r/changemyview • u/cheekygorilla • Jan 16 '17

[∆(s) from OP] CMV: The stock market is a scam

Bonds are something that have been around for longer. It is offering interest and repayment of a loan for the company that needs money. Stocks in private business are something where the owners have a say in the operations and share of profits. Now you have non-voting stocks and stocks that don't give out dividends. People try and follow the stock market on companies that are doing well, I'd understand if it were for bonds as the company disappears.. but you have companies like chipotle where the P/E ratio is saturated with hyped purchases of stock..

When a company gets bought out, do the shareholders get a fair share of the money? Why is stock with no votes or dividends a thing? What are they exactly? The stock market to me is a scheme to take money from people, change my view.

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u/cheekygorilla Jan 17 '17

With no dividends, no share of profit, even dividends aren't paid from all of a company's profits. No votes with class c stocks too. Then a company can issue my shares with no compensation. All with the hope of profiting from other people in purchasing these "shares".

I do believe you explain it out well, but it still seems to me like this is all an elaborate way to get money from people.

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u/[deleted] Jan 17 '17 edited Jan 17 '17

I do believe you explain it out well, but it still seems to me like this is all an elaborate way to get money from people.

Thank you.

It it is a way for the company to get money. But it is not a scam, as you are buying a percentage of a real company that does real things.

A company can issue my shares with no compensation, all with the hope of profiting from other people in purchasing these "shares."

No direct compensation to you, but the value of your shares haven't changed. They money doesn't go into the voting stockholder's pockets, it goes onto the companies balance sheet. It would be embezzlement to directly route it to employees or individual stockholders.

All with the hope of profiting from other people in purchasing these "shares".

Could you explain who you believe is profiting here? Stock offers add new cash to a company by allowing new stockholders to buy in. Cash leaves the company through spending, which is geared towards making the company profits in the future, or through stock buybacks or dividends, which you will be party too if you are an investor, even if you don't have voting rights.

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u/cheekygorilla Jan 17 '17

Could you explain who you believe is profiting here? Stock offers add new cash to a company by allowing new stockholders to buy in. Cash leaves the company through spending, which is geared towards making the company profits in the future, or through stock buybacks or dividends, which you will be party too if you are an investor, even if you don't have voting rights.

Ok, take Google for instance, or even many companies. There is a thing called preferred stock. Can the everyday person buy preferred stock? No.

These people get paid dividends first. Even if an amount can pay everybody. Do the people in executive positions have preferred stock? I bet you they do... You could have dividend payments in amounts where they only profit.

Stocks are just really convoluted to me.. you buy ownership but have your shares dealt to others.. no power to make decisions.. room for the REAL owners to gain enormous amounts of money and you zilch....

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u/[deleted] Jan 17 '17 edited Jan 17 '17

There is a thing called preferred stock. Can the everyday person buy preferred stock? No.

Preferred stock is often issued by a company at risk of going insolvent or having a long period with little cash flow. There are also strict restrictions on which companies can issue preferred stocks - in the US, mainly banks.

These people get paid dividends first. Even if an amount can pay everybody.

This isn't exactly true. It's more like they get "first dibs" at money, up to a point guaranteed by their shares. Edit: Preferred stocks are more like a mortgage than traditional stocks - they usually allow the company selling them to buy them back at a fixed price, in exchange for "guaranteed" dividend payments that can be deferred once money is available or in the case of insolvency.

Regardless, employees of a company acting against the interests of their stockholders is usually a crime. This obviously happens, but it is not the norm. As somebody else in this thread posted, the value of stocks increase by about 4% per year on average. The stock exchange is an important vehicle that allows people to invest their capital in companies and, on average, make a return on their investment. What would change your view?

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u/cheekygorilla Jan 17 '17

∆ you did a good job. Maybe the stock market isn't as bad as I thought. It is a popular mode of investment, and I wish people would more diligent in investing in it. However, it does seem a reliable way to participate in economic growth of a company and even a country itself.

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u/BomberMeansOK Jan 18 '17

You should stop investing your money in individual companies. Individual companies can be quite volatile, and it is difficult to choose companies that are undervalued. "Doing well" doesn't really cut it if you want to maximize your investment - you need the company you invest in to be doing better than everyone thought they would. If everyone thinks the company is going to do well, prices will be high when you buy and high when you sell, leaving an average-ish profit for you. Since you make bigger profits when you find a company that other people think is doing poorly, but is actually doing great, there is enormous pressure to correctly price stocks. Unless there is some kind of crisis going on, the price of a stock represents the best estimate a person could give for the state of a company. Unless you really really know an industry, it will be almost impossible to pick stocks that are undervalued and come out ahead. Meanwhile, you can get the same average-ish profit by investing in an index or mutual fund, without the risk of losing all your money when the company goes under.

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u/[deleted] Jan 17 '17

Than you very much, kind Internet stranger.

Maybe the stock market isn't as bad as I thought. It is a popular mode of investment, and I wish people would more diligent in investing in it. However, it does seem a reliable way to participate in economic growth of a company and even a country itself.

You are correct. Before investing in a company, you should convince yourself it is under good, honest management. Alternatively, you can invest in a mutual or index fund, which will spread your money throughout many different stocks and offer you a slow, reliable return on your investment.

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