Investors exchanging cash in hand for a discount on future cash flows, because they have different time or risk preferences. If you can't ever come out ahead without selling the asset (to a speculator who will of course have to kick it further down the hall of mirrors), its price has exceeded its fundamental value, which pretty much has to screw somebody over.
Eh, the issue you're against is that a stock price incorporates people's expectations of the future, and these expectations often turn out to be wrong.
This is where the gambling comes into play, but it's foolish to think it could possibly work any other way. Take the following example:
Say Congress passes a law that seriously hurts FB, and it will only go into effect in 3 months. There's a very small chance that FB will be able to successfully lobby its case, and a large chance that the law that has passed will go into effect.
Now, do you expect everyone to trade on FB's current "fundamental value"? Anyone in their right mind could see the changes that are coming and will price the stock accordingly. If they didn't, there would be huge arbitrage opportunities for anyone that could short the stock today and buy it in 3 months.
Now imagine that the certainty is less clear. Your own discounted cash flows model relies heavily on growth rate; a change in growth rate today disproportionately affects future potential a few years down the road. There are a lot of things to pay attention to but growth is probably the most important in the DCF model.
Everyone is trying to guess where that growth rate will go, and nobody can predict the future. Hence, a stock that can be volatile and not priced on its "fundamental value" according to you.
If you disagree with this, I would suggest you propose something different that would actually work.
If a baseball player is successful, the price of their trading cards goes up. Why? There's no concrete relationship between the two; the league doesn't pay the owner of the card per win. It just makes enthusiasts want to have the card to show off, and attracts speculators who intuitively expect the price increase they themselves help bring about.
In the same way, the success of facebook.com doesn't create any income for people holding FB shares, it just makes it psychologically easier to flip them. The price goes up for no better reason than everyone assuming it will.
The stock market has become a casino where self-perpetuating phantasms create noise that swamps the signal. I can't blame any company that fleeces willing speculators rather than try to sway value investors using actual yields. I'd love to propose a fix but I don't have one.
I understand how stock market works and I also understand we need stock markets for huge projects that require billions of dollars in investments. But other than that, it is just one sucker trying to find the next sucker, offload his stuff as fast as he can, for as much gain as he can. The whole thing feels a bit odd.
Well, I think you can view it as fair based on the idea of asymmetric preferences among investors. One investor's decision to sell after a short term period may offer an advantageous buy to another investor who wishes to hold the stock for a longer time, etc. So one need not assume that one party has an information disadvantage.
