This is going to be one of those threads where you just repeat your misconceptions over and over, isn’t it?
Regards,
Shodan
I don’t know how many people here do any actual investing, but for those of you who do, you should know that there is a phenomenon called asset rotation. What that means is that money is constantly flowing in and out of various “markets.” So if the Dow, NASDAQ and S&P all drop, that money doesn’t just disappear. It has ‘rotated’ out into other investments such as bonds, commodities, etc, etc.
edit: which isn’t to say that wealth isn’t lost in the overall scheme of things as it was in 2008 crash.
No. It’s not “whatever”. It makes a huge difference if they’re buying stock or pocket lint. And it’s not a “claim” that they create wealth. It happens. You’re just too ignorant to know how, and too arrogant to learn.
Looks like it.
Again, in that piece you linked to in the OP, the “wealth generating machine” referred to investment income for individuals who invested in stocks. It’s not saying that the act of stock-trading itself is what generated the nation’s or the world’s total wealth, it’s saying that investing in stocks, relative to other investments, has been the most profitable investment one can make over the long haul. This is because of the performance of the companies that issued the stocks, not the act of trading them, though a functional stock market makes investors more willing to buy public offerings and thus funds companies.
Before the market was just a market, it was a mechanism for capitalizing companies that irrefutably created wealth. Now, market fluctuations do create wealth, but as we saw a few years ago, also destroys wealth.
There have been experiments that have demonstrated that the endowment effect is present in chimps. No experiment, but my dog, who is a Golden, likes to fetch bones inside the house. But if you just pick a bone from the floor and throw it, she is not interested. If you stick it in her mouth than yank it out and then throw it, she will chase after it. Endowment effect at work? Maybe.
And when my daughter and I taught behavioral economics as applied to engineering, we did an anchoring experiment. The effect was so strong as to get statistically significant results for N=20. And on an audience of engineers who pride themselves on their rationality.
If rational means doing economically rational things, we’ve proven that we are not.
It might be worth distinguishing between an asset and an investment - the latter being an income producing asset. Gold is an asset but not *technically *an investment in this narrow sense even though it’s not really improper to use the term in that context. Even so, it’s still important to distinguish between the two. Here is a good article from Forbes that talks about the distinction and here is a former thread on gold where this is discussed to some extent.
As a medium for investment, it wouldn’t be so bad. As a casino, staffed by wildly overpaid “consultants”, “analysts”, “advisers” and “managers”, most of whom function as “salesmen”…it bites it. Hard.
Now, that could theoretically be fixed, Wall Street investment could become dull and uninteresting, featuring sound investments with modest but reliable returns. Is there no one left, no one for whom the word “fiduciary”, with its implied foundation of well-deserved trust, means something? No one who wouldn’t plunder a pension fund and chuckle about it over cocktails?
Unleash Elizabeth Warren on their sorry pampered asses! And I’m not saying that just because she’s so hot!
Further aside: way back when, a budding sociologist* did a study on con men, the “pigeon drop”, the “big store”, all that sort of thing. And who did they say were their favorite prey? Successful men, smart men, doctors, architects, engineers. Because smart people have a crippling weakness: they are smart. And because they are smart, they trust their judgement and intelligence even when they haven’t the slightest idea what they are involved in. (And, of course, they had money.)
And the most successful swindles centered around setting things up so that the victim thinks he is outsmarting the swindler! An intelligent man will fall for that much quicker than someone who is more modest about their intelligence. Its a cliche and a joke, but there’s some truth to the old saw: you can’t cheat an honest man.
*Don’t remember, but somebody else here probably does, it was done in the 30’s (?).
Well, not if you have the right broker! Saw it on tv just the other day, about these really honest guys who aren’t like all those other guys, and really care, deeply, about the well being of their customers. Now that’s just bound to work out.
Unless they aren’t any good at it either. But lets just assume that they are all independently wealthy, what with their keen investment savvy, and all. And they just show up at the office because of what swell guys they are.
Me? Tequila and bongwater, why do you ask?
Even the ‘pros’ suck at investing for the most part if you go by mutual fund performance. In any given year, 2 out of 3 underperform the market.
It doesn’t have to be a con. The crash came not from the market itself, but from excessive leverage through derivatives and the like, and through excessive risk taking. Now who takes more risks: the person who thinks he is brilliant or the person who thinks he is average? Even worse, the guy who got lucky and is thus convinced of his brilliance takes a lot of people with him.
People are quite capable of conning themselves. Look at our extreme libertarian friends, who are sure that we don’t need the FDA because they are plenty smart enough to evaluate all risks without big bad government.
The reality is the stock market is a complex system that provides liquidity and access to invest in our modern economy, which is the greatest wealth generating machine ever created. There’s nothing deeper than that.
Of course a public market adds some value, the same way a car dealership makes it easier to buy cars or a grocery store makes it easier to buy food. But the real question is whether it’s profitable to own pieces of companies, and it obviously is.
In the old days, when they wanted to record a debt, they’d break a stick apart. The long end of the stick was called the “stock” and represented the creditor’s side of the bargain. The short end was the debtor’s. Obviously, it was better to have the long end (the stock) than the short end of the stick.
No one is any poorer. That’s the great thing about the pebble-trading game: no matter how high the price of the pebble goes, everyone can only get richer, so long as the price of the pebble only goes up.
In the beginning, the collective wealth of everyone at the table was $X. After several hours of trading, they establish the market value of the pebble at $1,000,000. The collective wealth of everyone at the table, therefore, changes from $x to $x + $1,000,000.
That’s what it means to say they are all wealthier. They’re wealthier by the exact amount of the increase in the market value of the pebble.
I don’t understand.
That’s because it’s garbage. There’s nothing to understand. Obviously it’s possible to help illustrate a complex issue with a simple example to explain key points. But it’s equally possible to come up with some nonsensical scenario about pebbles because you don’t know what you’re talking about. That’s the case here.
You haven’t addressed any of the reasons that that hypothetical doesn’t work.
Depending on how many people are at the table, the transactions basically cancel out except for the last guy who, at the least, has to bring half a billion dollars into the system from outside.
Now you might say: “He’s still made a profit – the pebble is now worth $1 billion”. Sure – if there is someone else who’s willing to buy the pebble for that much and has the capital to do so.