The simplest logic about the coin and stock market

The simplest logic about the stock market

Very simple, a principle everyone knows: The returns generated by the stock market = the profits of listed companies + the investments of the people - (stamp duty + handling fees + money siphoned off by listed companies + financing interest + interest of margin companies + profits of arbitrageurs) Pies don’t fall from the sky, the stock market doesn’t produce wealth out of thin air. The stock market is just a marketplace; its function is exchange. All genuine growth comes from the profits of listed companies. If the profits and dividends of listed companies are relatively frugal, or even negligible in the big picture, the only net inflow is the investments of the later investors. A situation maintained solely by later investors’ inflows to support early investors is already a well-worn story, no need to repeat. (Stamp duty + handling fees), these two costs are directly related to trading volume. Currently, China’s stock market trading volume is at the trillion-yuan level, meaning that if the transaction costs are calculated at 0.03%, at least over 300 million yuan is consumed daily—inevitable. If the stamp duty is 0.1%, then 1 billion yuan is collected; these are pure costs, unavoidable. Money siphoned off by listed companies, including IPOs and refinancing, etc. When investors transfer money from their bank accounts to subscribe for new shares, that money goes into the accounts of the listed companies. If the profits generated by the listed companies do not cover the money siphoned off in the market, it’s a pure expenditure. The interest paid by financiers is also a pure cost. If the inflow of financing exceeds the interest paid, we see a positive contribution, which is reflected in investors’ investments; interest is purely a cost. Interest income of margin companies is similar in principle, but the actual effect differs. When margin trading first emerged, the inflow of subsequent investors was far higher than the damage caused by interest costs. However, margin companies are essentially another form of private high-interest lending, and their interest rates are no less than those of private high-interest lenders. Imagine, is there a normal company that can rely on high-interest loans to solve its funding problems? The stock market is merely a public method of corporate financing. High-interest loans are something companies cannot bear; they cause adverse effects and tragic endings—common sense. Why, then, does turning to private margin companies, which are essentially private high-interest lenders, and adding multiple handling fees, taxes, and transaction costs, turn it into a sustainable business? When a business is dragged down by high-interest loans and this no longer makes headlines, why are we surprised that the ultimate outcome of margin trading, which is also essentially private high-interest lending, isn’t quite so rosy? Isn’t this already predestined, something that can be understood with common sense? What’s so surprising about it? When capital flows rapidly into the market, these high-interest loans push up asset prices. As the monthly interest of 0.02% or 0.03% begins to be extracted from the increasing principal, supporting the entire profit chain. Investors should know that the Ferraris and Lamborghinis of high-interest lenders, the luxurious headquarters of securities firms, and the high income of industry professionals in the financial sector—all of this is funded by you. If investment could play the role of properly allocating social resources and generating positive social benefits, and listed companies shine after raising funds, then all of this is just a cost. Otherwise, all these are just huge babies with insatiable appetites, relying on investors as their food source. Let’s set aside the profits of arbitrageurs for now and simplify this equation further: Investor’s return = increase in listed company profits - (general transaction costs) - profits of arbitrageurs When the stock market rises by 100%, but GDP only grows by 7%, private high-interest lenders start to harvest, becoming a new source of “general transaction costs.” If dividends from listed companies do not reach 100%, and if we add all the high-interest loan profits, what hope is there for market rescue? The national team directly buys and buys, so there are two roles for the national team in this equation: The returns generated by the stock market = the profits of listed companies + the investments of the people - (stamp duty + handling fees + money siphoned off by listed companies + financing interest + interest of margin companies + profits of arbitrageurs) One is the profits of arbitrageurs, and the other is “other investors’ investments.” Do you think the national team will profit? Or will it lose money? The former is a pure cost to the stock market; the latter is a contribution. Why do some people think that the national team making money is a good thing? Let’s discuss the last item: profits of arbitrageurs. Suppose there is a company that never pays dividends. We have four investors—@a@, @b@, @c@, and @d@—each buying 500 shares of a new stock at 20 yuan, paying 10,000 yuan each to the listed company, totaling 40,000 yuan siphoned off. Each investor still has 10,000 yuan in cash, the so-called “margin.” Net worth is always calculated as: number of shares held × stock price + cash. At this point, everyone is the same. Investor @a@ sells 100 shares to @b@ at 22 yuan: a’s holdings decrease to 400, b pays 2,200 yuan in cash to @a@, and b’s holdings become 600 shares. Everyone’s net worth increases! The company’s fundamentals haven’t changed, but our net worth has all increased. @a@ continues to sell 100 shares to @c@ at 24 yuan, changing the situation again: @a@ then sells the remaining 300 shares at 26 yuan, with @d@ being a right-side trader. Hearing the “gurus” in social circles ask, “Some people are getting richer in the bubble, some are getting smarter in the bubble—who do you want to be?”—they decisively become mature right-side traders, buying 300 shares from @a@ at 26. Everyone’s net worth increases again—truly an era of全民股神 (全民 stock gods). @b@’s net worth at this point is the most impressive, fully justified in mocking @a@, @c@, and @d@. @a@’s net worth is the lowest; the earlier you entered, the higher your net worth; the later you entered, the lower. But none of this matters because everyone’s net worth has increased—everyone is a stock god. The only change is @a@ exiting the market with profits, leaving the stock market behind, where stock prices become irrelevant. Assuming the listed company contributes no dividends, no stamp duty or handling fees, and no investors borrow high-interest loans to speculate—ignoring all costs—if you compare the company’s dividends with these costs, which is more? After @a@ leaves the table, all remaining assets are profitable even if the listed company contributes no profits. Where does the money come from? It’s like a mahjong game where everyone wins—everyone feels it’s reasonable. That’s what actually happened in the first half of the year! The total assets on the table decrease, but everyone is calm because the 60-day moving average hasn’t broken, so there’s nothing to worry about! @a@ is now a passerby. If @b@ wants to sell 200 shares to @c@ at 25 yuan: @c@ and @d@’s margin funds are less than 3,000 yuan, meaning they can only afford a maximum price of (2600+2200)/400=12 yuan for @b@’s 400 shares. The only way to sell more is to cut the price below half. Of course, this isn’t a stock market model, just illustrating a simple fact: without considering listed company profits and general transaction fees, the stock market is zero-sum. In this zero-sum game, if someone profits by arbitrage, it’s bad news for everyone else. If the profits of listed companies can’t keep up with high-interest loans, it’s a negative-sum game. In a negative-sum game, some people profit and exit, which is even worse news. Our way of calculating net worth is (number of shares × latest stock price + cash). This formula seems scientific and correct, but it only considers the total number of stocks times the latest price. If the latest stock price is 18, and we hold 20,000 shares, even if only 300 shares are willing to be sold at 18, our net worth still assumes we can sell all 20,000 shares instantly at 18. That’s how we measure our wealth. The performance standard of the entire fund industry is based on the net worth curve. How is market value calculated? Market value = latest stock price × total shares. If 18 is the latest price, and only 300 shares are willing to buy at 18, but the total shares are 100 million, the company is still valued at 18 billion. Yes, this is the concept discussed throughout the entire financial industry. Let’s return to the initial simple principle: The returns generated by the stock market = the profits of listed companies + the investments of the people - (stamp duty + handling fees + money siphoned off by listed companies + financing interest + interest of margin companies + profits of arbitrageurs) If the profits of listed companies can’t keep up with the massive costs and losses behind, then in a negative-sum scenario, the only positive energy comes from other investors’ inflows. Isn’t this thing limitless? In other words, is there an endless scam behind it? The stock market isn’t entirely different from other scams; the difference is that the stock market is tied to the national economy, while other scams cannot create new money to support themselves. The stock market can because it’s backed by the government. Modern financial systems give central banks theoretically unlimited minting rights. Can the government sustain this situation by creating money? In theory, yes. Money comes from commercial bank credit activities. Trust companies obtaining bank credit and entering the market create a large amount of credit, which creates “quasi-money,” i.e., the growth of M2, entering this system. We know that scams rely increasingly on funds. If the total money supply is increased to sustain the massive inflows behind our equation, it’s like the central bank printing money to buy luxury cars for high-interest lenders—an idyllic scene. Are there constraints on the central bank printing money? Of course! Going further would touch on political correctness, so I’ll leave it here. Think about it yourself.