5 ms·

Some companies are going to be overvalued, and some undervalued compared to how much value they will make in the future (e.g. how much profit they will generate

by verbify 10y ago

Some companies are going to be overvalued, and some undervalued compared to how much value they will make in the future (e.g. how much profit they will generate over a ten year period). If I manage to figure out that Company A is overvalued compared to Company B, and I short Company A in order to buy stock in Company B then by doing so, in a simple supply-and-demand model... Company A's stock will go down very slightly (because I shorted them), and Company B's stock will go up slightly (because I bought their stock). A higher stock value helps a company - they can sell some of their own stock in order to raise more funds. Therefore, the value I've provided is I've made a calculated decision that the economy should be spending more on (for example) robotics and less on coal because robotics companies are going to more successful, and coal less successful. Allocating funds to the more profitable companies and industries is one of the strengths of the market economy - it adds efficiency. Price-finding in general adds value. Also market liquidity adds value. I wouldn't discount what these people do, even if they are narcissistic selfish assholes as a breed.

branchless 10y ago
Billions? Pull the other one. Someone is doing real work, these guys extract it as fiat tokens without adding enough value by a long shot, then they use that to get real things produced with real skill and effort, goods such as meat, wine, cars. The system imbues certain players with monetary tokens far exceeding value added.
- verbify 10y ago
  Without being able to sell shares, a wine company that makes a profit can only grow by reinvesting their profit. E.g. it cost 100 tokens to set up the shop, it grows by 15 tokens a year, it has to wait 7 years before it can set up a different shop. With the ability to sell shares, once they prove a profitable business model, they can sell shares in order to grow the business into other areas. Without arbitrage, a wine shop that returns 15 tokens for every 100 invested might be able to sell shares at the same value as a meat shop that only makes 8 tokens for every 100 invested. Even though the wine shop is more popular, more profitable and providing more value to the market, it is forced to grow at the same rate as the meat shop. We need a system of allocating resources efficiently, and the economy will provide the most value possible. This is what arbitrage does. And you'd want pretty smart people doing it, as these decisions can cause the success or failure of companies. To put it in other terms, the footsoldiers might do the actual fighting, but I prefer to be part of an army with generals that decide where to place troops rather than one composed entirely out of 'actual fighting people' (or as you call it 'real things produced with real skill and effort, goods such as meat, wine, cars'). There are ways of cheating the system, and I support strong financial regulations. But that doesn't mean these jobs shouldn't exist in the first place or they don't provide any value.
  - branchless 10y ago
    Banking floods fiat ahead of wealth creation to capture labour. These guys didn't create billions in value. They didn't enable it either. They are part of a system that forces us to go to them, pledge our labour for the right to exist. You have the cart before the horse. They also do not allocate resources efficiently. Most bank lending is into land. These guys ride that to steal labour. They do not add this much value, they appropriate it.
    - infinite8s 10y ago
      Can you propose an alternative for capital allocation? Perhaps some magic central planning AI?
      - branchless 10y ago
        Land value tax and state issuance of money via basic income funded by LVT, expansion of said money to be roughly based on projected wealth creation. No income tax. No sales tax or not much of one. Or we could just stick with boom and bust where the banks clean up every time and the west is slowly sinking.
        verbify 10y ago
        > Land value tax This has nothing to do with allocation of land. If you have a land value tax there'll still be property companies with shares and people who arbitrage them. > state issuance of money via basic income Again, nothing to do with arbitrage. > No income tax. No sales tax or not much of one. Not sure property tax will match income + sales tax, but again, nothing to do with arbitrage. Look, I agree there are people with wealth who don't deserve it. But in my opinion, these are people with inherited wealth. Or the people who got wealth through ill-gotten means. Or the people who avoid taxes. But the people who are in finance? By the time they die they're usually multi-millionaires, not billionaires. And the market as a mechanism is not fundamentally flawed - it just needs careful and judicious regulation.

by verbify 10y ago

branchless 10y ago

Billions? Pull the other one. Someone is doing real work, these guys extract it as fiat tokens without adding enough value by a long shot, then they use that to get real things produced with real skill and effort, goods such as meat, wine, cars. The system imbues certain players with monetary tokens far exceeding value added.

verbify 10y ago
Without being able to sell shares, a wine company that makes a profit can only grow by reinvesting their profit. E.g. it cost 100 tokens to set up the shop, it grows by 15 tokens a year, it has to wait 7 years before it can set up a different shop. With the ability to sell shares, once they prove a profitable business model, they can sell shares in order to grow the business into other areas. Without arbitrage, a wine shop that returns 15 tokens for every 100 invested might be able to sell shares at the same value as a meat shop that only makes 8 tokens for every 100 invested. Even though the wine shop is more popular, more profitable and providing more value to the market, it is forced to grow at the same rate as the meat shop. We need a system of allocating resources efficiently, and the economy will provide the most value possible. This is what arbitrage does. And you'd want pretty smart people doing it, as these decisions can cause the success or failure of companies. To put it in other terms, the footsoldiers might do the actual fighting, but I prefer to be part of an army with generals that decide where to place troops rather than one composed entirely out of 'actual fighting people' (or as you call it 'real things produced with real skill and effort, goods such as meat, wine, cars'). There are ways of cheating the system, and I support strong financial regulations. But that doesn't mean these jobs shouldn't exist in the first place or they don't provide any value.
- branchless 10y ago
  Banking floods fiat ahead of wealth creation to capture labour. These guys didn't create billions in value. They didn't enable it either. They are part of a system that forces us to go to them, pledge our labour for the right to exist. You have the cart before the horse. They also do not allocate resources efficiently. Most bank lending is into land. These guys ride that to steal labour. They do not add this much value, they appropriate it.
  - infinite8s 10y ago
    Can you propose an alternative for capital allocation? Perhaps some magic central planning AI?
    - branchless 10y ago
      Land value tax and state issuance of money via basic income funded by LVT, expansion of said money to be roughly based on projected wealth creation. No income tax. No sales tax or not much of one. Or we could just stick with boom and bust where the banks clean up every time and the west is slowly sinking.
      - verbify 10y ago
        > Land value tax This has nothing to do with allocation of land. If you have a land value tax there'll still be property companies with shares and people who arbitrage them. > state issuance of money via basic income Again, nothing to do with arbitrage. > No income tax. No sales tax or not much of one. Not sure property tax will match income + sales tax, but again, nothing to do with arbitrage. Look, I agree there are people with wealth who don't deserve it. But in my opinion, these are people with inherited wealth. Or the people who got wealth through ill-gotten means. Or the people who avoid taxes. But the people who are in finance? By the time they die they're usually multi-millionaires, not billionaires. And the market as a mechanism is not fundamentally flawed - it just needs careful and judicious regulation.