The stock market scam

I've randomly found myself in a couple of different conversations lately where the question comes up as to whether or not the stock market is just a pyramid scheme for the rich.

The idea of the stock market makes a lot of sense. A lot of people don't have enough money to really kick off a business, but want to contribute to a business in order to share in the profits. If the company does well, I get rewarded, if it doesn't, I lose my investment. At any time I can transfer my investment to someone else if I no longer want it and they are willing to pay me for it.

Seems like a pretty understandable system. But in reality, this isn't what is happening. First of all, if a company earns profit, it doesn't mean that I as a share holder earn anything (unless the stock pays dividends, which it seems like a lot of stocks aren't doing nowadays). Really the only way that I earn any money is by selling my stock to someone else. So now it basically becomes a game of buying stock in the hopes that someone else will buy it from me in the hopes that someone else will buy it from them etc. Essentially, as long as people keep trading stock, money keeps flowing and people are happy. A company's performance usually has an affect on the stock price, but not necessarily. It's really more a matter of a few key people saying whether or not to buy or sell a certain stock.

So to me, the concept of stock at that level is pretty imaginary.

There are some other things that come along with stock, such as ownership of the company. If you were able to buy 51% of a company's shares, you could take over the company. Or if you and 5 friends each bought 10% you could do it. But in reality, does the average investor really intend on doing this? Do they even participate in the voting process that comes with owning shares of stock? Probably not.

So sometimes I wonder if the whole thing will just collapse some day because all of this imaginary value goes away. It seems that if stock were more directly tied to investing in a company, then the system would be more secure. But then that wouldn't be good for the rich investors, because now they are tying their investments into actual performance, and not market whims (which are often controlled by rich investors).

But I guess as long as my investments keep going up, I shouldn't be complaining.