

In a crude way, if I'm understanding it right the stock market is a giant fractional reserve savings account that people speculate on the value of. When you insert your money into a part of the stock market at some price, you now have a little branded IOU that says you can redeem it at a variable rate. Everybody knows that mass redemption of the IOUs will cause the entire thing to crash, and in the secondary market the money itself isn't contributing to any economic growth. I mean, the whole thing is valued at an absurd amount that couldn't possible exist.

But this activity seems to me as though it hurts the economy. For one, it creates credit bubbles because people speculate on the value of equities. I've seen charts showing margin debt at 300%. Plus, I think everybody believes that they are making "real" investments, when it seems like this doesn't actually qualify as net investment anymore than everybody having an insurance policy is equal to net savings for everybody involved.

Actually, if I'm understanding this right, it would seem to imply the stock market's boom is an indication of a declining confidence in the real economy unless it is the case that the financial subsidiaries of big corporations took profits from stocks to use for investment. In that case, the stock market would largely represent speculation for the purpose of getting easy investment capital. There is no service of debt for the financial branch, they simply cash out some of their investments and use it for production, and then use some of those profits to put back into the market in a cycle.

But I figure this could be confirmed with data? Either way I'm still thinking that this looks like a risky way to do this. Straight equity issuance with a redeemable share or bonds would seem more stable. You can still have mutual funds in bonds or equities, but speculation gets removed. The secondary market in bonds seems fine because bonds are fixed rate instruments that have price fluctuations based on the yield curve. Junk debt is still a problem, but can be dealt with separately from the ability to exchange debt. Being able to call your equities allows you to have liquidity, but banning secondary markets gets rid of speculation on their value. All you have is their yield, voting rights in the company and a price. This seems like it would discipline companies and be fairer to investors.

Stock is shares in a company. If you buy stock you're buying ownership. Stocks are the economy. If business is good, stocks are high. It always goes up because technological innovation creates wealth. There is an economy based around speculation of stocks with baskets of stocks and things sucj as futures, puts, etc. The speculation is still based on reality such has projected quarterly earnings or company plans. Stocks can be overvualued, or undervalued, if you look at their P/E ratio and put it into context.
Stocks are a reflection of the economy and business, and their value is very "real." Thinking they're abstractions implies a very rudimentary understanding of economics (we were all 12 once and thought stocks seemed like gambling). Open an econ text or just read wikipedia. Things related to hard sciences or that require analytical thinking, i.e. the social sciences that lean more towards science, are usually safe because people are too stupid to drag them into politics or even grasp the ideas as a whole.

Control of the flow and allocation of money controls nations, peoples, the world, etc.

It's kind of like how the main point of Amazon is market share, not profit.

basically yes, all your points are pretty much correct.
which is to conclude that the stock markets and derivatives are all just gambling.

you have to add the dividend with the increase in value of the stock. you get more like 20% gain then. with the side effect of higher risk.

And some say its just speculation and luck. some say its not. its kinda silly to think all the people buying stocks are just doing it randomly. if you accumulate all these choices you probably get a "will/wants of people" to emerge and that is what can move around money to the companies that we want to flourish and create goods.

Ultimately, people who do not own stocks, work for people who do own stocks

You're missing the important part. Everybody who relies on a pension or a retirement plan or anything else like that is actually a stock owner. This protects the market because now the individual people can't expel the Jews without losing all their gibs and future.

You have to understand the mind of the Jew.

stocks are an asset
assets are bought and sold
how is this hard?

>Stock is shares in a company. If you buy stock you're buying ownership.

You don't have real ownership over their assets though, only in the event of bankruptcy do you have a claim on assets for most common stock, and even then the claim is small in priority. Holders of debt and preferred stock will get their cut first, hence the market for a stock crashes when a company goes bankrupt, because everybody realizes that they are about to lose their investment.

That disconnect means that any speculation on a company's health is betting that isn't backed by assets. The assets backing the bet is the market for the bet itself. That means it is a zero sum game that appears as though it isn't because of how long it goes on. As long as people continue making bets, it will seem as though there are "profits" being made, but unlike the real economy profits here are always somebody else's cost. There is no real production of goods or services (wealth) that back the financial profits, rather profits FROM the real sector are inserted into the stock market in the hopes somebody else will want your IOU at a higher price later.

It is a rough comparison because of the limitations of any analogy, especially on the fly, but I'm still understanding it relative to a bank account or insurance. An insurance company can have potential liabilities equal to the insurance policy they guarantee everybody who does business with them, but that doesn't reflect the actual wealth of the insurance company.

I understand now that the institution of the secondary equities market provides a mechanism for potentially free financing, but my only problem with that is that that inherently seems like it would lead to speculative bubbles, which historically has been the case, and that that also doesn't seem to be the understanding of the market that most people have. They call what they're doing an "investment", but in economics that wouldn't be considered an "investment".

This seems destabilizing for the economy, though. It obfuscates investment, and the secondary market for equities is effectively a predatory game of musical chairs. If we're going to have mass scale gambling as an economic sport because people want to get free money, we might as well just build more casinos and abolish the stock market.

You get to vote for the board of directors, though your vote is proportional to the number of shares you own.

If you only own a few shares out of millions, you have very little voice. If you own 5% of the total shares, your opinion matters a whole lot.

It's a financial asset that operates more like a physical asset, but physical assets have value backed by the commodity itself. As in, if I buy a house to speculate on its value, the house itself has a value as a house. It can be rented out. If I buy a bunch of oil to speculate on its value, then I'd have the oil.

A stock isn't a claim to anything but a dividend, though bonds and other financial assets have stronger claims to yield. That doesn't seem to be the primary value of a stock, which rather seems to be capital gains in the spot price. Which means it is a financial asset with low real financial value that trades on a speculative market value. Similar financial assets based on yield trade relative to their yield, but most of the biggest stocks have a similar yield of below 3% if they have one at all. That would imply they all have about equivalent value, yet they trade for wildly different market prices. So they're like physical assets in valuation, except there is no actual good or use for the good.

it's a way for rich people to get richer by suppressing workers wages and shipping jobs overseas

if you own 50%+ of a company stock, you technically own it.

This is correct. Look at it this way, stock is basically the original kickstarter where you invest in a company in the hopes to get a return on investment, though instead of shitty half assed video games you get dividends, higher stock value, etc. Don't follow that metaphor too much since it's rather shitty, but hopefully you get the idea.
That ownership is nothing to shrug off too. It paves the way for private investors to potentially stand up to giants on this playground.
Here's another thought: if stocks are all imaginary and based on human value
>inb4 fiat is meaningless because it has ascribed value
Then why do companies offer a 401k as a retirement plan? Better yet, why are there investors/invesment groups who survive recessions and horrible trading days if this is all human behavior and random?

That is fine, I don't have a problem with equities as such, but most people don't own stocks to vote in companies or join shareholder calls. They usually just "invest" their money in some kind of fund or retirement plan and ignore it for 40 years. And this still seems like a shakey reasoning for their value unless big shareholders REALLY covet that decision making ability, since yield doesn't seem to respond much to company performance but stock price does, which is disconnected from any claim to the company's assets beyond its yields.

Though I don't doubt company owners like Jeff Bezos want to own a majority of shares, because Amazon is basically his company and he gets some life fulfillment out of that ownership. But as a reason for the stock market existing, it doesn't feel very compelling. Companies could just have an open door on equity for investors who would like to be a part owner in the company for a price with no speculative secondary market on those shares.

Besides dividends a healthy stock market can be a way for companies to raise
money, by selling their own stock, to further develop the business in times of need or growth.

Without a stock market, the ways which a company can grow is limited.

>For one, it creates credit bubbles because people speculate on the value of equities
Just like they do on property?

OP why are you a faggot so focused on companies going bust?

How many times did you fall for /biz/ penny stock memes?

I'd point to this post:

But in more detail to this specific point:

>Then why do companies offer a 401k as a retirement plan?

I'd go back to the insurance plan and say it is cheaper for a company to offer this benefit by taking part in the stock market than it is to make some kind of company specific retirement savings dependent on the company profits.

As in, it's a pretty accessible benefit whose risks can be placed on the stock market rather than the employer. I don't know what their liability is for a 401k, I work for a small business and we haven't talked about retirement because I'm not that interested in the moment desu. I have my own financial portfolio. If you can explain I'd be happy to hear it though.

That is a serious problem, but junk debt is another issue because investment in productive assets like housing isn't bad in and of itself. It can be argued to create value since investors may be improving the property for later sale in a growing market. Stocks have no inherent value beyond their yield, which doesn't seem to be their basis of their market price.

I have no pink wojacks on my hard drive m8, I just want to know if the stock market should be abolished.

Also I don't understand the discussion here. There is a clear correlation between company performance and stock price.
Prices soar all the time when the reports show good numbers, and vice versa when they show bad.

There seems to be no fundamental connection though. It would make sense if yields rose for dividends, but they don't seem to react much. Rather, market price accounts for the majority of capital gains.Hence we talk in headlines about "the DOW is up" rather than "yields have grown 5% this year!".

Of course, there are derivatives that also have no connection to productive activity and are acknowledged as zero sum games, like futures. A future has a winner and a loser, when taken in its most legitimate function it is supposed to be for risk management. But, it is almost entirely used as a speculative instrument on the markets, since people trading in energy futures don't actually collect their money and go buy X barrels of oil for production or something. They just pocket it as profits and reinvest in other financial markets.

The point of the thread is I'm confused whether the secondary market for equities has a real function, or whether it is a destabilizing element in the economy that we just accept. If it is the latter, I wouldn't be so idealistic as to assume it is kept around because of ignorance. I imagine big money doesn't want to lose their ability to redistribute wealth to themselves.

Isn't equity issuance a good way of raising capital for firms facing volatile returns, and so would rather not risk fixed interest repayments?

Are dividends not a good enough incentive? Or having significant power over a company?

Sure most people can't afford to be on those levels, but there are people that
can and the rest of us are just exploiting that fact. But speculation is not unique
to the stock market at all so I don't understand the beef.

Stocks represent a physical portion of a company. Companies either have value or do not. If you buy a company and the value of that company increases you will see that in the price of your portion. If you own enough of the portions or the company you get to dictate how it works.

Oh yeah, I don't think there is a problem with equity issuance in general. It's the secondary market, the "stock market", where people speculate on their value. If the market for equities was only a primary market with redeemable equities for liquidity (i.e., after a certain date you can call the value of your share and receive it like debt coming to maturity), then I think it would be beneficial for investors and stabilizing for the capital market. You'd know the value of your stock, which is equal to its yield, its price upon the date it can be called, and the relative voting power it might give you.

>equity in a company isn't useful
according to you
your wall of texts aren't impressing anyone

Value is just what people are willing to pay. When buyers stop, then the sellers must meet the buyers new demands. That's all.


So you just don't want a market at all?

Well he's certainly ideologically inclined

>most people don't hold investments in the stock market for their dividends
you're retarded

Yeah, except there is no mechanism for you to actually benefit from the company's growth beyond dividends, which don't budge very much in response to growth, which implies that the market price of stocks aren't backed by the growth of a company. AAA bond values are higher than most dividends right now, that is historically the case, and you actually have a higher claim to a company's assets with a bond.

As it is, from the way it appears to me, shares of stock might as well be notes with the names of football teams on them that you can trade. They seem to go up and down when teams are winning/losing, but there isn't any real reason for this. It's just collectively reinforced behavior.

Yeah he's making some crazy assumptions.

>Yeah, except there is no mechanism for you to actually benefit from the company's growth beyond dividends, which don't budge very much in response to growth, which implies that the market price of stocks aren't backed by the growth of a company.
Wrong. Stock prices go up based as anticipated growth of a company's profits.
>As it is, from the way it appears to me, shares of stock might as well be notes with the names of football teams on them that you can trade. They seem to go up and down when teams are winning/losing, but there isn't any real reason for this. It's just collectively reinforced behavior.
>go up
>when your team is winning
that's the reason, obviously.

>So you just don't want a market at all?

There is a market, but it is the primary market. You buy equity in companies for their yield and growth potential, which should translate to yield. There is also a call price on your stock after a certain date. The choice of what stock you buy is based on how favorable the primary market for equities is. This reduces the incentive for people to run off of a greater fool theory of the value of stocks, since there are only two parties to the transaction being the self-interested investor and the company that wants capital.

Why? Dividends aren't substantially connected to stock prices. Stocks with the same dividend trade at completely different prices. I'm not saying people don't buy stocks for dividends in all cases, I'm saying the market activity is clearly not determined by dividends.

I'm not, nobody has convinced me. I genuinely want to know why the stock market isn't what it appears to be to me.

>Wrong. Stock prices go up based as anticipated growth of a company's profits.

That is fine, but it doesn't mean this isn't destabilizing to capital markets since in real terms there is little profit being generated by this speculative activity. If what you say here is true:

>that's the reason, obviously.

Then the only reason a stock goes up and down is the perception of the company, unrelated to claims on its assets, but rather claims on the market value of the stock alone. That means all profits are exogenous to the system, they are only generated by flowing in.

Imagine a barrel of oil was actually a useless thing rather than a useful commodity. If there was a market for speculating on the value of a barrel of oil totally separate from its utility as a physical commodity, then people passing around a barrel of oil for $5 or $10 or $1 is not actually generating wealth. It's just using a barrel of oil as a means of shuffling money around. If you agree with me, that is the incentive in the stock market as it currently exists.

What is so hard to understand? Is the concept of speculation that hard to understand?

> 1. Want to buy a stock for the nice dividends
> 2. Oh hmm nobody is selling on $10 anymoe but instead $11
> 3. Well the company has historically low volatility and it seems to be profitable for many years to come
> 4. I'll take a chance and buy some at $11 then since I intend to hold this paper for many years, I'll recoup it within X amount of years
> 5. All $11 positions are bought and it opens on $11.5
> 6. Goto 1

Then you just add some fluctuation from bots and other traders exploiting this fact. But the person who bought for the dividends alone
generally don't care about that volatility unless it's extremely high. Price isn't a translation of revenue into price. It is = The expectations that people will keep buying this stock in the hope that its performance will eventually yield dividends or have such low volatility that it's a great store of value.

You want to abolish the market because it's hard to understand precisely what the market will do?

I'd sincerely like to hear them, all I feel like I've gotten is the restatement that dividends exist without acknowledging that dividends don't seem to have a strong connection to stock prices, and that dividends aren't substantial anyways compared to even less risky financial assets (Treasury bonds, probably one of the most secure assets you could own, have a near 3% yield right now. And they're tax free, which effectively pushes their yield up by the difference in 0 tax and capital gains tax).

you're a verbose fucker
what is your central question/thesis

But isn't that the same for secondary bond markets as well? What use is that then?

I don't think you can divorce primary and secondary markets so cleanly. Secondary markets play the vital role of making securities more liquid, which increases their value, and improves the amount of capital firms can raise in the primary market. Without the secondary market equities and bonds would probably fetch much lower prices because households would prefer to hold more money in lieu of emergencies, whereas with secondary markets households won't mind buying equities because they know if an emergency occurs they can sell it and get cash quickly

That markets are evil because speculation exist.

See this:

If you invest in a stock that yields 3% like a lot of blue chip, secure stocks right now, you're making a risky investment compared to making more money investing in AAA corporate bonds or Treasuries. There are some stocks with very high yield, but they make up the minority of the market by a vast amount.

>You want to abolish the market because it's hard to understand precisely what the market will do?

No, I think if it is highly speculative for no reason, it would stabilize capital markets to do away with secondary equities markets and just buy equities based on their potential for growth in yield. There'd still be a financial services sector, but they'd just manage people's direct investments in equities which can't be speculated on. I'm suspicious the entire reason this speculation occurs in equities but doesn't occur in something like bonds is because of the misplaced perception that "investing" in stock is backed by company value, when company value only translates to a high stock price and not necessarily the claim to financial assets of a company. People could speculate on bonds more, but it is historically the case that bonds sell based on their yield, and people in bond markets are looking at yield curves. I figure this is because it is obvious what a bond is, but a stock claims to be something more than it is in practice.

Resources are allocated where people think there's market opportunity. Bad ventures go under and fail and good ventures produce value for people.

That's the very core of it all.

> If you invest in a stock that yields 3% like a lot of blue chip, secure stocks right now, you're making a risky investment compared to making more money investing in AAA corporate bonds or Treasuries.

So why isn't everyone doing this then?

The whole economic value in banking, stocks, bonds etc. Is that they make it possible to quickly transfer money from one person to another while at the same time be "saving" money.

For example if I decide to keep all my cash underneath my mattress. All of the money is out of circulation until I spend it. But If I invested that money in a bank, then the bank can loan that money out to someone else and the money remains in circulation.

Stocks and Bonds work a bit differently since the whole point of them initially is for a company to sell partial ownership of them selves in exchange for extra start up cash. These bonds and stocks represent ownership of a company, so if the company makes a profit you get a dividend based upon how much of the company you own. And if the company becomes more valuable then your stocks become more valuable.

haha, that's what i figured

You can sell bonds quickly too, and I don't actually have a problem with secondary bond markets because they seem to function more on the basis of the real financial value of the bond, its yield.

Stock markets, for whatever reason, seem to be far more speculative in a way divorced from their actual claim to any assets. I'm open to the case that people need the specific kind of liquidity a stock offers, but I don't know what that is.

My central thesis is that the stock market is mostly based on speculation because of how divorced yield is from both growth and price of a stock, which seems to be based on perception of a company. That means there is an amount of money in the stock market excess of its real financial value (very roughly equal to the profit stocks can generate as a financial asset, something which generates an income), and that excess is essentially betting. It's just wealth redistribution among market players, but it isn't generating anything except the redistribution itself. The problem with that, to me, is that that means the market for capital is getting distorted by this gambling. Equities still serve a purpose, in the same way housing serves a purpose even though it also gets speculated on, but the form of the stock market is exacerbating the distortion of capital markets. The housing thing is another issue, but you could say that certain policies have made it seem beneficial at certain times to blow up housing prices using credit, which ultimately was rewarded with the bailout so the banks weren't exactly punished for their stupid, speculative behavior.

Speculation is fine, but if you have a financial asset that has been paying 3% for 10 years or something and the price is on a rollercoaster that whole time, it looks like something weird is going on.

Because the stock market has large capital gains from speculation on the price of the stock! That is what I'm saying.

I have a feeling you are quite young and smart for your age user. Your analysis of the stock market as it currently stands is fairly accurate in the sense that most of its "value" is speculative, as is reflected through many indicators(namely P:E's). This is largely a function of the last ten years of rock bottom low interest rates as it has encouraged the inflation of market cap's through debt financing while traditional debt instruments(bonds) have languished. Things weren't always this arbitrary however.

Look more into the history of the stock market and you will find that they call them "equities" for a reason because they imply very real financing through shared ownership of a business. Naturally a secondary market is going to develop for these instruments as a means of making this very real form of wealth more liquid.

side note to your last point, as long as the p/e is low enough there is always a real investment to be made, aka a claim to earnings. In our fucked up market however these good investments require a hell of a lot of due diligence.

a thesis isn't a paragraph. it's often one sentence.
>markets are based on speculation.
markets decide the price, and it is the only way to properly determine price. speculation exists, sure, but identifying the exact dollar amount of speculation on a given asset is impossible. everyone has their opinion on what prices should be, what makes your opinion more valid than the prices set by the market?

I'll read into it, I'm definitely only looking at how the market has been behaving in the recent past. Like, early 00's at most. I don't know the history of the stock market beyond the large events everyone knows about superficially like The Great Depression.

>The point of the thread is I'm confused whether the secondary market for equities has a real function

I'll say it again; It is required to give all of the real wealth behind it a measure of liquidity. It makes the whole retirement party possible (for the boomers at least and some of us lucky millennials who got in at the right time)

If there was a company paying $100/year in dividends, how much would you pay for that?

If there were two identical companies in the same industry, and the industry was growing, would you pay more for the company that kept paying the dividend or the one that reinvested profits into capturing a larger share of the industry?

etc

the markets since the early 2000's have been in a weird way, they recovered too quickly from the dot com bubble burst, and quickly bubbled up through a complete lack of regulation and oversight fueled by that dangerous, slow to asses real estate "wealth". This led to what most people know as the 2008 financial "collapse" which really isn't an accurate term as it had a lot further to fall. All it did was teach everyone (banks and other financial industry members mainly) that they could borrow endless money and do reckless things with it by virtue of being economic engines that are too big to fail.

enter the stock market you know, where p/e ratios are through the roof and the increased demand for stocks and the corelative high prices are a function of artificiated demand through share buy backs funded by low interest debt. leading to false inflations of share holder value and basically extracting any real meaning from the equity market prices

It is possible and even seems a little easier, to me anyways, when it is a financial asset. There are a couple of things that you'd need to know. What is the strength of the company, what is its growth potential, and how much yield is this asset offering me?

I mean I'm looking at AAPL stock right now and from what I can tell (I don't know if I'm reading this right but I'm giving it a shot) AAPL didn't pay dividends from '95 till '12, and it had a big payout in like, '14. But since then the dividends have dropped, and stock price has skyrocketed. That would seem to imply that AAPL's stock price isn't related to its yield. Maybe the investors are waiting for a big payout? But if I'm looking at it right, it is at 1.4% for 2017. That seems terrible.

remember that's 1.4% of AAPL's profits on a quarterly basis. Its really just the icing on the cake for those you invested in apple ten years ago (myself included) because they saw a fundamentally strong and growing business.

this is all you need to know about the stock market

You're expecting everyone to buy stocks for dividends, that's where you're wrong. Stocks are bought for their profit and/or future ability to generate profit.

BRUV

that is your opinion on what the price *should* be. just because you can pick some factors and causes out and compare them does not mean you understand what the price *is.* There's always more factors than you can account for. This is why centralized economic controls are destructive. Price cannot be determined except through market forces in real time.

For example i bought shares in U.S. geothermal a little bit more than a year ago. Not because they paid a dividend, but because they have a projects that if succesfully completed would raise their earnings by quite a bit.

>how does the stock market work?
>proceeds to debate people over facts
This is getting /adv/ tier.
>I'd go back to the insurance plan and say it is cheaper for a company to offer this benefit by taking part in the stock market than it is to make some kind of company specific retirement savings dependent on the company profits.
It's because the stock market continuously goes upwards in the long rune due to technological innovation and other forms of wealth creation along on top of being an inflation hedge. None of this would be possible if it was based solely on speculation or detached from the economy itself as you imply.
>This isn't to br a polemic
Yeah, my ass. Your thread died last night and I felt bad I didn't give a proper response. Now I wish this had died too.

Depends what the margin is for that $100 compared to the principle investment. If it was 1.4%, I'd seriously consider buying a treasury instead. Which isn't to say treasuries are highly lucrative investments, in reality I'd probably look at something else, but it looks like some companies have histories of going pretty long times with such payouts yet their price just keeps rising.

I mean, if people just want retirement money I still don't see why they couldn't invest in bonds that must generate real growth if the company isn't going to go bankrupt. They can still speculate too, there are low quality bonds for small companies that could pay off big or not at all. It means people's savings become real investment, and from what I'm reading corporate bond markets are considered highly liquid. I'd imagine government bonds are also pretty liquid. This still seems like it would help bring stability to capital markets. If the economy is bad and bonds aren't selling then the economy is actually bad, that doesn't mean we should want the stock market to explode into a bubble.

I'd also imagine that you'd just trade through a bank or brokerage anyways in lieu of a secondary market. If liquidity is actually lacking the bank or the brokerage would have an incentive to grow their market to provide it by underwriting your sale. So you sell your financial asset at market price, if the bank can't find a buyer right now they just take it off of you and keep shopping around while you go home with your money. Maybe if liquidity is particularly low they take it off of you at a lower than market rate so they can insure they aren't going to lose money on the sale.

noice

but OP thinks it's all gambling like a stupid fucking chink

I really don't understand the core of your complaint.
People are putting resources where they hope to see returns.

>trusting a bank to determine current market price when there's not even an open market
>implying the banks aren't causing speculation bubbles themselves in the current scenario
>taking choice away from the individuals investing their own retirement money

really makes you think

I think you need to read up on your technical definition of the secondary equities market because I believe it includes the type of things you described in your last paragraph. I'm glad be both acknowledge these structures are essential for liquidity

as for why it has to exist and why bonds are good enough? different people have different risk profiles, and therefore seek different risk-reward payoff matrices, the very different structures of the two markets satisfy these needs nicely.

>I'd also imagine that you'd just trade through a bank or brokerage anyways in lieu of a secondary market. If liquidity is actually lacking the bank or the brokerage would have an incentive to grow their market to provide it by underwriting your sale. So you sell your financial asset at market price, if the bank can't find a buyer right now they just take it off of you and keep shopping around while you go home with your money. Maybe if liquidity is particularly low they take it off of you at a lower than market rate so they can insure they aren't going to lose money on the sale.

This is pretty much what is happening right now, only it doesn't have to be your bank/broker who buys it from you. You should look into "market makers" and what they do.

invest in Remark Holdings
EOY stock price is $50

It's 1.4% annual yield, quarterly payment of something like 60 cents a share. The shares are worth over a hundred dollars.

I get that, read the rest of the thread. I'm saying that yield is the only claim to assets (aside from a bankruptcy) that common stock gives you, so unless yield has gone up or expectation of yield that covers your opportunity cost of waiting, then the price rising is not connected to growth of the company.

>It's because the stock market continuously goes upwards in the long rune due to technological innovation and other forms of wealth creation along on top of being an inflation hedge. None of this would be possible if it was based solely on speculation or detached from the economy itself as you imply.

I don't think it is 100% speculation, just to be clear, but it seems substantially so. I want to actually work out more how much of stock valuation isn't based on real returns as its yield.

But as for this part:

>None of this would be possible if it was based solely on speculation or detached from the economy itself as you imply.

I wouldn't say it is detached, it is reliant on it. Valuing a capital good at a certain price is based on its potential to profit in the future. If a stock rises in price by 100s of percent but has always yielded like, 3%, then the money is coming from something else.

That is actually interesting. I just assumed that would be something they would do because I know IPOs are underwritten by big banks, but I don't know what the business model of brokerages really is. I figure its mostly fees.

Because I'm under the impression the returns are mostly somebody else's cost. I keep using it and feeling a little embarassed because I didn't want to be married to it, but I still want to compare it to insurance. It obviously isn't 1:1 unless you're making assumptions, but the point is an insurance companies hypothetical pool of money isn't generating anything. It's a savings pool meant to be paid out to policy holders. If the stock yields generally don't reflect growth in price, then some portion of the stocks price is coming from new buyers who make their money in profits from the real economy. This is in contrast to other instruments like bonds, which have a fixed rate that is supposed to be directly derivative of a company's growth from using the debt. That means the financial profit is rooted directly in real growth in wealth of the real economy. If share prices grow some rate above their yield, then the capital gains is coming from someone else paying you. It makes that part of the profits a zero-sum-game reliant on continuous inflow of capital, which is unsustainable at a certain rate. At some point, somebody has to hold a bag.

>I wouldn't say it is detached, it is reliant on it. Valuing a capital good at a certain price is based on its potential to profit in the future. If a stock rises in price by 100s of percent but has always yielded like, 3%, then the money is coming from something else.

Just as one last aside before the thread probably dies, I remember reading something about a meme rumor that mattress firm was a front for money laundering because there are high concentrations of stores close together even though the typical consumer has a mattress for like, 10 years. The apparent mismatch of growth to potential profit made people thing (maybe insincerely) that Mattress Firm was a fake company.

THAT is what I'm talking about. People understand if something can't generate profit from real growth in sales, then a higher and higher valuation of that thing seems impossible. The money has to come from outside of the business or else it is clearly going to go bankrupt. That is what the stock market looks like when it explodes in value but yields aren't rising. It isn't capable of sustaining itself, it is becoming a case of somebody's cost being somebody else's profit, which resembles a pyramid scheme. But the stock market isn't a pyramid scheme, it does have real returns and it also isn't centrally controlled, as far as I know.

essentially you are right that the returns are someone else's cost, but its the customers of the companies who's money you are getting (and maybe a little bit of money from straight speculators or traders) but otherwise, if you're a patient investor seeking equity your wealth accrues profits and the fruits of technological improvement

>Because I'm under the impression the returns are mostly somebody else's cost
They're not though. They're at the costs of the investors reputations, which is what they make their livings off of. If you lose other people's money, other people aren't going to give their money to you. If you literally lie to people in doing so, that's fraud, which isn't substantively distinguishable from theft.

I don't like the insurance comparison at all; I could talk about it but I think it should be relatively clear they're utterly different services - insurance is about risk mitigation at a cost with hopes that you won't see returns (because that means your shit got fucked up) while investment is essentially about taking on risk to get returns.

Speculative investment markets are literally all about people putting money where they hope/expect returns. Whether they see returns or not is a function of the actual performance of the productive firms they invest in. Everything is ultimately tied to the production of value relative to costs, and the beneficiaries and losers are determined by where they put their resources.

I think you're way over-abstracting this. There are no zero-sum games involved in these markets, and nothing the precedent isn't only endless growth - anywhere where that's the perception (since it's never the reality) people inevitably become sorely disappointed and lose out when their bubbles burst.

>Why? Dividends aren't substantially connected to stock prices. Stocks with the same dividend trade at completely different prices. I'm not saying people don't buy stocks for dividends in all cases, I'm saying the market activity is clearly not determined by dividends.
you are a joke. Finish your homework and go to bed.

They're somebody else's costs for people or groups who trade semi-regularly, I'm not talking about the long term since the growth of the market in general is probably based on real returns. If it wasn't that would be pretty dire.

A brokerage or "investor" isn't going to generally lose people's money, because the vast majority of people who give him their money to invest don't take it out for a long time. My college fund has shot up and plummeted before, but that isn't a loss or a gain until I cash out. If I pulled all of my money out at a dip because I suddenly panicked, then maybe I'd have lost money. I'd probably be told not to do that though, which is good advice, but for the people who drive up the price in speculative booms and get caught at the top, they've just paid for somebody else's profit. That is zero-sum. Profits from those kinds of ups and downs are costs for somebody else. To what degree that is the case indicates how divorced the stock market would be from its real financial value. Debt can also be speculative, speculation isn't something I have any problem with. It is whether or not the stock market is of a degree of speculation to basically represent a drain on the real economy and a distortion of capital markets.

I dunno dude, I'm actually reading about it and trying to learn, and right now I'm reading a paper called "What Drives Stock Prices? Identifying the Determinants of Stock Price Movements" from Southern Economic Journal, and it says pic related in the opening paragraph.

The long term is reality though. Poorly performing businesses go under - often large parts of investments with them - while firms that show up and actually produce value for people produce returns.

People don't know what the future will bring, and neither can people exhaustively understand every productive element of any business, which includes incredibly dynamic elements. So the way people move money at the speculation level is just a component of their being an enormous amount of savings people have that they want to make returns on, and those savings are invested into things that people think they'll get returns on. Often there is a component of "herd mentality", where people just jump on trains because they think other people make sound investments and they'd rather spare themselves the efforts of digging into things themselves, but people aren't perfect. What we're ultimately concerned with is that people put resources in the right places, and the investment markets we're discussing is a mechanism by which that tends to happen.

>(...) but for the people who drive up the price in speculative booms and get caught at the top, they've just paid for somebody else's profit

Not necessarily - they're putting their money in in hope of a return for themselves. Whether that actually becomes the case or not is a different question. Whether they win or lose, it's not a zero-sum game at all - real value is produced or represented as a cost by real firms, and that's ultimately reflected. That it's not reflected *immediately* isn't different from virtually any investment market - even a business owner's own direct investments in their own business - but that doesn't make it a zero-sum game.

>I'm saying that yield is the only claim to assets (aside from a bankruptcy) that common stock gives you,
That's not true though, you also have a claim to all assets and earnings from the company for as long as you hold those shares. Retained earnings are still assets you have a claim to even if it's not in your hands.

While it's true that dividends are pretty much the only way for stocks to return cash to investors, the most important things to evaluate the share price are the ability to generate profit and the future ability to generate (a higher) profit. Because unlike something like bonds that have a fixed interest rate, a company may increase it profits and pay out a higher dividend as a result increasing your yield.

Also there are plenty of stocks that have a dividend yield of 10%+. Most of them are REITs.