Dow Jones Cashed in Today

[S485122]

Originally Posted by VBCurtis

...
Still, whatever increase in stock price that comes from a company's increased profitably does not cause someone else to lose money.
There are lots of ways to gamble on the stock market that are zero-sum, with equal winners and losers; but basic stock ownership does not have losers for every winner.

IMO you forget that you speak about the estimated value of the share : the real value of a share is only known at selling time.

Originally Posted by CRGreathouse

Not in general, but transactions where you buy stock from another stockholder or sell stock to another stockholder are indeed zero-sum (excluding tax considerations). But when you buy a share of stock in a company and that share becomes more valuable (or less valuable) over time, that's non-zero-sum.
If you own one share of a company worth $1, and over 10 years the company doubles in value, your share is now worth $2. This is a real increase, and it's not zero-sum -- no one had to lose money. Similarly, if the company's factory burns down and it's now bankrupt, your share is worth $0, and this is a real decrease: no one gained your $2.

Same remark : where you say "more or less valuable" and "is worth", I would say "is estimated at". The increase in valuation of shares only becomes real once sold, until then, one can only (more or less rationally) hope being able to sell the shares at that value. The Total Cost (or Profit) of Ownership is only certain and thus real, once the shares are sold.

Jacob

[kladner]

Schrodinger's stock price!

[Dr Sardonicus]

Originally Posted by xilman

Looks like the first stages of an earthquake.

Is it going to be The Big One?

As soon as the president said "This is not a financial crisis," futures started plummeting. I don't think the DJIA is going to rebound today...

[VBCurtis]

30 minutes after open, you're about 2200 points correct. Circuit breaker tripped again.

[kriesel]

Originally Posted by S485122

the real value of a share is only known at selling time

If even then. Many's the time some CEO went after an acquisition claiming "synergies", only to divest it at fire sale price relatively speaking a few years later. Or ride the golden parachute before that. And that's the product of the so-called professionals after due diligence.

[chalsall]

Originally Posted by VBCurtis

There are plenty of companies out there not engaging in financial engineering, share buybacks, etc. Pretend we're discussing how share prices work for one of those comanies, K?

I've always found it interesting to observe that in an ideal world, with perfect knowledge held by most if not all, stock prices would actually very rarely change.

There's a wonderful scene in season five of Babylon 5. Mr. Garibaldi is now a very wealthy man living on Mars, and is reading the stock prices in a newspaper (actual paper -- circa 2263). He says something like "Damn! The stocks haven't moved in weeks!"

[ewmayer]

Originally Posted by CRGreathouse

We're not nearly at that level here. But if you're interested, the Modigliani-Miller theorem does show why it can be beneficial for companies to take on debt to buy back stock (hint: the conditions of the theorem are not satisfied!).

But in a sense we are "there", because so much of the current ginormous market bubble has been driven by such financial engineering. Anyone who has some money invested in the stock market is "at that level" simply as result of markets having gotten clearly into "bug in search of a windshield mode". I'm not claiming any particular prescience as to timing - such raging bubbles tend to go on longer than any of the valuation-skeptics deem possible (the old warning to the bearish is, "the market can stay irrational longer than you can stay solvent") - but was nearly all in cash (i.e. short-term govt bond funds) at end of 2019, aside from a small gamblin'-money short I put on one of the most obvously, ridiculously, insanely overvalued tech unicorns out there. (See my comment over on Wolf Richter's site about that).

And here is a classic example of one of such corporate share-buyback queens, way-too-much-in-the-news-of-late Boeing:

Boeing Crashes: $43 Billion in Share Buybacks Turn into Existential Threat | Wolf Street

This mad scramble for cash and the existential urge to “preserve cash in challenging periods” comes after this master of financial engineering – instead of aircraft engineering – blew, wasted, and incinerated $43.4 billion on buying back its own shares, from June 2013 until the financial consequences of the two 737 MAX crashes finally forced the company to end the practice. That $43.3 billion would come in really handy right now.

The sole purpose of share buybacks is to inflate the stock price because they make the company itself the biggest buyer of its own shares. But those $43 billion of share buybacks cost the company $43 billion in cash. Now those buybacks have stopped because Boeing needs every dime of cash to stay liquid and alive, and shareholders, who’d been so fond of those share buybacks, are now getting crushed by the damage those share buybacks have done to Boeing’s financial position.

[Dr Sardonicus]

03/09/20 close 23,851.02 -2,013.76 (-7.79%)

03/10/20 close 25,018.16 +1,167.14 (+4.89%)

03/11/20 close 23,553.22 -1,464.94 (-5.86%)

03/12/20 close 21,200.62 -2,352.60 (-9.99%)

[ewmayer]

Originally Posted by Dr Sardonicus

03/12/20 close 21,200.62 -2,352.60 (-9.99%)

Today's cliff dive was even bigger than any single-day drop during the 2008-9 GFC, in fact it was the largest single-day percentage decline since the first computerized-trading-related flash crash in 1987. Couple more sessions like today's and we'll be talking about real money ... Still a *long* way to go to match the depths of 2008-9 in terms of total % drop from the most-recent market peak, though -- I'll let someone else crunch the numbers and tell us how low the major indices would have to go to match the latter in % terms, but off the top of my head I would estimate that would mean DJIA dropping somewhat under 10,000.

[Dr Sardonicus]

Originally Posted by ewmayer

Today's cliff dive was even bigger than any single-day drop during the 2008-9 GFC, in fact it was the largest single-day percentage decline since the first computerized-trading-related flash crash in 1987. Couple more sessions like today's and we'll be talking about real money ... Still a *long* way to go to match the depths of 2008-9 in terms of total % drop from the most-recent market peak, though -- I'll let someone else crunch the numbers and tell us how low the major indices would have to go to match the latter in % terms, but off the top of my head I would estimate that would mean DJIA dropping somewhat under 10,000.

Crash of 2007-8: pre-crash peak to bottom:

Oct 09, 2007 close 14,164.53
Mar 09, 2009 close 6,547.05
Decline of 53.78%

Recent peak to today's close:

Feb 12, 2020 close 29,551.42
Mar 12, 2020 close 21,200.62
Decline of 28.26%

For a little extra context, when Il Duce took office:

Jan 19, 2017 close 19,804.72
Jan 20, 2017 close 19,827.25

Declining 50% from there would get the DJIA around 10,000

[LaurV]

Originally Posted by xilman

Is it going to be The Big One?

Who knows... If the Chinese are clever, they already bought the shares of all guilao factories there, when the prices dropped like stones. By now, CCP may have in their hand quite a large slice of the economy, and in the future, may decide to produce for internal consume, and not for those imperialist guilaos... Then, travel bans or not, we (and by "we" I mean the whole world) are in deep creep.