(no subject)

[andrewducker]

I've had a piece going round in my head for a while on why stock markets don't work (sometimes) - the reason being that people act upon how they believe people will behave in the future, those people including themselves, but without any actual understanding of the issues involved.

The same, of course, applies to voting.  Hence this very amusing op-ed on what happens when you try to elect people based on how electable they are.

Comments

I surmise you mean...

[lovemonk.livejournal.com]

...that stock markets don't work for the average person to put their savings in such that they will have a nest egg to retire on. I don't think that's what they are designed for.

Re: I surmise you mean...

[andrewducker]

Actually they seem to work pretty well for that, over time.

I mean that they don't work well as a price-setting mechanism, because people don't act rationally.

If people said "Aha, Company A has dividends of X and is increasing its profits by Y% a year, therefore I am willing to spend Z on its shares" then that'd be reasonable.

However, when the average person who has no idea gets involved and says "The stock is going up, therefore I shall buy shares, because if everyone wants it it must be worth getting." and mob psychology takes over and everyone goes broke.

Re: I surmise you mean...

[lovemonk.livejournal.com]

Ah, I see.

It reminds me of Das Kapital, where Marx is going off about how capitalism erodes the use value of a commodity in a favor of its exchange value. Here we see a extension/variant of that process, where the exchange value is superseded by speculative value.

I used to do technical commodities trading, and part of the craft there is to read the chart to see suggestions of who is in control of a market. Is it skilled hands, or has the mob taken over? Over two years I lost only $2000, which is pretty damn good for a noob. If I didn't have to pay those commissions, I would have broke even.