[TekMol]

So the stock markets of two of the biggest countries in the world (Russia and China) went to zero quite recently (1917 and 1949). And the author summarizes that stock markets can't go to zero? How does that make sense?

Even his closing statement contradicts itself:

    So in conclusion, rest assured
    that as long as you are properly
    diversified, your stock investments
    won’t go to zero.

If you should diversify, then that shows that each piece of your portfolio has a chance to go to zero. So the combined chance of going to zero is not zero either.

This brings up an interesting question: How high is this long-tail risk of a European investor who invests in US stocks? The risk that Europe at some point decides to seize their peoples stocks. Or that the US decides to not respect holdings by Europeans anymore.

What happened to Chinese and Russian people who held US stocks which they bought via the Chinese/Russian stock market? Did those investments got wiped out too? Did their governments seize those? Or did the remeining investors in the US had a gain from the Chinese/Russian investors "disappearing"?

[bmitc]

To be specific though, neither of the countries of modern China or Russia existed at those times. In particular, those two dates were revolutionary dates on which entire governments were replaced. There was more going on than just the stock markets.

And as far as I can tell, at least with the Shanghai Stock Exchange, it didn't go to zero in 1950. It was simply closed and liquidated, and that implies that people got back whatever the market value was. That isn't going to zero. I don't know if the money was confiscated by the government or not.

So if one's diversification strategy needs to somehow take into account literal revolution, then I'm not sure how one does that. All bets are off.

[panarky]

Nearly every asset depends on the existing regime for its value.

Public and private corporations are chartered by governments.

Real estate is titled into existence by governments.

Currency and bonds are issued by governments.

When the regime ends, these assets may or may not be recognized by the new regime.

Gold, fine art and crypto are the exceptions to the rule.

[zerbinxx]

In the case of gold or other assets, sure, you can hold it, but the risk (op identifies this) is that you will be killed during the revolutionary war and it won’t matter. Crypto could (and may still be) heavily regulated or even outlawed by states - if they can get you for downloading movies they can get you for your coinbase account. And fine art, too, is subject to sometimes intense state regulation - both in Russia and China international and domestic art trading was severely limited/censored after the revolution.

[beachy]

I think the point is that gold and fine art have value (someone will pay money for them, possibly illegaly) whether or not the regime approves.

Whereas real estate has no value if the state says that it now belongs to someone else.

[jowea]

I've seen diversification strategies that purport to take that into account, generally something like physical gold, investing in yourself and investing in a more stable country while with the investments under the jurisdiction of the more stable country.

And if the exchange was closed and liquidated due to a revolution, who are the investors getting whatever the market value was from?

[mytailorisrich]

The topic of the article is obviously about fluctuations of the market.

It is obvious that the political power can decide to abolish the market (Russia and China) and that's another issue.

[chii]

> who held US stocks which they bought via the Chinese/Russian stock market

it would depend on what it means to hold stock "via the stockmarket".

If those chinese/russian citizens had a legal entity in the US, and purchased via a US broker, then they ought to be able to claim legal ownership of those stocks they purchased.

If, on the other hand, the stock was purchased on custody by a chinese/russian entity, then the govt would've been able to seize that ownership.

[bboygravity]

> via a US broker, then they ought to be able to claim legal ownership of those stocks they purchased.

This is a funny sentence if you know how US brokers operate, because: -- The stock is registered at Cede and Co. In your broker's name (not the client's name). -- Most US brokers don't hold all the stock that their clients "have" in their account. They lend out stock with or without the client's approval. -- It has happened that a broker doesn't own the stock that any of their clients bought through them at all. -- Brokers can buy unsettled stock for clients which subsequently "fails to deliver". Meaning: the client gave the broker money to buy a stock, the broker gave nothing in return (but claims that the client has a stock even though it was never delivered). -- In the US it is entirely possible that a company on the stock market offers x amount of stock and market participants short 2x while 3x amount of call options are in the money to be delivered and brokers are on the hook for that. That means that 5*x of stock can "exist" even though that amount was never issued by the company. Source: this is what happened during January 2021 short squeeze.

So yeah, you have legal ownership. Until you suddenly don't at some point in the future.

[chii]

> That means that 5*x of stock can "exist" even though that amount was never issued by the company.

that's totally fine if it was lent and re-lent out and short sold etc.

After all, you don't bat an eye that similar thing happens with cash!

The only problem i have with your explanation, which is also the only part i dont think is true, is that the broker's "fail to deliver" portion. The broker _owes_ the buyer a stock, and there's a clearing house that ensures the broker is good for their money. Which is why Robinhood stopped the purchases of GME at that short squeeze, because they can't place enough deposit to ensure that they _could_ make whole their buyers at the clearinghouse.

[latenightcoding]

Sounds like something cooked up by a fradulent crypto bro who doesn't know anything about law or finance, but it's reality lol.

[bandrami]

Gold exchanges are like that too -- the amount of gold "held" by investors exceeds the world supply.

[panarky]

> exceeds the world supply

People say this as if it's evidence of some dark, fraudulent conspiracy.

But it's simply because the exchange allows traders to sell short. If Alice owns 100 troy ounces of gold held in her name at an exchange, and Bob borrows 50 troy ounces and sells them short to Charlie, then Alice owns 100 and Charlie owns 50 when there are really only 100 in the vault.

People own more shares of Tesla than the company has issued, and there are more dollars in bank accounts than the Treasury has issued, and it's all normal and natural and the way the system is supposed work.

[bandrami]

I get that about dollars and stocks, but people who hold gold out of fear that the music is going to stop don't realize the same musical chairs problem applies to precious metals unless you physically have custody of them.

[chii]

> people who hold gold out of fear that the music is going to stop don't realize [it also applies to them]

that's their own fault and lack of knowledge. Nobody has any responsibility to educate them but themselves.

[TekMol]

I meant the latter. Stocks purchased on custody by a chines/russian entity.

Because that is how the world works today. People from all around the world buy shares of companies all around the world. But the companies don't know those people. If Europe decides to seize all stocks of their citizens, it could do so by just seizing the brokers.

[NovaDudely]

"If you should diversify, then that shows that each piece of your portfolio has a chance to go to zero. So the combined chance of going to zero is not zero either."

Sounds like Boltzmann distribution in action but in economics form. ;)

[jmopp]

The post specified that the stock market going to zero implies some sort of catastrophic event leading to the dissolution of the US government and economic system - which is exactly what happened in Russia and China. As much as people whine about the red scare, a communist revolution in the US is very unlikely.

With regards to the last point, a close parallel would be to ask at what happened to people exposed to Russian stocks prior to February 2022. While not going down to zero, suddenly being cut out of the global market has a similar effect.