From: Brian Atkins (brian@posthuman.com)
Date: Tue Sep 10 2002 - 18:16:48 MDT
Dan Fabulich wrote:
> Brian Atkins wrote:
>
>
>>Forget about the voting rights, they are generally worthless unless you
>>own a huge chunk of the company. Stock (do you believe a company has an
>>intrinsic value?) does have intrinsic value. The problem is, it is
>>constantly changing and is essentially equal to "what someone will pay for
>>it right now".
>
>
> You're not using the word "intrinsic" in the sense I used it. I used it
> in the sense that things have "intrinsic value" have value in keeping,
> having and using them, like toys and medicine. In this definition, things
> that have value *merely* by their capacity to make money don't have
> "intrinsic" value in the sense I mean.
>
> I find this distinction helpful, because I view all of this economic
> activity as the process of acquiring what has intrinsic value. We'd never
> do all this trading, buying, selling, working, etc. unless at the end of
> the day we were getting something out of it that was of *intrinsic* value
> to us; it's those things that I try to keep an eye on in the process of
> economic analysis.
I'm going to go with what Forrest said, and say your distinction is not
useful. You say medicine has "intrinsic value", but really I don't think
it does. It has value to you, as a human organism, because it can help
heal an infection. But if you're an alien from another planet, what intrinsic
value does it have? It's just an odd arrangement of atoms that are possibly
toxic to your body.
So I'd like to withdraw what I said and rephrase it simply as "value" or
"subjective value".
>
>
>>It is an alternate form of very liquid currency... so while you can't
>>live in it like a house, you can generally sell it instantly if
>>necessary. Or if you are the company itself you can use it to pay for
>>things (like buying other companies). So to reiterate: it is not much
>>different than a house (worth something because someone will pay you for
>>it later) except you can't live in it but you have much better liquidity
>>(assuming it's a public company).
>
>
> Currency is more like a tool than stocks are. When you have a tool, you
> can do things that you can't do without it. When you have a certain
> currency, you can do things that you can't do without it; in most
> countries, you *must* do some things with it or you'll be thrown in jail.
> (e.g. you must pay US taxes with US dollars.)
>
> But what can you buy with a stock that you can't buy without it? Nothing,
> as far as I know.
>
> So why would I want it? To sell it again? Why would anyone buy it from
> you? To sell it again? Why would anyone buy it from *them*?
Yes Dan, to sell it again, or trade it, or otherwise use it just like
those greenbacks. Why would anyone buy it from you? For the same reason
you bought it- they think it will be worth something more later, or they
prefer to hold stock instead of alternate currencies, or for some other
reason.
>
> If the *only* value of a thing is in getting it off your hands, then, as I
> say, we might as well be trading certificates for worthless things, like
> chewed gum.
Quit missing the point. The value is in the company, not the piece of paper.
>
> Indeed, it's easy to imagine a chewed gum derivatives market where
> everyone played only because they thought that everyone else was playing;
> where the operating assumption was that somebody else would want chewed
> gum more than they do. The price of chewed gum would rise and rise,
> inexorably.
Sounds like baseball cards
>
> Is THAT what the stock market is like? Feedback effects out of control,
> as people "create" demand by imagining that other people have high demand?
> Why doesn't everyone see that nobody has any demand for a stock
> certificate, just like how nobody has any demand for a chewed gum
> certificate?
Because as I keep attempting to make you realize, the paper certificates
are not the issue here other than the fact that they legally assign to you
a specific chunk of the value in a corporation.
>
> Of course, chewed gum certificates could serve as an adequate currency.
> Maybe that's the point I'm overlooking? That anything worthless can stand
> for a currency? But then, why would this currency be at all tied to the
> firm's performance? Surely we can all pretend that Enron certificates are
> of value, and trade them like currency, even if Enron goes out of
> business...?
Sure you can pretend whatever you like, you just have to find someone else
to buy it. It's all subjective value, I quite agree.
>
>
>>Stock does not do anything to make it worth paying for; the company does
>>(which in turn affects the stock price). If the company does something that
>>makes it theoretically more valuable, then the stock is worth more.
>
>
> Why? The share [presuming no dividends] is still just a piece of paper,
> doing nothing for me. Why would I want a company's stock more just
> because they're growing? Why would I want to keep it more? Why would
> other people want to buy it from me more?
Because imagine if someday Microsoft buys the company you own stock in for
$3 billion dollars. Your stock is exchanged for a chunk of cash worth
quite a bit more than what you originally paid for it. If this is a
legitimate possibility, wouldn't you have some interest in owning the
stock?
>
>
>>Why do you buy stock? As you say, you buy it because you think it will
>>appreciate in value. Isn't that one of the main reasons to invest in a
>>house? Otherwise it would be a simple luxury right?
>
>
> Saying that things will "appreciate in value" is obfuscatory language.
> When things appreciate in value, you mean that the demand for it will
> rise; that other people will want it more. But if we all try to get a
> thing just because we think that somebody else will want it more than we
> do, then we're not doing anything of value to anyone; it's a shell game.
> Nobody really wants it; we just think everyone else does, so we pass it
> around like a hot potato.
>
> Houses aren't like that. People *do* want nice houses in nice locations,
> intrinsically. But nobody wants stock just to have it.
Hmm, well ask your local business owners if they really, "intrinsically"
want to own the stock in their business. Perhaps you'll convince them to
give it all away to you for free and you can wallpaper your house with it.
>
>
>>BTW the value can be redeemed without necessarily having to sell the
>>stock immediately. Similar to a house, you can use the stock as
>>collateral for a loan, or you can barter the stock to someone in
>>exchange for something. Or you can donate it to a charity, etc.
>
>
> Yes, but that obfuscates the question of why anyone would want to buy it
> in the first place... why would a charity want it? Why would anyone
> barter me for stock? etc.
Why would they use greenbacks? Why are greenbacks worth anything? This is
a silly conversation I think.
>
> The universal answer to "why buy" can't *merely* be "because other people
> will buy it for more." That's not a sane answer. Somebody has to
> *actually want it*, not just think that other people do. :)
I don't see any difference between "people will buy it for more" and
"people actually want it". They will pay more because they actually want it.
>
>
>>As to your last question, in general the company is worth more when its
>>profits sustainably increase, but not necessarily.
>
>
> Yes, I know. But again, that obfuscates the question.
>
>
>>For instance if it pumped up its earnings by selling off a valuable part
>>of itself, it may not be worth more. Or like the current automobile
>>companies, if they have to cut their long term financing rates to zero
>>percent in order to keep making short term profits they may actually be
>>worth less. The market generally discounts expected future events (some
>>say 6 months out, but it varies... in 1999 the market was looking at a
>>mirage very far out) when it attempts to put a value on a company.
>
>
> Yes, I know. But the future "value" of a company's shares makes no more
> sense than its current value. It complicates the problem, certainly;
> instead of asking why I would want stock *now*, I would have to ask why I
> would want stock *later* AND why I would want it *now*. But the point is
> getting lost here: why would anyone want it, ever, at all?
Perhaps because there is no such thing as real, intrinsic value, and
every possible combination of quarks is only worth something to some being
for purely subjective reasons?
>
> I'm going to pick your last paragraph apart, not because I expect you to
> answer every question, but so as to show how your answer didn't get to the
> point of my question.
>
>
>>The stock market supplies several things then: a way for anyone to see what
>>the combined mental output of a significant chunk of humanity thinks a
>>company will be worth in 6 months,
>
>
> Why is a stock's price tied to a company's performance, if no dividends
> are paid? The two have nothing to do with each other that I see.
I have explained this all. To reiterate: the company itself is worth
something to someone (or some company) because that someone (or some
company) would be willing to pay a certain amount of money/stock/resources
to pay for the company if they could. The company may do something that
makes it subjectively worth more to these other entities, therefore its
value has increased. It really is as simple as that.
>
>
>>a way for anyone to try their hand at increasing their wealth by
>>speculating,
>
>
> You mean by tricking other people into thinking that OTHER other people
> will want your good more than they do? It's not like they're speculating
> on the demand or scarcity of a real good.
Perhaps you would prefer the commodities markets? :-)
-- Brian Atkins Singularity Institute for Artificial Intelligence http://www.singinst.org/
This archive was generated by hypermail 2.1.5 : Sat Nov 02 2002 - 09:16:56 MST