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Is stock market a Pyramid/Ponzi scheme? And please explain if you can.

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Anton Nel
37081
Anton Nel 2013.05.15 12:39 
  • 55%
    (21)
  • 45%
    (17)
Total voters: 38
Simon Gniadkowski
Moderator
18001
Simon Gniadkowski 2013.05.15 13:21  

Ponzi scheme:  "Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation."

 

Returns from the stock market are realized in two ways,  

  • share price increase resulting in an increase in capital
  • the payment of a dividend 
Of course some shares do not pay a dividend and share prices can go down as well as up.

Ponzi scheme - Wikipedia, the free encyclopedia
Ponzi scheme - Wikipedia, the free encyclopedia
  • en.wikipedia.org
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in...
Alain Verleyen
Moderator
30744
Alain Verleyen 2013.05.15 13:36  
Can you explain your poll ?
Anton Nel
37081
Anton Nel 2013.05.15 13:41  
Okay, let me explain: Most retirement funds companies/government (e.g. pension fund, 401k, whatever you called it) are buying shares, they believe in growth so they invest it. Old people earn retirement income from it. They depend on 'next' generations - The more young people put their money in 'retirement funds' and the more buying shares. If population growth is zero or less (the number of young people are less than old people) then stock market might be collapse . It is pyramid scheme - isn't?
Simon Gniadkowski
Moderator
18001
Simon Gniadkowski 2013.05.15 13:51  
ROMAN5:
Okay, let me explain: Most retirement funds companies/government (e.g. pension fund, 401k, whatever you called it) are buying shares, they believe in growth so they invest it. Old people earn retirement income from it. They depend on 'next' generations - The more young people put their money in 'retirement funds' and the more buying shares. If population growth is zero or less (the number of young people are less than old people) then stock market might be collapse . It is pyramid scheme - isn't?

No,  it's simply based on inflation and growth.  The idea is that Inflation reduces your long term borrowings,  interest rates grows peoples long term savings . . . .  the problem is that  savings interest rates < inflation < lending rates

Global economies are reliant on "sustainable growth" . . .  the economists seem to ignore the fact that there is no such thing. 

Anton Nel
37081
Anton Nel 2013.05.15 13:59  
Thank you RaptorUK.
Bharamappa Gojanur
351
Bharamappa Gojanur 2013.05.17 08:01  
stock market is business dependent on speculation knowledge and analysis of the market to get profitted. where as pyramids and ponzy are targetted at sacrifycing many people for benefit of people on higher levels of scheme.
Anton Nel
37081
Anton Nel 2013.05.17 08:54  
drbmgojanur:
stock market is business dependent on speculation knowledge and analysis of the market to get profitted. where as pyramids and ponzy are targetted at sacrifycing many people for benefit of people on higher levels of scheme.

Yes, you are correct and there is more than that. For example...when people are depressing and want to sell their shares ... no one wants to buy - then somewhere down the line they have to push the price lower and lower. Imagine no-one don't wants to buy the shares. Lack of buyers or no buyers can be a problem.

That's why we have P/E (price-to-earnings ratio). This will tell us if the share price is cheap or not. Sometimes buyers are not interesting that figures.

I think it is like 'pyramid-system' when there are no more buyers or not enough buyers.

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