this post was submitted on 08 Jun 2024
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The great thing about the stock market compared to other investments like crypto is that stocks are based on the inherent value of the business they represent. Stocks are based on financial fundamentals. You can believe in those investments because they are based on something real and not simply rampant speculation. For example.
Tesla. Worth more than most of the rest of the car market combined because... reasons?
Paypal. Lost 80% of its value starting in July 2021 over a year and never recovered because of terrible problems? Huge losses? Nope, because it "only" grew at 8-9%.
2008 US housing rated as "AAA" investment i.e. "good as cash" based on actual trash.
/s
I mean... It would be true if there were no derivatives. When you start betting money on whether the line goes up or down, the stock price cases being reflective of the stock's value.
In my understanding, derivatives amplify the problems and risks. Underlying that are the money people who push on these systems as hard as they can and exploit every angle. Along the lines of pushing the boundaries, the practice of brokers "loaning" shares seems like another place that's bound to cause issues at its limits. I really wish the govt would step in and impose much stricter regulation. I'd like to trust that buying stock is investing in a company rather than feeling like the stock market is a school of small fish swimming with sharks who cheat as much as they believe they can get away with. If the focus was on dividends vs growth, I think we'd be better off. Maybe I am wrong but that's how I see it.
I think of it like network security. Anything you do not explicitly disallow will be used, tried, and used in ways you probably didn't think of. It isn't a matter of expecting people to do the right (or legal) thing, most will but it's a surety that some will not. That's normal and why security is a process and systems have to adapt over time in response.
In the long term it works quite a bit better as a valuation tool. Bubbles tend to not last very long.