yego.me
💡 Stop wasting time. Read Youtube instead of watch. Download Chrome Extension

The Ponzi Factor - Short Trailer


2m read
·Nov 3, 2024

When we think about the stock market, we think about money, the finance industry, businesses, and making money from investing in successful businesses. The belief is investing in successful businesses is what leads to investment profits, and there's a direct connection between the success of the underlying company and the profits investors experience. This is a reasonable idea, which is why it's in textbooks and recited by finance professionals who sell stocks and stock-related services.

However, this is not how stocks actually work. Most finance professionals have no idea where profits from stocks come from; they just assume it gets magically generated from the complexities of the market. The myth is profits from stocks are generated from the earnings and growth of the underlying companies, and when a company makes money, they share the profits with their investors.

But in practice, most public companies never pay dividends on their stocks, and when they make money—which can be millions or even billions—they keep everything. The reality is profits from stocks come from other investors who are buying and selling stocks. When an investor buys a stock for ten dollars and sells it for eleven dollars, then eleven dollars comes from another investor, someone who will then start hunting for yet another investor who will give him twelve dollars, and so on.

This is technically a negative-sum scenario for investors because they are contributing all the money, and there are fees attached to every transaction. The company that issued the stock isn't involved in these transactions, so whether the business is making or losing money is irrelevant.

This is why companies like Tesla Motors, which has lost billions since they became a public company, can still have stocks that appreciate in value. But in a situation where investors' profits are strictly dependent on money from other investors, investors can make or lose money regardless of whether the company they invested in is making or losing money.

In reality, the stock market is a massive system that shuffles money between investors. It is a system where current investors' profits are directly dependent on the inflow of money from new investors, and such a system is also known as a Ponzi scheme.

More Articles

View All
Why It’s Hard to Forecast the Weather | National Geographic
People have short memories, and you’re only as good as your last forecast. So, if you mess up a forecast, especially a high impact forecast, people will remember that. A 3-day forecast today is about as accurate as a 1-day forecast was in the 1970s. If yo…
Over 100,000 Sea Turtles Nest at the Same Time. How? | National Geographic
My main interest is understanding how, or specifically what the mechanism is for these sea turtles to synchronize their nesting behaviors. We do not know why the sea turtles specifically come to Austin. Sea turtles are renowned for their ability to trave…
Lance Romance | Wicked Tuna
Who does this man? Is that Bubba? He’s got to learn to reel it without reeling it like that. Who did it? Lance romance? Really, Lance? Come here. It’s week nine, and Lance is still making rookie mistakes. I want Lance to learn these things because if he …
Mohnish Pabrai: How to Find and Analyze an Investment (2021)
I put about 10% of the fund’s assets into Frontline, and in a few months, shipping rates started to go up. It went up to like $10 or $11 a share. I had a very nice gain in a relatively short period of time, and I exited Frontline, patted myself on the bac…
It Started: Housing Prices Are Collapsing
What’s up guys? It’s Graham here. So, we’ve got some bad news for the housing market, and unfortunately, it’s expected to get a lot worse. That’s because a new report just found that nearly 10 percent of homes purchased in the last nine months are now ups…
McDonald v. Chicago | National Constitution Center | Khan Academy
Hi, this is Kim from Khan Academy, and today we’re learning more about McDonald v. Chicago, a 2010 Supreme Court case challenging a handgun ban in the city of Chicago. The question at issue was whether the Fourteenth Amendment’s Due Process or Immunities …