Hypothetical question: Will a man who lives forever own the world?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Locked
User avatar
danielc
Posts: 377
Joined: Sun Dec 10, 2017 4:48 am

Hypothetical question: Will a man who lives forever own the world?

Post by danielc » Fri Jan 05, 2018 5:02 am

I have a hypothetical question that relates to something I'm not quite understanding about how stocks work:

Imagine a man who lives forever. He buys some stock at a company. He collects dividends and puts them in a jar. When he has acquired enough dividends, he buys another share of the company. If you do this long enough (he's patient) he will eventually own the entire company. He can also buy stock from other companies, or just buy shares from the Vanguard TSM index fund. All dividends just get re-invested to buy more stock. So eventually he'll own all of Vanguard, and some time later he'll own every company in the world.


Is there an error in this logic? It seems odd that, purely through passive income, one could eventually own all the equity in the world. Conversely, if we believe that stock ownership gradually makes you wealthier, it seems to imply that stock ownership increases the fraction of the world that you own.

This question is closely related to the question: How is it possible that the average growth of stocks is higher than the average GDP growth of a country?

I would love to hear any insights you might have about this. I suspect that the answer will teach me something interesting about how stocks work.

sciencenerd
Posts: 63
Joined: Sun May 18, 2014 12:29 am

Re: Hypothetical question: Will a man who lives forever own the world?

Post by sciencenerd » Fri Jan 05, 2018 6:48 am

That is an excellent question I have asked myself before. I have never received a satisfactory answer to the question.

The question actually not only pertains to one man, it pertains to the whole stock market. If stocks grow faster than GDP, it stand to reason that eventually nearly 100% of GDP must come from stock growth (or, in other words, the whole economy consists of the stock market only). Of course, at this point in time, stock market growth and GDP growth will have to approach each other.

UncleBen
Posts: 287
Joined: Wed Feb 19, 2014 8:43 pm

Re: Hypothetical question: Will a man who lives forever own the world?

Post by UncleBen » Fri Jan 05, 2018 6:54 am

He would be very wealthy but presumably not everything is for sale inside or outside of stock markets (and hostile takeovers).

User avatar
alpine_boglehead
Posts: 237
Joined: Fri Feb 17, 2017 9:51 am
Location: Austria

Re: Hypothetical question: Will a man who lives forever own the world?

Post by alpine_boglehead » Fri Jan 05, 2018 7:01 am

An in-depth study of this topic is Thomas Picketty's "Capital in the 21st Century", where he argues exactly that point - that wealth concentration increases if the rate of return on capital is greater than the overall economic growth.

So yes, in theory, you're correct in my view.

But: your hypothetical eternal Warren Buffett can do that only if the other shareholders let him do it. If they just don't sell, he can't acquire any more shares. In theory, the less other shareholders are willing to sell, the higher the price would get, so the rate of acquisition would be ever-decreasing. And that would also be a rational behavior of the other shareholders: if they know of his plan, they could command any price for stocks because they know he has to buy due to his plan.

So part of the puzzle might just be rising valuations. If ever-more people want to own stocks, but the existing shareholds aren't willing to sell enough to match the demand, prices will rise until supply matches demand.

In the real world, people also spend money, they die, they donate (e.g. Gates and Buffett).
danielc wrote:
Fri Jan 05, 2018 5:02 am
This question is closely related to the question: How is it possible that the average growth of stocks is higher than the average GDP growth of a country?
Very good question indeed (even if not very actionable). I'm also interested in other opinions, because I also have difficulty finding a satisfying real-world answer to this one.

dumbmoney
Posts: 2286
Joined: Sun Mar 16, 2008 8:58 pm

Re: Hypothetical question: Will a man who lives forever own the world?

Post by dumbmoney » Fri Jan 05, 2018 7:02 am

You're describing a miser. Most people aren't misers, and misers don't live forever.
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.

IowaFarmBoy
Posts: 583
Joined: Fri Jan 22, 2010 8:19 am

Re: Hypothetical question: Will a man who lives forever own the world?

Post by IowaFarmBoy » Fri Jan 05, 2018 7:15 am

I can think of three comments and two scenarios. It seems to me that this could be close to true if the value of the world is fixed and doesn't grow.

If the value of the world is fixed, it seems like mathematically he would approach owning all but never reach it. For example, if I have you half of something every day, you would never have all of it, although the piece I have would become infinitesimally small. Although Zeno's paradox might apply...

If, as some others have pointed out, generally the world's wealth and value is growing. So he would be accumulating a growing part of a growing pie. His percentage in this scenario would depend on the size of dividends relative to the growth of the economy.

If I am able to live forever, might others have the same gift (or curse)? Or at least wealth that is passed down through generations of families?

Interesting question!

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Hypothetical question: Will a man who lives forever own the world?

Post by SimpleGift » Fri Jan 05, 2018 7:19 am

danielc wrote:
Fri Jan 05, 2018 5:02 am
This question is closely related to the question: How is it possible that the average growth of stocks is higher than the average GDP growth of a country?
One way I've seen this paradox explained: Equity growth in excess of GDP growth is usually calculated on a total return basis — that is, it assumes that all dividends are reinvested back into stocks. However, the key point is that, in the real world, investors in aggregate do not typically reinvest all their dividends, but rather use a large majority of them for consumption.

If in fact investors actually tried to reinvest all their dividends en masse, the huge amount of excess of capital coming from a compounding cascade of reinvested dividends would, sooner or later, crush profit margins, hence crush earnings, hence crush capital values (and hence crush future dividends).

So the paradox is that theoretical stock returns can exceed GDP growth, just as long as investors don't actually try to capture all those returns by reinvesting their dividends. If they would do so en masse, it would be impossible for stock returns to exceed GDP.
Cordially, Todd

User avatar
jfn111
Posts: 946
Joined: Fri Nov 08, 2013 10:42 pm
Location: Minnesota

Re: Hypothetical question: Will a man who lives forever own the world?

Post by jfn111 » Fri Jan 05, 2018 7:20 am

This brought a flashback to college Political Science classes.
H.G. Wells- The Sleeper Awakes. A great book!
Wikipedia- "The Sleeper Awakes (1910) is a dystopian science fiction novel by H. G. Wells about a man who sleeps for two hundred and three years, waking up in a completely transformed London where he has become the richest man in the world. The main character awakes to see his dreams realised, and the future revealed to him in all its horrors and malformities."

User avatar
obafgkm
Posts: 298
Joined: Fri Mar 11, 2016 9:12 am
Location: Pennsylvania

Re: Hypothetical question: Will a man who lives forever own the world?

Post by obafgkm » Fri Jan 05, 2018 7:21 am

A similar question was addressed in the short story "John Jones's Dollar", by Harry Stephen Keeler.

It is about a man who deposits one dollar in a bank in 1921, with orders for his 40th generation descendant to collect the proceeds of the interest (and principal). By the 39th generation, his child stands to own the solar system.

I probably read this for the first time 40 years ago as when I was 10 or so. I use it in my teaching now -- a way to get in a bit of personal finance and compound interest in a course that is not about either :twisted: .

Halicar
Posts: 87
Joined: Tue Oct 31, 2017 8:41 am
Location: Midwest

Re: Hypothetical question: Will a man who lives forever own the world?

Post by Halicar » Fri Jan 05, 2018 7:23 am

Well, a corporation is a legal "person" that can own property and can live forever, so maybe it's a slightly more realistic thought experiment to wonder if a single corporation can own everything (I.e., everything that can be owned).

It gets a little complicated because ownership is a legal construct that can only exist within the context of a state that can enforce property rights, and this conceptual framework may fall apart if you have a corporation that is larger than any state. Suppose the corporation had it's own police power to enforce it's own property rights--at that point is it even accurate to call it "ownership?"

An interesting philosophical question, IMO.

snowox
Posts: 183
Joined: Wed Nov 08, 2017 9:17 am

Re: Hypothetical question: Will a man who lives forever own the world?

Post by snowox » Fri Jan 05, 2018 7:30 am

This is interesting because words like Forever, infinity are hard to comprehend. I don't think there is really an answer to this because of chaos theory.

User avatar
Watty
Posts: 14356
Joined: Wed Oct 10, 2007 3:55 pm

Re: Hypothetical question: Will a man who lives forever own the world?

Post by Watty » Fri Jan 05, 2018 7:46 am

danielc wrote:
Fri Jan 05, 2018 5:02 am
This question is closely related to the question: How is it possible that the average growth of stocks is higher than the average GDP growth of a country?
Stocks often sell with a price earnings ratio of that might be 15 to 1. If that stays the same and a companies earnings grow by a dollar then the stock will grow by 15 dollars.

There can be foreign investments too.
danielc wrote:
Fri Jan 05, 2018 5:02 am
Imagine a man who lives forever.
The details are a bit more complex but when Benjamin Franklin died he left a trust that was set up to be invested for 200 years then be used for education. You can Google to find the story of that and it is interesting to read. As I recall the laws have been changed to require trusts to distribute much of their income to prevent people from doing that after several other people tried setting up other trusts that would grow for 500 or more years.

Many of the "Robber Barrons" in the 1800's tried to set up funds to be controlled by their families but many of them had so many descendants that the money was diluted and when the great depression in the 1930s hit the funds were often depleted but families like the Rockefellers still have impressive wealth. The Rothschild family is high visibility family that has been wealthy for around 300 years but there are others too especially outside the US. The phrase "old money" does have a basis in fact.

Estates Taxes were also designed to limit dynasties like that.
Last edited by Watty on Fri Jan 05, 2018 7:50 am, edited 1 time in total.

snarlyjack
Posts: 780
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: Hypothetical question: Will a man who lives forever own the world?

Post by snarlyjack » Fri Jan 05, 2018 7:46 am

Yes, I think they will.

For example when my Mom died I was 20 years old.
I inherited $250,000. If you invest it all in the Total
Stock Market & average 8% growth for 80 years (age 100)
& invest $2,000 a month you end up with $265 Million Dollars.
Nothing fancy...the 8Th wonder of the world is compounding.
At 10% growth it's $1 Billion. If you really know what your
doing you could be the next Warren Buffett.

In my mind you do not have to do anything fancy to make
a lot of money. Just a good stock fund with a low ER
(expense ratio), reinvest the dividends, add some money
each month & let time do it's thing. Easy Peasy. Most
people are making this (investing) way to hard & complicated.

exigent
Posts: 746
Joined: Fri May 07, 2010 8:49 am

Re: Hypothetical question: Will a man who lives forever own the world?

Post by exigent » Fri Jan 05, 2018 8:03 am

dumbmoney wrote:
Fri Jan 05, 2018 7:02 am
You're describing a miser. Most people aren't misers, and misers don't live forever.
Which is why OP specified that it’s a hypothetical question...

ENT Doc
Posts: 118
Joined: Sun Jan 22, 2017 9:14 pm

Re: Hypothetical question: Will a man who lives forever own the world?

Post by ENT Doc » Fri Jan 05, 2018 8:15 am

No. First, not everything in the world is a publicly traded company. Second, it ignores the theoretical possibility of further share re-issuance. Third, companies rise and fall. New companies will come into existence whose shares will be bought at low %'s and will rise over time, only to be repeated later by another new IPO. Fourth, this ignores wealth/stock passage through generations, others having the ability to buy stocks and pass them on. Fifth, you could never get to an all passive ownership of even publicly traded companies because then there would be no market. You need active managers and stock buyers otherwise to set the market for the passive investors.

Mike Scott
Posts: 1020
Joined: Fri Jul 19, 2013 2:45 pm

Re: Hypothetical question: Will a man who lives forever own the world?

Post by Mike Scott » Fri Jan 05, 2018 8:18 am

Based on an impeccable and authoritative source (the band Queen in the original Highlander movie); this is how you do it! "There can be only one" ...

JohnFiscal
Posts: 615
Joined: Mon Jan 06, 2014 4:28 pm
Location: Florida

Re: Hypothetical question: Will a man who lives forever own the world?

Post by JohnFiscal » Fri Jan 05, 2018 8:34 am

They might essentially own the world, but following the logic of the example presented in the original post I don't think that reinvesting dividends and capital gains without limit will result in full ownership. This overlooks the fact that at the time of initial purchase there are other shares outstanding, and they also are obtaining returns. So, in order to obtain full ownership the "forever man" will have to put up some additional cash to buy up the other outstanding shares.

KlangFool
Posts: 10403
Joined: Sat Oct 11, 2008 12:35 pm

Re: Hypothetical question: Will a man who lives forever own the world?

Post by KlangFool » Fri Jan 05, 2018 8:45 am

danielc wrote:
Fri Jan 05, 2018 5:02 am
I have a hypothetical question that relates to something I'm not quite understanding about how stocks work:

Imagine a man who lives forever. He buys some stock at a company. He collects dividends and puts them in a jar. When he has acquired enough dividends, he buys another share of the company. If you do this long enough (he's patient) he will eventually own the entire company. He can also buy stock from other companies, or just buy shares from the Vanguard TSM index fund. All dividends just get re-invested to buy more stock. So eventually he'll own all of Vanguard, and some time later he'll own every company in the world.
danielc,

You should understand that if he owned everything, he will have nothing. Nobody else has money to buy anything. Hence, all the companies will be out of business. In fact, as he owned more of anything, the economy will slow down and eventually collapsed.

KlangFool

KlangFool
Posts: 10403
Joined: Sat Oct 11, 2008 12:35 pm

Re: Hypothetical question: Will a man who lives forever own the world?

Post by KlangFool » Fri Jan 05, 2018 8:55 am

OP,

My family goes back about 2,000+ years. We learned the wealth does not last and it is harmful to the family. One of the greatest members of my family died in abject poverty and illness. But, he is well honored and remembered by the millions if not billions of people. His words are required reading by millions of people.

KlangFool

Stormbringer
Posts: 603
Joined: Sun Jun 14, 2015 7:07 am

Re: Hypothetical question: Will a man who lives forever own the world?

Post by Stormbringer » Fri Jan 05, 2018 9:04 am

danielc wrote:
Fri Jan 05, 2018 5:02 am
Is there an error in this logic? It seems odd that, purely through passive income, one could eventually own all the equity in the world.
The error in the logic is that it ignores the political consequences of extreme wealth inequality (see: Let them eat cake). Private ownership of property is itself a political construct, and therefore subject to change from time to time.
"Compound interest is the most powerful force in the universe." - Albert Einstein

User avatar
Kenkat
Posts: 4359
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Hypothetical question: Will a man who lives forever own the world?

Post by Kenkat » Fri Jan 05, 2018 9:27 am

Stormbringer wrote:
Fri Jan 05, 2018 9:04 am
danielc wrote:
Fri Jan 05, 2018 5:02 am
Is there an error in this logic? It seems odd that, purely through passive income, one could eventually own all the equity in the world.
The error in the logic is that it ignores the political consequences of extreme wealth inequality (see: Let them eat cake). Private ownership of property is itself a political construct, and therefore subject to change from time to time.
This can be done through an orderly legislative process - Estate Taxes, Income Taxes, Social Programs, etc. Or through a revolutionary process - Russian Revolution, etc.

farnsy
Posts: 89
Joined: Tue Dec 15, 2015 8:49 pm

Re: Hypothetical question: Will a man who lives forever own the world?

Post by farnsy » Fri Jan 05, 2018 9:53 am

A couple of points that are easily overlooked:

Stock market returns and economic growth are not the same thing. The companies that issue stocks are levered, so their stocks grow or shrink in value faster than the company's revenue does. This will go on forever. Thus GDP growth will not equal aggregate growth in the value of a portfolio of all stocks in the long run. Not unless the firms pay off all their debt. Owning all stock also is not the same thing as owning the whole economy.

Also, remember that stock investors are compensated for bearing risk (the risk that would otherwise be borne by bondholders). Therefore, as long as there is a healthy market, stocks will make money even when firms are not growing their revenue/profits. A stagnant economy does not mean 0 growth in the value of one's stock portfolio.

In the theoretical case described here, it should be noted that markets depend on there always being buyers and sellers who trade based on the underlying value of the stocks. An miser who just buys and buys until he owns everything does not conform to this assumption. As he grows close to owning everything, markets would break down. At first he would not get a good price, and eventually he would be unable to buy any more at pretty much any price. Though I suppose this would not happen until he owned a very large fraction of the public equity market.

JDDS
Moderator
Posts: 960
Joined: Sun Mar 16, 2014 2:24 pm

Re: Hypothetical question: Will a man who lives forever own the world?

Post by JDDS » Fri Jan 05, 2018 10:09 am

This thread has run its course and is locked. As a reminder, see: Non-actionable (Trolling) Topics
If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
  • US or world economic, political, tax, health care and climate policies
  • conspiracy theories of any type
  • discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.

User avatar
LadyGeek
Site Admin
Posts: 48576
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Hypothetical question: Will a man who lives forever own the world?

Post by LadyGeek » Sat Jan 06, 2018 3:08 pm

Upon further review, this thread will remain locked.

Based on past experience, hypothetical discussions often result in contentious disagreements. The prior comments on political consequences, revolutionary processes is the start of the contention.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Locked