Stock market = Pyramid selling?

[Fortune500]

Whenever I look at the stock market charts and see how the FTSE/DOW has increased over the years, I can't help but think that the increase is due to pyramid selling.

During the 90's and 00s, every man, woman, and dog seemed to be investing in the bull. But wasn't a crash inevitable, since the further increases were only ever based on new money entering, thus pushing prices ever upwards? Isn't this the same as pyramid selling, when future growth is dependent on finding new victims?

 

[Trader333]

Isn't this the same as pyramid selling, when future growth is dependent on finding new victims?

In a simplified form I agree, for the stock market to continue to grow would require an ongoing increase in the population to be sold to.


Paul

 

[north5]

I agree and it's also true of Forex - the theory can be explored by searching for what Soros terms reflexivity.

 

[PKFFW]

Pyramid selling is not illegal because it relies on an ever increasing number of "victims".

It is illegal because there is no product or service being exchanged. The scammer makes money simply by convincing others to give them money on the promise of some benefit that must eventually not materialise for someone down the line. It is because of this inbuilt mechanism in which someone must lose money that pyramid selling is illegal.

Stocks(and property for that matter) is different because a product is being exchanged for the money. Also, it does not require an ever increasing number of people to force the price up, it only requires that the people present be convinced to pay more for the product.

Cheers,
PKFFW