A very smart rich guy explained the stock market to me. It's not Vegas. It's Wildebeests.
Everyone run this way! Everyone run that way!
First, we'll look at some quick facts at Snap – the Los Angeles-based developer of Snapchat that debuted on the stock market on Thursday, March 2. Snap's IPO price was set at $17 a share but hit the market at $24.47. Snap's shares were highly unusual in that they didn't give the holders a voting right. Regardless, the first …
Keiran also didn't mention that Snap itself don't see how they are going to make any money:
There seem to be lots of articles floating around about how Snap's user base is not really growing anymore, which would seem to be death to this sort of business.
If Snap continues to make a $500 million loss on $400 million of revenue, there's only one way for the share price to go, regardless of institutions trying to prop it up.
In Snap's case... the stock "investors" should have short sold it an hour or so after the market opened.
Wall Street isn't about value or anything at all except pure greed and making money. Kieren is spot on about who says what about the stocks. If you make some money on one.. it's a great stock. The so-called "active investors" are the carrion eaters of Wall Street that feed on everyone else.
I know it's unusual to apply maths and logic to any of this, but I am still at a loss about where the money comes from, whose money is it?
Typical situation today starts with a rubbish idea that wont make money, but gets $20,000000 then its gets some users and still doesn't make money, it starts to loose it.
Then they IPO and everyone "in the know" makes money, so where are the people loosing the money? Why are they still putting money into things like this.
All that money they pour in multiple rounds of VC financing, a total of about $2.5 billion. Now they've cashed out for a big profit (especially the earliest rounds) but the company was able to sell new shares during the IPO. So they've built up some cash to survive a few more losing quarters until they figure out how to monetize their userbase.
By whatever means might have a chance of working.
e.g. Buy a share: can't sell it for 6 months.
That example is too simple to work in reality, but there must be some reasonable system that encourages stocks to be bought because they represent a company of value, rather than bought as part of a numbers-game that reflects no meaningful sense of worth to anyone outwith the game.
The fact they bought gave people confidence it wasn't a scam.
Otherwise it is indeed money for just existing and being big.
Morgan Stanley have tasted blood. I think they'll be wanting to do more of these. I hope they do. It expose the whole thing as a mix of scam and delusion.
As for voting rights. How many companies have gone down the pan while the majority investors (mostly pension funds) did FA because the management kept saying the right things while failing to deliver a turnaround (except in their personal finances of course).
a ludicrous financial system that at best resembles a Vegas casino.
This "casino banking" nonsense meme has been around for ages -- was it Vince Cable who coined it? Anyway, trading is absolutely nothing like gambling in a casino. For a start, just because you don't understand why prices for some asset or instrument move in a particular way, it doesn't follow that it's done to nothing more than pure luck. I don't know which logical fallacy that one is, but it is one. (Is there an "I don't see it therefore it doesn't exist" fallacy?)
Anyway, trading is absolutely nothing like gambling in a casino. For a start, just because you don't understand why prices for some asset or instrument move in a particular way, it doesn't follow that it's done to nothing more than pure luck.
It's maybe a more apt comparison than you give credit for. For example, even roulette wheels are governed by the laws of physics, and just because you can't calculate all the physical interactions of the ball and wheel during a spin, doesn't mean that the end result is pure chance.
With all the independent actors in the financial markets, all doing their own thing with their own thoughts, it is more or less impossible to predict what is going to happen in any one stock, any more than it is to predict where the roulette ball will land. Unless, that is, you are already in a position to control enough of the variables yourself.
A regular business school experiment has been to run a share selection test against a bunch of shares selected by sticking a pin in a list of share names at random.
Quite offen the shares can produce quite reasonable returns.
Anyone whose read "Flash Boys" will understand the American stock market is highly stacked against anyone making any kind of large scale stock purchases.
The clue is that Hedge Funds do not make losses and have crashed when asked to honor actual stock purchase orders they have bought automatically. An organisation that does not make a loss, ever is a statistically impossibility in a fair market.
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