The Stock Market and its Valuation

Originally Posted by YeOldeButchere

One could say that their valuation comes from the demand for the share by the market. Fair enough, but why would the market, or in other words, investors, want shares if the only reason they are valuable are because other investors want them?

Greed. Returns have been consistently higher with stocks rather then bonds or other investment instruments. Or so we're all led to believe.

Every invester thinks he/she can win. Just like every gambler that enters a casino thinks they can win too. Some do, most don't.

That's irrational behavior. Even under the best of circumstances.

Originally Posted by YeOldeButchere

If this is truly the case, then the stock market appears to me as a sort of grand casino where money can be extracted for the casino's, and the corporations', purposes, through initial public offerings, but never actually given back to those who invest at any particular moment in time.

Someday I hope you'll realize how positively brilliant this observation is.

Jam it back in, in the dark.

Originally Posted by nabhan

Actually, as far as I'm aware derivatives have the highest rates of return.

Playing in the futures markets does offer higher returns, but the trade-off is higher risks. Maximum risk for maximum reward. A really easy way to lose a lot of money if your instincts, or your Magic 8-ball are wrong.

There's also another little problem with derivatives....

Originally Posted by How Unfortunate

I forget what % of trading these days is derivatives and currencies but it's quite substantial.

I don't have exact figures either. Somewhere around a little over $7.5 trillion in real money controlling a little over $300 trillion in derivatives.......

Second thought, irrational isn't the word I'm looking for. Insanity is probably closer to the truth. It's a good thing most people are not paying attention.

Originally Posted by How Unfortunate

Still, you're wrong to say "most don't win." Most people, just investing in a balanced way, have been able to win pretty well. You might argue they won't win in the future, for whatever reason.

Does taking part in what feels like a abstract game that's probably rigged, and filled with shady players constitute winning? I think we've pretty much already lost at that point.

Regardless, that's essentially what I'm saying.

There's nowhere I can't reach.

Originally Posted by zzeroparticle

When How Unfortunate said that one could win by investing, he probably meant "receiving capital gains by putting one's money and setting up a balanced portfolio."

Oh, no. We're talking about the same thing. The difference is he's using past tense and I'm speaking in broader future predictions. What goes up, will come down. So "winning" in the past is meaningless unless you're able to capitalize on your wins for the future. Otherwise, your win is pointless. With the way things currently are, I have ample reason to doubt most people can capitalize on the current state of the markets.

Other then learning from the past, the past serves no purpose because of ever changing market conditions. Even assumptions, like the Dow would never go down that seemed relatively sane up until last week, seem insane now.

Originally Posted by zzeroparticle

Your "winning" has nothing to do with increasing the value of assets and everything to do with taking a moral high ground. And that's not what he meant at all.

Morality has absolutely nothing to do with it. Nor does it matter. Only money, (and more importantly) making money does. While recognizing the conditions it is made under (casino analogy) and acting accordingly.

This thing is sticky, and I don't like it. I don't appreciate it.

Originally Posted by RacinReaver

I think he's saying that at some point in the future the stock market will crash down completely and be worth nothing.

I wouldn't go that far, but unfortunately I don't have to be that vague with what might cause a stock market crash. A panic sell-off in derivative markets could easily spark a global economic catastrophe. It's unlikely but possible. Barring that possibility there's still plenty to be pessimistic about.

All that's happening right now is a education in sub-prime mortgages and the yen carry trade. Who knows how it's going to turn out but things do not look good.

I am a dolphin, do you want me on your body?

Originally Posted by How Unfortunate

So then where should one be putting their money these days?

Your guess would be as good as mine. That's what the state of things has been reduced to. It might work, it might not.

Originally Posted by YeOldeButchere

Gold bars, I suppose,

Wouldn't recommend bars. They're too much of a pain to sell. Since it has to be certified what purity of the bar is actual gold. Minted bullion coins are easier to sell/unload/trade with. Speaking for barter purposes only, silver would probably be best.

But eh, the price of gold could easily go down to 400 USD a ounce, (maybe 300 USD) just as easily as it could go up to 800 USD and beyond. Nobody's gone broke holding gold as opposed to paper though.

How ya doing, buddy?