Dave, if you pick a stock that surges up on some short-term news I'll bet 
you a large amount of money that it will still be up, say, 1 year later.
   (Does that pin down the heart of what we disagree about?)

--- \/	 FROM Dave Morris AT 07.08.22 09:57 (Today)   \/ ---

> You point out some potential benefits, and others have pointed out specific 
> examples. I agree with these, but my argument is not that the stock market 
> should be abolished. It does provide value. My argument is that it's got 
> flaws that are getting worse, and thus should be recognized.
>
> What of examples like Enron where executives obfuscated the records, made 
> millions to billions, then screwed everyone else when it collapsed? Or the 
> CEOs who inflate the value, cash out in the stock market, then leave before 
> the company collapses into ruins in a series of buyouts? In these cases the 
> stock market and the traders and the collective wisdom are easily fooled, and

> get fooled over and over again, at least in the short run. But the way the 
> stock market works incentivizes these short term illusions because it creates

> the ability to get really rich because of them. As stocks trade faster and 
> easier and information becomes more distant from the traders this will become

> more prevalent, or so I believe.
>
> How do we fix that without removing the collective wisdom evaluation of 
> corporate strategies?   Though additionally I'll put my faith in a handful of

> experts over the collective wisdom any day. I think the collective wisdom 
> lags and follows those who really understand the companies and technology 
> anyway.
>
> As far as short-selling companies who are pursuing the above strategies, I 
> think that is a good strategy, and I'm sure there are some who do make a 
> profit doing that... but it requires longer term thinking and longer term 
> strategies to do so, and the fact that we're moving away that as a society 
> means that such strategies won't counterbalance the problem.	 Though again 
> the stock market alone isn't the only cause of short term thinking. I just 
> think it's one piece of the issue, and perhaps one that could be adjusted to 
> help improve it.
>
> Dave
>
>
>
> On Aug 21, 2007, at 8:44 PM, Daniel Reeves wrote:
>
>> Not only do I disagree with Dave, I'll go so far as to claim he disagrees 
>> with his own position.  If not, Dave, why not make a killing shorting stock 
>> of the next company to do a round of layoffs for the sake of a short term 
>> boost in stock price?  The market is smarter than we think.
>> 
>> Nor do I have a beef with day traders.  Either they're providing valuable 
>> information to the market or they're going to get smacked hard.  (In 
>> expectation at least.)  In any case, they're paying a fair rate for the 
>> money they borrow and no matter how little time they own a stock they are, 
>> in aggregate, contributing to the investment in those companies. (And 
>> short-selling is just borrowing stock, later buying it to pay back the 
>> loan, so nothing slimy about that, contrary to popular conception.)
>> 
>> I used to be like Dave, pointing to a litany of "obvious" flaws in the 
>> market (stock market or "the market" more generally, like microsoft being 
>> sucky (for me) yet rich).  But the market had a habit of being smarter than 
>> me and I've learned some humility in this regard.
>> 
>> As for Dave's specific allegation (the stock market focuses on short term 
>> gains), I don't think that's true.  The stock price estimates (the 
>> per-share net present value of) the cumulative future cash flow of the 
>> company.  The stock market estimates that better than any other known 
>> mechanism.  It is of course prone to fits of hysteria but when it does it's 
>> taking a very *long term* (fantasy) view.
>> 
>> That said, there are cases where markets fail and that is in the face of 
>> externalities. A classic example of an externality is the Tragedy of the 
>> Commons in which a bunch of farmers ruin a common grazing field because no 
>> one person has incentive to ration their use of it if no one else is. It's 
>> analogous to traffic congestion which is one of several reasons we need 
>> higher taxes (gas, roads) on driving. [1]
>> 
>> The need to tax pollution is another classic example.
>> 
>> Eugene's Starving Artist is an interesting example of a possible market 
>> failure.  That might be explained in terms of externalities (positive this 
>> time) if the art was of a kind that couldn't be charged for by usage 
>> (public sculpture perhaps).	In other words, you have free-riders.
>> 
>> Eugene's Down On Their Luck example I believe is an argument for risk 
>> pooling, one form of which is the "social safety net", ie, welfare.	It 
>> seems that participation should be optional though.
>> 
>> Clare's Parasite CEO example I'm still thinking about...
>> 
>> Danny
>> 
>> [1] See:
>> http://freakonomics.blogs.nytimes.com/2007/06/18/hurray-for-high-gas-p...
>> and add to the list that cars are dangerous to cyclists and skaters!
>> 
>> 
>> --- \/   FROM Dave Morris AT 07.08.20 15:21 (Yesterday)   \/ ---
>> 
>>> I'll rephrase my claim:
>>> "Playing the stock market with the objective of short term gains does not 
>>> contribute to society, and in fact actively harms it."
>>> But I do think that is true. The stock market has some benefits, and there 
>>> are good reasons to have such a thing around, but ours needs help.
>>> 
>>> Stock prices can be a measurement of a companies performance, but it can 
>>> too easily be influenced in the short term for short term reasons. I feel 
>>> like it has become common for companies to trim benefits packages, switch 
>>> CEOs, cut R&D, and do other things which provide a benefit the company for 
>>> one quarter, and thus make the stock market evaluation bounce when their 
>>> profits look good for a moment, but which have serious long term costs. 
>>> The CEOs in charge, and the investors, like this strategy because they can 
>>> profit from it, then get out before the stock goes down again in the long 
>>> run.
>>> 
>>> 
>>> Many people lose from this- not only those holding the stocks when the 
>>> company goes down in general, but the employees of the company, and those 
>>> using the services of the company. The stock market encourages short term 
>>> thinking for short term gain and our country has become swept up in this. 
>>> I personally know people who have had their companies destroyed this way. 
>>> I feel like people invest not so much with an idea for building long term 
>>> stability and high probability of reasonable returns, but as more of a get 
>>> rich quick theme. And furthermore computer trading and other features have 
>>> made it easier to trade shorter and shorter term with little understanding 
>>> or analysis of the companies involved. So stock values become influenced 
>>> by more trivial surface things, because that's all these day traders have 
>>> time to see. So now companies are making trivial surface changes to 
>>> satisfy the whim of short term investors, at long term cost.
>>> 
>>> There was a big discussion on NPR about hedge funds, stock market trading 
>>> of mortgages, and how it led to the creation of, and current bursting of, 
>>> the housing market bubble. Part of the problem was that stock market 
>>> investing had become too disassociated from the things being invested in 
>>> and the real long term values thereof.
>>> 
>>> Meanwhile most people, who work for the companies thus traded, suffer. 
>>> Ironically it's their own investment in stock market based IRAs that helps 
>>> drive the process.
>>> 
>>> So I would argue that the system needs to change. Not that we need to get 
>>> rid of the stock market entirely, but that we need to shift the way it 
>>> works to put the focus back on valuing companies that have good long term 
>>> strategies, and less on valuing get rich quick schemes. What if you had to 
>>> own a stock for at least a month before you could resell it? Or a week? Or 
>>> a year? I'm not sure where the right number would be, but it really seems 
>>> to me that traders who sign on in the morning, borrow $10M from a bank, 
>>> trade all day back and forth, return the $10M at the end of the day having 
>>> made $100k, they aren't really helping society, and could be actually 
>>> harming it in some real and significant ways.
>>> 
>>> Of course part of this also is changing the attitudes of people and 
>>> whether they should be looking to get rich quick at any expense, or 
>>> whether they should be looking to help themselves, and incidentally also 
>>> society, in the long run. But from a top down approach at least we can put 
>>> in mechanisms that are designed to encourage the latter instead of the 
>>> former. We can't force anything, and I wouldn't want that level of 
>>> government control, but right now I feel like we strong encouragements to 
>>> the opposite of what we want.
>>> 
>>> In the meantime I'll make sure that my company is never publicly traded so 
>>> I don't have to worry about it. :-)
>>> 
>>> Dave
>>> 
>>> 
>>> 
>>> 
>>> On Aug 20, 2007, at 1:29 PM, Kevin Lochner wrote:
>>> 
>>>> I have to take issue with Dave Morris re: "Playing the stock market does 
>>>> not contribute to society."
>>>> Not only does a company's stock price influence its access to capital, 
>>>> but the respective stock prices of all companies provide information 
>>>> about the state of the economy that a ceo or entrepeneur may use in 
>>>> making strategic corporate decisions.  Stock prices are determined 
>>>> primarily by people who are "playing the stock market".
>>>> Investing in new companies does. It's a fine line, but
>>>>> I think we've gotten too much separation of rich and poor in our society 
>>>>> because of the way our stock market currently operates, and that could 
>>>>> use some correction.  I agree that inheritance taxes are good as well, 
>>>>> to help prevent too many generations of people staying rich for free. 
>>>>> But we should try to reign in the various tricks which exist to leverage 
>>>>> large sums of cash into even larger sums via short term tricks in 
>>>>> business and stocks without actually contributing anything.   Not only 
>>>>> do they take funds from people with less, they hurt the country overall.
>>>>> But he is also correct- there's a wide variance of skill and motivation 
>>>>> in people, so there should be a wide variance in income levels. I'd 
>>>>> accept a factor of 100 variance from top to bottom in salary as a 
>>>>> reasonable maximum in relative value to society that a person could be. 
>>>>> Some people bust their asses continuously to help the world. Some people 
>>>>> actively try to live off of others without contributing anything.    I 
>>>>> do have a problem with the factor of 1000 or 10000 variances that 
>>>>> sometimes occur, but those are obvious flaws that are difficult to 
>>>>> correct.
>>>>> Interesting to consider. :-)
>>>>> Dave
>>>>> On Aug 20, 2007, at 10:16 AM, Daniel Reeves wrote:
>>>>>> We've been debating this essay
>>>>>> http://www.paulgraham.com/gap.html
>>>>>> and I thought I'd move it to improvetheworld...
>>>>>> I'll start:  Graham is so right!  The income gap between the rich and 
>>>>>> the poor is wonderful!
>>>>>> Actually it started more as a debate about the nature of capitalism and 
>>>>>> interest ("why should money 'grow'?").  Here was the gist:
>>>>>> * [the economy] is a zero-sum game, isn't it?
>>>>>> - no
>>>>>> * those earning money are taking it away, even if only indirectly, from
>>>>>> other people, no?
>>>>>> - no, not if you think in terms of wealth (wealth = stuff you want,
>>>>>> money = way to transfer wealth)
>>>>>> * Or am I totally simplifying the haves vs. the have-nots with my pie
>>>>>> metaphor?
>>>>>> - yes, that's precisely the Daddy Model of Wealth!
>>>>>> * Is it THEORETICALLY possible for no one to owe any money at all in 
>>>>>> this
>>>>>> world, i.e., that everyone just has money that "grows"? Or does money
>>>>>> only grow if it is taken away from others?
>>>>>> - You're right, not possible, but for the opposite reason of what you 
>>>>>> seem
>>>>>> to be suggesting.  You grow money by giving it to someone (lending it),
>>>>>> not by taking it away.
>>>>>> It even got a bit heated, along the lines of "Trixie, I don't think 
>>>>>> it's right for you to lash out against capitalistic/yootlicious ideas 
>>>>>> without grokking the answers to your questions [above]".
>>>>>> Oh, and I offered a yootle to the first person who could answer the 
>>>>>> quasiphilosophical question why money *should* grow, with the hint that 
>>>>>> it has to do with human mortality.  I believe that's the only reason 
>>>>>> that holds in all circumstances.
>>>>>> In any case, Trixie wanted to resume the debate and this is clearly the 
>>>>>> place to do it!
>>>>>> DO NOT CHANGE THE SUBJECT LINE WHEN YOU REPLY (so it's easy for those 
>>>>>> not interested in this debate to delete the whole thread).
>>>>>> Ok, go!
>>>>>> Danny
>>>>>> -- 
>>>>>> http://ai.eecs.umich.edu/people/dreeves	- -  search://"Daniel Reeves"
>>>>>> "Everything that can be invented has been invented."
>>>>>> -- Charles H. Duell, Commissioner, U.S. Office of Patents, 1899.
>>>>> Dave Morris
>>>>> cell: 734-476-8769
>>>>> http://www-personal.umich.edu/~thecat/
>>> 
>>> Dave Morris
>>> cell: 734-476-8769
>>> http://www-personal.umich.edu/~thecat/
>>> 
>>> 
>> 
>> -- 
>> http://ai.eecs.umich.edu/people/dreeves  - -  search://"Daniel Reeves"
>> 
>> "Try identifying the problem and then solving it."
>>  -- suggestion from Dilbert's boss
>> 
>> 
>> 
>
> Dave Morris
> cell: 734-476-8769
> http://www-personal.umich.edu/~thecat/
>
>

-- 
http://ai.eecs.umich.edu/people/dreeves  - -  search://"Daniel Reeves"

"Backup not found. (A)bort (R)etry (T)ake down the entire network:"