Debating Finance Junkies | Ponzi Factor | V-Log 6

Hi, this is Todd. Thank you for joining me once again for my last and final V log of the year. First, I want to apologize for being absent for so long. The last one I did was on the SP500 from almost two months ago. Unfortunately, I'm not gonna do a continuation of that until my thesis is fully complete, which will be around March. So, unfortunately, this is not a continuation of the last V log.

But today's subject is very important. It's about how to debate a finance junkie—someone who worships Warren Buffett, someone who doesn't know the difference between an imaginary value of a stock and real money, and someone who is completely unaware of the history of stocks and why stocks are even called equity instruments to begin with. These are typically the AHS Watts and Cochran's who teach finance, and there are students who learn finance from them. By the end of this episode, you will literally have a blueprint that will map out every type of argument and every strategy that a finance junkie will use in a debate.

It will also help you understand how to recognize financial fallacies, and it will also give you some insight on debating itself and the tactics that debaters tend to use. The reason I can do an episode like this and map out what the junkies are gonna say is because finance people are very predictable. They all think the same way, they all say the same things, and they're all defending a world where investors do not receive money from the companies they own. This is why I'm not concerned about sharing this blueprint with them because what they're essentially defending is so ludicrous that even if I show them the hands that I'm playing, they're still not going to be able to defend their point.

So let's get started. I debated everyone. It doesn't matter if it's an academic run or an Oz Wah, or some troll on the Internet. I learn something from all my debates, and it keeps me sharp. The funny thing is the trolls on the Internet actually have the same arguments as Oz Wah. The reason why is because these debates are about the fundamental ideas that they all have wrong, such as the difference between an imaginary value of a stock that comes from the exchange of money and the money itself that is being exchanged.

When it comes to these fundamental ideas, they are no smarter than the trolls on the Internet. At the beginning of these debates, their tone is always from a position of they are sharing something new with me and I don't know what I'm talking about. They have no idea that I've actually had the conversation I'm gonna have with them hundreds of times already, and I already know what they're gonna say before they even think it. In fact, most of my replies to them are done through my phone, and I just use pre-programmed text replacements to reply to them. So I just type in three letters and a whole passage will populate to address a statement they're gonna say.

The flow of the conversation goes something like this: maybe I'll write something online like "stock without dividends is a Ponzi assets." Then they will reply with the classic "stocks are ownership instruments, you idiot." Then I will respond by asking, "Explain why they're ownership instruments that the owners don't receive any money from the companies they own." At this point, they will defend their point with a hypothetical or unprovable idea like "shareholders have the power to change things" or "shareholders can vote to receive dividends if they wanted it, right? Sure, it's just that easy."

The point is, the first line of defense will always be something hypothetical and unprovable. When I point that out, they are actually pretty receptive towards it. So they go to their second tactic, which is to steer the conversation in a different direction, say something like "Social Security is a Ponzi scheme - the feds are printing money, what about that?" Those are all interesting topics, but the focus is about stocks and the Ponzi assets that exist with the stock market.

So I will then prevent them from steering the conversation and make them focus on what they said and why it's wrong. That's when they have nowhere to go; they get very angry, and they will resort to personal insults. That's when I quote Socrates and explain the history of stocks because the funny thing is they start the attack by pointing out that stocks are equity instruments, but the reality is they have absolutely no idea why stocks are even called equity instruments according to history.

So that's a summary of what typically happens. Now let's get into the details of some of these primary and secondary defenses that they use to recap what you're basically making them aware of is that a lot of public companies don't pay their shareholders. The first thing they will say is something hypothetical, like "shareholders could vote to receive dividends. Berkshire could buy back stocks," things like that.

It is hypothetical because we don't know if it will happen or it won't happen down the road. If there's something in writing right now that Google has that says they will pay dividends on a certain date definitively, then it's not hypothetical anymore. But it is a hypothetical if you're just assuming that they will down the road.

I also want to mention the hypothetical event is not something that has never happened before historically. They are events which we cannot definitively foresee happening right now. It's wrong to assume that Google will pay dividends because let's say Microsoft or Apple are now paying dividends. It's okay to assume that Google might pay dividends because of the behaviors of Microsoft and Apple, but that is an assumption, which is why it's hypothetical.

The only way that it is not hypothetical is if there is something definitive. The second thing they'll use are these unprovable statements, such as "a stock is a reflection of future cash flows" or "the market always knows." These ideas that are unprovable are actually also known as generally accepted financial theories, according to Yale professor John Geanakoplos, who teaches a course called the Theory of Finance.

Financial theory professors believed what they call efficient markets and the idea that asset prices reflect all the available possible information that's out there in the market. The market always knows the price is a reflection of future earnings; that's where those crazy ideas come from. The philosopher Karl Popper calls these unprovable ideas pseudoscience—ideas that are completely uninformative.

So with respect to real philosophy, real science, these ideas, financial theories, are complete crap. I called these two things primary defenses because when you first start debating, they will allude to one of these tactics. Now, the good thing is these are actually pretty easy to address because when you point out that these are hypothetical and unprovable statements, whereas investors exchanging money with each other is something that happens every day and we can observe it, and the fact that you can't debate an observable thing with something completely hypothetical and unprovable, they are actually pretty receptive to it.

But that doesn't mean they give up; they will allude to a secondary defense because they want to rationalize things. They don't want to lose; they want to be right; they want to believe if that money grows on trees.

So the secondary defense works like this: basically, they're all forms of rationalization and ways to try to steer the conversation a little bit. One of the first things that tend to pop up is this false parallel, which is they'll try to compare other situations to stocks. They'll say something like, "By that definition of a Ponzi scheme, then selling your car or a house is also a Ponzi scheme because you gotta take money from another investor."

I specifically addressed this in Chapter five, and the short of it is: What do you have? You can't sell your house a house. What do you have? If you can't sell a car, a car. What do you have? If you can't sell your stocks? Nothing. Nothing. Nothing. So the point is these are not equivalent assets; these are not equivalent situations; they are not parallel. But they will try to draw the parallel because they want to legitimize stocks.

So hey, you know you can't really debate that a house is a real house, so let me drag the house into it and try to draw an equivalent analogy when the two are actually not equivalent at all. That's why it's not a parallel; that's why it is a false parallel. Another popular tactic is this way of rationalization where they rationalize the scam. They'll say, "Well, so what if the company isn't making any money, and they're losing billions, and they're printing stocks to pay bills? Well, that's how startups work."

Hey, that thing you call a startup, it also matches the mechanics and the definition of how a Ponzi scheme works. The funny thing is, I'm not the only one that calls that a Ponzi scheme. Recently, this guy Chamath, who was a senior executive of Facebook, Silicon Valley venture capitalist, he says the startup economy is a Ponzi scheme because he saw how there are all these hypothetical assumptions about growth, growth, growth, and investor swapping money with each other even if the underlying company never makes any money.

So I'm not the only one that calls it a Ponzi scheme. So the important thing to note, though, is that this is a tactic they rationalize it. They say, "Oh, well, that's just how the startup economy works." No, that's how a Ponzi scheme works. You're just trying to tell yourself it's not that bad; you're just trying to rationalize it.

So the third tactic is steering. Steering is just steering the conversation in a different direction. So they'll say something like "Social Security is a Ponzi scheme; the feds are running the real Ponzi scheme." The fundamental problem with that logic is you're pointing out two of the wrongs and that does not make what is happening in the stock market right.

So it's not a valid defense for what's happening in the stock market; it's just trying to steer the conversation to something like Social Security or what the feds are doing. The real goal when somebody chooses to steer is to get the heat off of the subject you're talking about, which is a stock market, and change the debate into something about social securities or what's happening in the monetary system.

This is also why I did not try to focus on the monetary system and what the feds are doing in the book. I've had fans, not just people I debate with that are foes, but fans also write me, and I say why didn't I talk more about the monetary system and the problems that are there? The reason why is because I do not want to lose focus; I did not want to steer the conversation away from the stock market because the people who really want me to start talking about the monetary system and Social Security are the crooks on Wall Street.

Because the moment I start talking about how the feds are printing money is the moment I will stop talking about how Tesla, Google, and other firms are printing Ponzi assets for investors. Are there problems with the monetary system? Absolutely! But guess what? The existence of money doesn't mean we need the existence of crooks. Just because there are problems in the monetary system doesn't mean we need Wall Street scams.

The feds and Social Security—those are separate issues. Nothing wrong with learning that on your own time, but not when you're debating a junkie. Because that's what they want. And a way for you to overcome this type of steering is to simply say, “Okay, fine, the feds are running a Ponzi scheme—you win. Now let's get back to Google.”

Be aware of their tactics, understand their motives, stay focused, don't let them steer you away, and take them out. Now we move to the last secondary defense, which I'm gonna spend a little time on because this comes up a lot. A while back, I found myself debating statements from finance junkies but couldn't make a good argument against what they were saying because what they were saying was essentially true.

But the thing is, it was a true statement that sounded like a defense for the legitimacy of the stock market because of how they said it, but it was actually more evidence of why the stock market is similar to a Ponzi scheme. An earlier example I came across is when someone said, "There's always gonna be someone who's gonna buy stocks," defending how the system is legitimate, and that's just how stocks work.

First of all, that's not a true statement; it's actually an unprovable statement. But let's just assume that it's true for this example. The statement sounds like a defense because it makes the system seem sustainable, but in reality, it was an omission that the stock market is dependent on the inflow of money from new investors, and the system will collapse without new suckers contributing money into the system, the Ponzi process.

So the statement wasn't actually supporting their argument; it was actually more evidence of a Ponzi factor. This next example is a very important one; this is one you will hear from everyone. This has to do with a universal error from Chapter five. The universal error shows that there is a fundamental difference between the imaginary value of a stock and real money.

This means no matter what kind of value people see in their portfolio, whether it's ten dollars, ten thousand dollars, or ten million dollars, it is always equal to zero dollars in real money. The universal error shows that there is a fundamental flaw with a market cap formula, the total returns formula, which means it can debunk, destroy, annihilate pretty much every financial formula, model, and research out there.

And the AHS Watson, Cochran's, and Buffett and Buffett boys know this. So the typical reply is, "Well, stocks might not be real money, but investors can cash out whenever they want." You can explain why that's wrong by pointing out that the average daily liquidity in the market is only 1%. So only about 1% of the shares outstanding are actually being cashed out every day in practice.

Therefore, it's clearly wrong for 100% of investors to think they can just cash out whenever they want. Pointing out this limited liquidity alone is already beyond what AHS Waz and junkies have ever contemplated before. But there's more; the junkies will reply with, "Of course not everyone's gonna cash out at once, but a handful of investors can always get their money back."

Right? There is the misinterpreted truth. The statement "everyone can't cash out at once" implies that investors are not entitled to the imaginary dollar amounts they see in their portfolios and supports the universal error and why we can't treat the imaginary value of a stock like if it's real money.

But this is where it gets a little tricky because you can point this out, but they will not be receptive to it. They will ignore how investors as a whole are getting screwed and only focus on how a handful of investors—which includes them—can typically get their money back in practice.

And it's not wrong for them to think that, but there's actually a very big misinterpreted truth here. There is no doubt that this is a scam scenario because investors are not entitled to what they see in their portfolio. On the other hand, a handful of investors can typically cash out in practice, which gives the stock market the feel of a functioning bank.

So here's what's going on. The reason why a handful of investors can typically get their money back is because in practice a handful of people can typically cash in and out of a real Ponzi scheme as well. People forget that a Ponzi scheme is not a scam where people just deposit their money and never see it again. Investors cash in and out of Ponzi schemes all the time; that's how Ponzi schemes grow.

This is also why half of Madoff's seconds experienced a profit. The characteristic of the scam is in the fact that all investors cannot liquidate at the same time because investors are not entitled to the imaginary number they see in their portfolios and what they think they have isn't really there. But a handful of people can typically liquidate, which is why the scam can go on undetected for decades.

The stock market is not a bank where investors can withdraw money; it is a system that shuffles money between investors. When one cashes out, another is also buying in. So those are the characteristics of the scam: one, all investors are not entitled to the money they see in their portfolio; two, a handful of investors can typically cash out; three, the scheme runs into problems when just enough people try to get their money back at just the right time.

Given that the typical market liquidity is 1%, I think you can imagine what would happen if 5% of the shares try to liquidate. At this point, the Oz Watts and junkies aren't quite done yet; they're gonna pull out an earlier tactic and draw a false parallel to the banking system. They're gonna say, "If everyone cashes out their stocks, it's like the same as a run on the bank."

The answer is no, it is completely different. When people deposit money in a bank, the bank does lend the money out, but the people who borrow the money are obligated to pay the bank back, and the bank is obligated to pay you back. So the money you see in your account is yours, and you are legally entitled to it.

On the other hand, when investors buy a stock, they are holding the stock; they're not lending that stock out to anyone. The scam is in the fact that investors feel entitled to the value in their portfolio because they are holding the stock, but that value is not backed by anyone and they're not really entitled to it.

Comparing the liquidation of stocks to people withdrawing money from the bank is ridiculous. They are completely different situations in different systems. Just because money is involved in both does not make them equivalence or parallels. Wow, that was a lot to take in, so I hope you guys are still with me.

Now, let's take a moment to reflect on what all that was for and what the goal was through all that. Your objective was to explain why investors should receive money from the companies they own, why there is a difference between an imaginary value and real money, why money does not grow on trees.

It's all very basic and very obvious, but all that deciphering and dissecting of logic was necessary because the junkies and Oz Watts and Buffett boys you're debating are trying to argue why investors don't have to receive money from the companies they own, why there is no real difference between an imaginary value and real money, and why money can magically appear when it's shuffled with imaginary paper.

The things you are trying to show are very self-evident, but you have to go through all that because you're dealing with brainwash people who built their entire existence on these false fundamentals. Ultimately, the Ponzi factor is not an argument or an opinion; it is a proof based on definition, logic, and it's supported by observable facts and history.

It doesn't matter how the Osweiler Buffett boys want to play it; you can put them in a world of hurt that they want to dance. So that's a blueprint and the end to a much longer than usual episode. I want to thank you all for your support this year. I published a book in February sharing some ideas that I meditated on for many years without telling anyone.

I knew that I would have my share of haters from the Buffett boys and Oz Watts, but I also knew that there'd be a good number of supporters and also a very small but significant number of people who saw the work and realized that there is some serious gravity behind these ideas. That it's not just another story about a Wall Street scam, but it is something foundational, something that has the ability to pierce the foundations of the entire industry.

I really appreciate your support in these early stages as a new author and I'm not going anywhere. I may not be doing another episode until March 2019 because I need to focus on finishing my thesis, but I'm not going anywhere. I know the Oz Watts, Cochran's, and Buffett boys want me to disappear, but I am NOT going anywhere in 2019.

I'm gonna debunk more myths, I'm gonna cause more trouble, and I'm gonna pick more fights. I will be ruthless and I will be relentless, and I will finish with my shield or on it.