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If I were a stock (how the stock market works) If I were a stock (how the stock market works)
by Joseph Gatt
2020-12-30 10:31:19
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Let's say my name is Yossi Gatt and I'm 18 years old. I was born in 2002. I just graduated high school and got accepted by Harvard University.

I go to the stock market and need to raise 160,000 dollars in shares to pay for my tuition. To make things simple let's say I sell 100 shares each worth 1,600 dollars. With the shareholder money I collect, I'll be able to go through the 4 years of college.

econ001_400The contract I will sign with shareholders is that in 2020 they will each give me 1,600 dollars, and by 2027 I intend to get a job where I make 200,000 dollars a year, and by 2027 they will get 33% of my income. So if I make 200,000 dollars a year for three years, at the end of the three year period, they each shareholder will get a 2,000 dollar cheque per share they held.

So the arguments I use to encourage people to buy my shares are that “it's a stable, safe source of income.” And “there's inflation, so your money is better off with me than sitting there in the bank” and “the interest rates are higher than any savings bank account.”

Now, there are a lot of ifs and buts. A lot of things could happen between 2020 and 2027. I could fail to find 100 shareholders, and only get two shareholders. That would put me in a delicate situation, because I would have to go through student debt + owe the shareholders parts of my income in the future.

I could die (God forbid) in 2021. That would make my shares useless and worthless.

I could drop out of Harvard for bad grades. That wouldn't make my shares completely useless, but the chances of me making 200,000 dollars a year by 2027 are slim.

The economy could shrink in 2024 and I could have huge trouble getting a job, and will have to settle for a job as a waiter making 18,000 dollars a year.

Or. I could invent something very important and useful; make a ton of money out of that. If I make 33 million dollars between 2024 and 2027, by contract, I have to give you 33% of that, so you will get 110,000 dollars FOR EACH SHARE THAT YOU BOUGHT FOR 1,600 DOLLARS!

Now you as a shareholder can choose to keep the share or the shares until 2027, let them sit in a corner, wait for 2027 and see what happens. You could view buying my shares as a “donation” for “an ambitious kid” and hope for the best.

You as a shareholder could buy the share and hope to sell it way before 2027, and hope that between 2020 and 2027 I will be making the kind of progress that keeps my stock value going up. For example, in 2021, I become fluent in Greek and Mandarin Chinese, and you try to sell the shares you bought for 1,600 dollars and try to sell them for 3,000 dollars. You'll have made 1,400 dollars. And you don't give a damn what happens in 2027.

Or maybe you're a firm specialized in purchasing student shares and you keep files and track the students, and try to find the best time to sell their shares.

Or maybe you're a financial firm and your algorithm has it that student shares tend to go up in their senior year in college, so your tendency is to buy shares in 2020 and sell them late 2023.

Notice that in most cases, anyone can sell a share at any price he/she deems correct. Notice and important detail in the news when they say “Coca Cola shares AVERAGED 20 dollars.” They rarely say “Coca Cola shares are worth 20 dollars” because each individual can purchase the share at whatever price he deems right.

Then, and this happens a lot, I could be a thief. I could be the mafia. I could enroll at Harvard, never pay a dime of tuition, and use various schemes to make it sound like I dropped out in my senior year and that I'm having trouble finding a job, when in fact I have done this scheme with multiple fake identities.

Or, I could get my friend Hyun-Chul to set up a bank account where all my income will go to his bank account, and my bank account will be empty, and I will tell shareholders in 2027 that I only made 5,000 dollars a year between 2024 and 2027, when in fact I made 300,000 dollars a year, and it's all in Hyun Chul's account. The Chinese, Koreans and Japanese use this tactic a lot.

So much more I could say on the topic. I'll just finish by saying that most people who purchase shares have absolutely no idea what they're doing. Many shareholders don't even know what date the dividends are due, and have no idea they are owed dividends by a certain date.


    
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