STEER CLEAR OF STOCK MARKET.Byline: David J David J. Haskins (b. April 24, 1957, in Northampton, England) is a British alternative rock musician. He was the bassist for the seminal gothic rock band Bauhaus. Life and work . Ozeran AMERICANS should consider the recent uprisings over pyramid schemes Pyramid Scheme An illegal investment scam based on a hierarchical setup that relies on new recruits' funding as the source of money, or so-called returns, to be provided to those earlier investors/recruits above them in the pyramid. in Albania Albania (ălbā`nyə), Albanian Shqipëria or Shqipnija, officially Republic of Albania, republic (2005 est. pop. 3,563,000), 11,101 sq mi (28,752 sq km), SE Europe. when debating proposals to invest Social Security money in the stock market. There are similarities between pyramid schemes and current trends in the stock market that should be discussed before any radical changes are made in the way Social Security funds are invested. Pyramid-mania erupted in Albania, a small Eastern European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. country. It is reported that 25 percent of that nation's population ``invested'' money (their life savings in some cases) in these get-rich-quick schemes A Get-rich-quick scheme is a plan to acquire high rates of return for a small investment. Most such schemes promise that participants can obtain this high rate of return with little risk. Most get-rich-quick schemes also promise that little skill, effort, or time is required. . When these operations collapsed, there were riots This is a chronological list of riots: 17th century and earlier
The way pyramid schemes function is by getting people to invest their money by convincing them that they will reap huge returns. The early investors (those at the top of the pyramid pyramid, structure pyramid. The true pyramid exists only in Egypt, though the term has also been applied to similar structures in other countries. Egyptian pyramids are square in plan and their triangular sides, which directly face the points of the ), do make a lot of money by being paid with the money obtained from new investors. The success of the early investors lures large numbers of people into the pyramids. However, investors can make money only as long as there are an ever-growing number of new investors pumping cash to the top of the pyramid. When the availability of new investors dries out, as it ultimately must, there is no money for those who make up the base of the pyramid. A situation parallel to, although much more complex than, the Albanian pyramids is occurring here in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. in regard to the stock market. Stock prices have been rising at a rapid pace for the last 15 years. The Dow Jones industrial average Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. has increased approximately 850 percent since 1982. In that period of time, it has climbed from under 800 to above 7,000. Based on that rate of return, $25,000 invested in 1982 would be worth $225,000 today. The difference between a pyramid scheme and the stock market acquires something of value. One hundred shares of Coca-Cola stock is ownership of a tiny, but real, portion of the company. The similarity Similarity is some degree of symmetry in either analogy and resemblance between two or more concepts or objects. The notion of similarity rests either on exact or approximate repetitions of patterns in the compared items. between a pyramid scheme and the stock market is that in some cases the price of a stock is more a reflection of the amount of money being poured into the stock by new investors than a reflection of company value. For example, a company whose stock trades for $30 per share may only be worth $20 per share, but investor demand for shares has pushed the share price up to $30. Those who purchase near $30 are not receiving the full value of their money. Like those at the bottom of a pyramid, their money helps to keep the price of the stock well above its actual value. Many economists believe that stock prices have soared so high that they no longer reflect the actual value of the companies that have issued the stock. The rise in the stock market is generally attributed, at least in part, to the enormous pool of money constantly flowing into the markets from retirement plans like 401(k)s. Employees are automatically setting aside money each month to be invested in the stock market regardless of the price of stocks. Like a pyramid scheme, this constant flow of money into the markets fuels higher and higher stock prices. Stocks are rising at rapid rates not because the companies are gaining 20 percent to 30 percent in value each year, but because of the large amount of ``new'' money being used to purchase a limited number of stocks. If and when the new money coming into the market slows down, demand for stocks will slow and stocks will not be able to maintain their prices. In this way, the stock market is like a pyramid: Prices rise only so long as new investment dollars are pumped in to support the rising prices. Once the new money slows or stops, prices will tumble and those who got in late, like those at the base of the pyramid, will lose their shirts. Policy makers should look at the Albanian pyramid experience before putting Social Security money into the stock market. Although this ``new'' money will likely drive stock prices up in the short run, it could result in a disastrous collapse in the long run. When much of our Social Security money is lost in a downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. in the stock market, the Albanians may not be the only ones rioting. |
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