For context, I’m in wealth management. I read earlier that CME is planning to launch single-stock futures, settled in cash. One of the supporting points provided was that “no ownership of the asset is necessary”.
Naturally there was a negative reaction to this on a lot of different forums, but in reality this is precisely how retail and many investment firms trade.
Stock represents some unit of ownership in the issuing company. In its nascent stages, that meant profit would be distributed to you on a % ownership basis. Makes sense. Going further, certain classes would allow you decision making rights and entitle you to some portion of value during liquidation (if there was any value left). At certain points, you may need capital immediately, so you could sell your ownership to another individual on a market at either a discount or premium relative to cash flow growth (profit exposure out being the reason you own the stock).
It feels like these concept have almost become vestigial to (at least) the retail narrative and newer firms. The sole purpose of equity exposure is seemingly to arbitrage. The individual is hoping that over \*t\* time someone else will want to buy it for more than they did. But why would they? Because they believe someone else will buy it for more than they did. There’s no actual reason for this as voting rights are ceded to the street and most of the played stocks don’t issue dividends. I saw one person complain that Google was spending all of its free cash flow on CapEx. Why should they care? What do \*they\* get directly from the presence or absence of cash flow? Potential for buybacks? Who cares in the short term? It’s essentially an abstraction of how company management controls revenue and costs, which would be fine if there were actual meaningful exposure to cash flow.
This question started forming in my mind when an acquaintance of mine was discussing “Tesla mooning” with me after the Apr ‘25 sell off. I didn’t think it was a smart time to get in given the obvious uncertainty and extreme volatility. Lo and behold, retail bought the dip. This individual later rubbed it in my face saying that he was correct about the trajectory. I responded with “yes, because a huge number other people with your opinion made it happen. It was self fulfilling”. He was obviously confused by this comment, which I then developed on by asking him if he understood that shares themselves do not generate any capital value inherently, but are representative of ownership with price determined by other people’s purchasing behavior. He just had a vacant stare and did not really answer me.
I think a ton of people are exactly like this. I think they believe that shares just produce a price through some not-well-grasped factor as opposed to market dynamics. This is the same thing with gold and bitcoin. When you bring up that these assets don’t actually generate any revenue and are entirely valued based on what the guy after you bought it thinks it’s worth they react as if they hadn’t realize it prior. This is what I always say when a random individuals tells me that “it for sure has to go up”. Why? Some of these people are trading leverage commodity futures, btw.
This may not be a huge issue in theory, but given the increasing scale of under-educated retail buying who utilize margin as a way to “escape the matrix”, it will end up having negative real-world impacts.
I understand the difference between growth stocks, value stocks, pure specs etc. That’s not what I’m saying. What I’m saying is that the value add for owning equity will be essentially no different than betting the price of paper with people. You will see a massive synthetics market develop that will grow to a massive multiple compared to the underlying asset. It poses a serious threat to long-term investing security.
Thoughts?