Wall Street Makes No Sense

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I have a considerable amount “invested” in the stock market, but I don’t understand why anybody considers what I’ve done with my money to be an “investment.”

Consider that the only real “investment” which was ever made in any company which is publicly traded was the first sale of the stock issued by the company. The share is issued and sold and the share has a real value. The company tries to better the value of the share by increasing real value of the company so that the share price goes up, and the share gets sold for that increased value, right?

Wrong. Completely wrong.

You see, the share goes out, but the share has an absolutely fictitious value because some idiot is willing to pay more than what the real value of a share of that company is. And it just goes downhill from there.

Imagine, for a moment, that I’m half owner of, say, a garden center because I invested $1,000 in the company and my partner invested $1,000 in the company, too.

Let’s just say that we did a great job and grew it into a $1,000,000 company—inventory, buildings, equipment, etc., which totals up to that magic number. Now my share is worth $500,000. Would you, a smart businessperson, pay me anything more that $500,000 for it if I decided to sell out?

Your accountant would say, No frickin’ way! Because that simply doesn’t make any sense whatsoever!

But if your company is publicly traded, you could sell that share to the highest bidder who decides that he wanted that share more than that other guy (and that’s the key, here), so much more that he ended up paying $1,000,000 for it. He owns “something” worth $500,000 still, but paid 100% too much for it.

What an idiot! you think, all the way to the bank!

But here’s the kicker! You get to keep the very same “something” that he supposedly bought! And you get to keep using it to make money. Because all he got for is $1,000,000 is a pretty piece of paper.

Now, let’s say that your partner gets the flu. The idiot with the piece of paper (a “shareholder”) thinks to himself, “Oh, crap, his partner has the flu! The company will be worthless tomorrow!” and he decides to unload that share. So he comes back to you and says, “I want my $1,000,000 back.” And you laugh in his face.

So he turns to his neighbor who knows about this company and says, “Hey, I got this great share of a garden barn. I bought it for $1,000,000. You can buy it if you want.” And he says, “Dude, I heard the partner got the flu. I’ll give you $100,000 for it.” And the original owner takes a $900,000 bath and you get to keep earning money with the equipment.

Who owns the equipment? You still do!

And what has transpired is that the first guy gave you $1,000,000. The second guy gave the first guy $100,000. And neither of them has jack to show for it other than one piece of paper. A piece of paper.

But that’s how Wall Street works, and it still doesn’t make any sense to me.

Worse yet, there are meaningless metrics out there that people use to judge stock values. One of them is “price to earnings” ratio, or P/E. What somebody does is takes the price per share and divides it by the average earnings per share. Wikipedia says that most stocks trade at ratios of 10-25. But what that means is absofrickinlutely nothing. It’s a meaningless statistic used to assess an arbitrary value of a piece of paper which has no

Now, if we required that shares be traded at book value of the company divided by the number of outstanding shares

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