The stock market is built on non-dividend paying companies and this is a real problem, according to financial expert Tan Lui.
The idea that the stock market could be a Ponzi Scheme came from Tan Liu who wrote the book “The Ponzi Factor.”
In an interview, he compares the creation of stocks to money printing. He calls the stock market Ponzi Scheme “stock printing.” The strategy of printing money is currently being used by many countries to fight the global recession, including the US. It’s not called money printing when you see it, though. Money printing has many names: stimulus checks, bailouts, the Federal Reserve buying corporate bonds/stocks.
Money printing and stock printing
Money printing is creating money out of thin air. It devalues the money that you have in your savings account, making it worth less and acting like a hidden tax you didn’t know you were paying.
Stock printing is the creation of more stocks out of thin air by a company. Many of the stocks going crazy right now — Facebook, Amazon, Google — don’t pay you any money for owning them.
You don’t own part of Google
Tan uses Google as an example and says “they don’t pay dividends, there are no voting rights, and the par value of Google is only $0.001. So, if you own a share of Google, you won’t receive any money from the business, you can’t vote, and Google is only obligated to pay you $0.001 for that $1200 share.”
Stocks have no value
If a company like Google went bankrupt tomorrow, what would you get if you owned their stocks? Tan says you’ll probably get nothing.
The myth, he says, that many people rely on is the future belief that if a non-dividend paying company merges with another, then the owner of their stocks will get rich.
Or, like Apple did in 2012, a company that doesn’t pay a share of the profits to its stockholders might change their mind in the future. He argues that this is not fact, only hope. Therefore, your stocks have no value unless a fantasy, unlikely to happen, occurs in the future.
Look at history to understand
Tan goes back through history to look at where the problem might have stemmed from. Before the 1900s, Tan’s research shows that all stocks paid dividends. The core idea of his argument is that the creation of stocks was to help investors have a share of the profits through dividends, not to make money off of the stock price in the form of a capital gain. The reliance on capital gains is what is wrong with stocks, he says, and makes them a Ponzi Scheme.
Diversify your risk between multiple asset classes, such as cryptocurrencies. Challenge your beliefs and assumptions. Stay away from the hype. Avoid the fear of missing out when it comes to investing. Invest money in your learning to grow mental and financial wealth.