Taking Stock, Making (or Losing) money

Posted on November 26, 2006
Filed Under Business |

Proof that the stock market is irrational. - By Michael Kinsley - Slate Magazine

The market and value of publicly traded companies is just as made up a world as the fancy coloured paper with arabic numerals that denote thier value. Both require a critical mass to believe (i.e., have blind faith) in the value that they represent. In Canada we believe that two red pieces of paper with the image of William Lyon Mackenzie King (Canada’s tenth, and longest-serving prime minister) has the value of one brown coloured paper with Sir Robert Borden on the front (#8).

Like cash money, people believe in the value of a stock then so it that value. Unlike cash (in the domestic market) the value of a stock does not have a numerical value assigned. It is free to fluctuate as the “free market” sees fit. Ideologically that is all well and good, but in reality the market is not really free, it is for the most part controlled and cohersed by a powerful few. There have been many market meltdowns due to a few powerful players exerting that power, the first Black Friday is an example.

This is the true virtual reality, not what you see when you wear a goofy headset display. What is termed Irrational Exuberance is not irrational in a made up world. It is how that world behaves. What else can explain the huge run-ups or declines in value in the market when a particular “economic indicator” misses estimates by 0.1%. Or for that matter, the minor changes in value of a particular stock in one day. They are completely abritrary. Stock X is currently at $10, so I bid $9.90 trying to get X at a discount if some sumck is willing to sell at any price. When I am selling X at that is at $10, I’ll ask $10.10 and hope to get the premium. All of this is based on the theory of supply and demand, but it is not. It is abritrary. An economist can use various numbers to come up with a price estimate, but those numbers are like statistics, they can be cohersed to obtain a predetermined result. Real market value can only be found in the world of barter. If i want to sell you my pig, that can feed my family of 8, I’m going to want 4 of your chickens in return. The stock market can never be real in that sense. If you want to make money, could it be the whole value or growth methodologies be useles, and you only have to identify scenarios of irrational behaviour on the upside or downside. Something to think about.

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