I still look back to the old old days when stocks actually meant you owned a part of the company and could expect to turn your stock back in for a payout from that company in the future. Those are stocks that make sense to me.
Nowadays you're literally buying into the opinion of a company. Sure we use things like P/E and future growth to form that opinion, but in the end it's a lot like Bitcoin, it has value because people believe it has value, many of these stocks have no hard requirements that peg their value. You as a stock holder aren't entitled to any of Facebooks profits, and voting rights are worthless.
Actually currency is the same thing. The dollar has value because we all agree it has value. It's not based on gold any longer (though one could argue it's based on oil). It's based on a host of indices that we, as a group set. And those indices are traded and have a set value. Decided by the buyer (us) and seller (us).
I'm not complaining. I'm just pointing out that all of our economy is based on the same principe/model; as long as the vast majority of the group (us) believe the dollar is worth something, it will be.
Anyone who invested in FB at any time (and that includes the big boys) believed that FB was a good investment. In other words, they believed the hype and didn't understand the business. Until someone who they trusted came along and told them to bail. And here we are.
I actively trade. All the time. But FB I didn't touch. I asked myself, at ANY time have I ever clicked an ad on FB? The answer: "No". That meant FB is vapor. People are betting that people (all of us - including the people making the bets) might, sometime in the future click on ads. Or that FB might come up with something. Something. (And I bet it's gonna be selling out personal data - what we browse, like, etc, etc. It's the only real value FB has).
I understand that we could get very abstract about the concept of value, but what I meant to say is that many stocks have no guarantee behind them. If I buy a big mac, there's a pretty good guarantee that I can eat it, oil I can burn, a movie I can watch, virtual swords I can play a game better with. Value comes from how important these guarantees are to the buyer and seller.
Like FB, many stocks have meaningless voting rights, there's no buyback requirement, and you have no rights to company assets or earnings. You're guaranteed nothing when purchasing them, and so value comes entirely from opinion.
There's a faith that eventually there will be a dividend payout or buyback, like Cook at Apple finally did. But most companies ride the rollercoaster until they crash.
Do you ever click on google AdSense ads? I never click on any ads personally. I don't look at that as an indication that others don't though. FB ads raise awareness for me. In particular, ads for movies make me realize that the movie is out and I'll go see it - but I won't click on the link.
Currency is a bit different from equity. Currency is a medium of exchange designed to smooth the trade of actually valuable things, not a store of value itself. A company is a (dynamic) store of value, that is supposed to generate valuable product at a rate proportional to its price.
Oh that's an easy one. But it's better to say our economy is based on oil: oil is exclusively traded in dollars.
That gives us a huge advantage over everyone else. And it's also the reason we can carry so much debt. As oil is traded in dollars, we will always be the safest currency to buy. Since oil, right now, is the worlds most valuable commodity.
I mean look around you. Oil is everywhere; pastics, food, drugs, cars, power - everywhere.
I've been having a lot of conversations around intrinsic value of stocks that echoed this a bit: dividends or voting rights. If this were the case though, I don't think you would see the levels of investment that you're seeing. Facebook's stock's intrinsic value is derived from Mark Zuckerberg's value of it. In other words, even though you cannot exercise those rights to any effect, if everyone concluded they were worthless, you'd see Zuckerberg buying them up b/c he values them or he would address the reasons people consider them worthless thus adding value.
The absurd part of this that this would imply FB stock is intrinsically worth less, which makes the current already over-valued trading price look that much more ridiculous!
Nowadays you're literally buying into the opinion of a company. Sure we use things like P/E and future growth to form that opinion, but in the end it's a lot like Bitcoin, it has value because people believe it has value, many of these stocks have no hard requirements that peg their value. You as a stock holder aren't entitled to any of Facebooks profits, and voting rights are worthless.