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by Paperweight
2189 days ago
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Finance is always gambling, ponzis, and fraud. But hey, that's not a bad thing. Gamblers add liquidity, which is better for society than them hiding in a basement playing cards. Stocks are essentially ponzi scheme financing. They have all the hallmarks. Then often literally use the cash from sales of stock to pay dividends. Most companies will never pay dividends, though, so the idea for a purchaser is to hold on and cash out while it's big before everyone else does. Fraud is the worst when people have an expectation of trust, assuming they're protected by regulators. They never are. Madoff. Bre-X. Enron. Even highly regulated markets are always riddled with fraud. People should expect the market to be riddled with fraud and act accordingly - it keeps the populace wise. Regulations are an attempt to get something for nothing which always just ends up with a bunch of friction, corruption, barriers to entry, and lawyers. |
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What you are misunderstanding is that the difference between paying dividends and a stock buyback isn't that great. Both mechanism distribute money owned by the company to shareholders. With dividends you simply receive a payment. With stock buybacks you get the ability to sell the stock back to the original company instead of selling the stock to another investor.
Think about it this way. The company has a valuation of 50 billion dollar. It is buying 1 billion dollar worth of stock back every year. After 50 years the company owns itself and every investor has been paid back. Of course this is an oversimplification but it shows that even if you hold onto your stock after everyone else has "cashed out" you can still earn your money back by selling the shares to the company.