The Stock Market Is a Ponzi Scheme

The stock market is built on non-dividend paying companies and this is a real problem, according to financial expert Tan Lui.

Tim Denning
6 min readJul 3, 2020

Illustration by / LexiPilgrim

I am a huge believer in buying stocks. I’ve always seen the stock market as my best friend. But as I look at my Amazon stocks that have increased in price by 70% since I bought them not long ago, I’m questioning my beliefs.

Questioning your beliefs and assumptions is a powerful practice.

It pays to challenge your beliefs if you want to make more money, so you can buy back time, relax and work less.

So I’m asking myself this question:

Is the stock market one giant Ponzi Scheme?

A Ponzi Scheme, for those who haven’t heard the term, according to Investopedia, is “a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for early investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.”

“Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn’t enough money to go around. At that point, the schemes unravel.

The Ponzi scheme is named after a swindler named Charles Ponzi, who orchestrated the first one in 1919.”

The idea that the stock market could be a Ponzi Scheme came from Tan Liu who wrote the book “The Ponzi Factor.” (He has a degree in finance and a Master’s of Statistics, and spent his career from 2005–2015 working in finance until he quit to teach statistics and do research full-time.)

There are basically two types of stocks: shares that pay dividends (cash) to you on a regular basis, and stocks that don’t pay you anything. Stocks that don’t pay you any dividends will only make you money if their price rises. This category of stocks is where the problem starts, according to Tan.

In an Australian interview, he compares the creation of stocks to money printing. He calls the stock market Ponzi Scheme “stock printing.” The strategy of printing money is currently being used by many…

Tim Denning

Aussie Blogger with 500M+ views — Writer for CNBC & Business Insider. Inspiring the world through Personal Development and Entrepreneurship —