this post was submitted on 02 Aug 2024
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At least for the US, yes you are correct that this was the conventional logic that governed the average joe's investment into a stock, up until... roughly the 60s or 70s.
I am not going to write a dissertation on the history of American financial investment, but yeah nowadays, the way you invest in the stock market is ... you buy a stock, hope that its value increases by more than inflation, and then sell it later for what is called a capital gain, ie, profit from the difference between the price you bought vs the price you sold.
So yes, your the second half of your post is correct:
You buy Stock A for 100 from Some Guy 1, then later you hope to be able to sell Stock A to Some Guy 2 for 150.
The specifics of this can easily get absurdly complicated with exceptionally complex and advanced math and mountains of rules and regulations, but basically, what still holds true is this:
Literally a goldfish swimming to the left or right side of a tank to indicate what stocks should be bought or sold, this outperforms the average financial 'wizard' on wall street making your investment decisions.
BUT, basically at no time in the past 20 or 30 years has putting your money into a bank's savings account to earn interest managed to beat the inflation rate, so if you want a chance to actually be rewarded for setting aside money, you put it into stocks, a mutual fund, an index fund, and well if you ever need to pull some cash out for an emergency, you get fucked by fees.
What you really do is buy real estate. But you have to already have a good deal of money to do that.
Isn't capitalism fun?
I see, stonks are way more bullshit than I thought. Is there anything else you can do with your stock, other than sell it to someone else? I always thought that crypto is such a scam especially because in the end, it has no value in itself, and the only thing you can do with it is sell it to someone else. If noone wants to buy it, well, you are fucked. Does it mean that stocks are exactly the same concept? I always thought it has something to do with the vaule of the company and the profits it earns, but if there is no way how to cash them out other than selling your piece of paper to someone, then it's really the same? I suppose that unlike crypto, the stock price increases if the company is turning profit, but you still have to find someone to sell it to, right, so the price is increasing only because the demand from people willing to buy it is increasing due to it turning profit, but it's not really tied to the actual value of the company, so it's exactly like crypto? Or is the price set by some different mechanism than crypto is - pure demand from people willing to buy?
The huge difference is that a stock is a stake of actual ownership in the company. You can attend and vote in shareholder meetings so with enough stocks you can actually influence what the company does. And unlike crypto there is a natural non-zero price floor, which is the value of all of the tangible assets of the company which could be sold off if the company shut down (less any liabilities).
That's not to say that the majority of investors, especially algorithmic traders, treat it any different than crypto/gambling.
I see. So, you having shares basically means you own part of the company assets, and if it were to for example shut down or get into huge trouble (so no one sensible would want to buy their shares), you'll still get kind of compensated from the value of their remaining assets being sold? That kind of makes sense, and is the difference I was looking for.
It's still weird, but a little bit more understandable than crypto, which is only literally stealing and scamming money from others (who will eventually in the end end up left with all the literally valueless crypto, and whose money basically paid for all your profit from it)