While having my coffee this morning, this thought crossed my mind.
We have seen it said that the recent turmoil in the crypto asset space is based on many of the assets being basically Ponzi schemes. A group issues a coin that represents some nebulous claim on the project and the value of the coin is driven by what the next person will pay for it. Recently the regulators are making the case that 99% of these assets are really securities.
Securities. That is stocks.
So, when a company wants to expand, it issues stock and sells the stock to raise money to use for company business. The people that buy the stock now own a portion of the company. All well and good, but . . .
What good comes from owning a portion of the company?
As the company grows and becomes more valuable, your portion of the company theoretically also becomes more valuable. But what good does that do for you?
Well, you can sell your portion of the company to someone else for more than you paid for it. Then what good does it do for them?
Now, if you actually built a company that you owned, you would, over time, be able to milk it for money that you could use to support yourself. But if you just hold a share of the company, you are not able to milk the company. Your only recourse is to sell the the "greater fool".
Doesn't that sort of match the definition of a Ponzi scheme? Granted, there is no formal structure where the money from new investors is used to pay a return to earlier investors. But the new buyers of the stock are similar in adding money to the mix to pay the earlier investors.
I suppose you could say it is more like gambling where people bet whether the crowd will push the price up or down, rather than a true Ponzi scheme.
The only actual way you can milk the company is if the company pays a dividend to you for owning the stock.
All of this makes me wonder if the only true investment is a dividend paying stock and all the non-dividend stocks are either a Ponzi scheme or gambling.
Any thoughts on this?
We have seen it said that the recent turmoil in the crypto asset space is based on many of the assets being basically Ponzi schemes. A group issues a coin that represents some nebulous claim on the project and the value of the coin is driven by what the next person will pay for it. Recently the regulators are making the case that 99% of these assets are really securities.
Securities. That is stocks.
So, when a company wants to expand, it issues stock and sells the stock to raise money to use for company business. The people that buy the stock now own a portion of the company. All well and good, but . . .
What good comes from owning a portion of the company?
As the company grows and becomes more valuable, your portion of the company theoretically also becomes more valuable. But what good does that do for you?
Well, you can sell your portion of the company to someone else for more than you paid for it. Then what good does it do for them?
Now, if you actually built a company that you owned, you would, over time, be able to milk it for money that you could use to support yourself. But if you just hold a share of the company, you are not able to milk the company. Your only recourse is to sell the the "greater fool".
Doesn't that sort of match the definition of a Ponzi scheme? Granted, there is no formal structure where the money from new investors is used to pay a return to earlier investors. But the new buyers of the stock are similar in adding money to the mix to pay the earlier investors.
I suppose you could say it is more like gambling where people bet whether the crowd will push the price up or down, rather than a true Ponzi scheme.
The only actual way you can milk the company is if the company pays a dividend to you for owning the stock.
All of this makes me wonder if the only true investment is a dividend paying stock and all the non-dividend stocks are either a Ponzi scheme or gambling.
Any thoughts on this?