4 ms·

Direct: I can understand. Indirect: that seems like a losing game. Why would gambling on a companies future ever help anyone(except the lucky?).

wskinner 9y ago
Markets aggregate information in a (usually) efficient way. Information is useful to different people in different ways. Just to take one example, if the stock price of a company falls and stays low for a whole, that could reflect some negative future prospects for the company, which traders know about. That could affect my decision to move across the country to work for that company. That is valuable to me. Since you asked for a source, I’ll give you one: pick up any introductory economics textbook.
technofire 9y ago
> Why would gambling on a companies future ever help anyone Most transactions in the market are not gambling. Trades happen, yes, but that is because the prospects of companies are continually changing. When it became apparent pretty much everyone would move to Netflix and streaming video, would you want to continue holding Blockbuster stock? No; you would want to sell it. People who simply "gamble" in the market lose money about as often as they gain it, and soon stop. Hedge funds and mutual funds generally try to invest in shares on a longer-term basis rather than continually trading them; trading incurs transaction costs, and if an investment was correct and is generating better-than-benchmark returns there is no reason to sell it. The "day trading" books you might see at your local Barnes and Noble are get-rich-quick books and are not representative of the actual professional investment industry.
- eru 9y ago
  > [...] would you want to continue holding Blockbuster stock? No; you would want to sell it. For every seller, there's a buyer. The market will settle on a price at which those are evenly matched---even if that's close to zero. You have to offer a good enough price on your Blockbuster stock to find a buyer who thinks it's a good idea. (Unless it's someone who has to cover a short position, those guys are basically forced to buy. But they'll still buy from the seller with the best price.)
lmm 9y ago
> Why would gambling on a companies future ever help anyone(except the lucky?). Prediction markets are the most efficient way to make societal decisions; they allow everyone to combine their information and predictions without having to directly coordinate with each other. There's academic literature arguing they'd be the best way to do politics etc. At the moment all we do with them is capital allocation, but that has real-world effects: ultimately the idea is to give more money to companies that can use it better (so that they then e.g. build more factories, hire more people, make relevant buyouts) and less money to companies that will make less good use of it.
- gjulianm 9y ago
  Sorry but I have to make the precision: market optimized for monetary output and not necesarily social good. Companies doing well in the stock market might be exploiting workers, unnecessarily exposing consumers to different dangers, destroying the environment or a plethora of any other bad things and the stock market would not care as long as it does not create a PR problem that could affect sales of the company. Similarly, a company that does well socially (e.g, a public hospital) but not economically would get obliterated in the stock market.
  - liotier 9y ago
    > Companies doing well in the stock market might be exploiting workers, unnecessarily exposing consumers to different dangers, destroying the environment or a plethora of any other bad things and the stock market would not care That would be regulatory failure - it is not the market's fault if the government is weak... Fix the government, get decent labor laws, let companies internalize externalities, regulate environmental impact ! > Similarly, a company that does well socially (e.g, a public hospital) but not economically would get obliterated in the stock market Which is why, in civilized countries, public services are provided by the government or on behalf of the government. Foisting government responsibilities upon the market is bound to create disappointment...
dkrich 9y ago
I can understand your point. We are so many layers removed these days with trading platforms and online brokerages that it's easy to forget that when you buy an equity, you are actually holding shares of a real company that produces real products, employs real people, and maybe most importantly, holds real assets. One of these assets is future cash flows and this is pretty much where the value of shares in a company come from. In any moment it seems like you're just buying thin air for money and selling that air later for (hopefully) more money. But that's the short-term view of it. In the long run you are taking a stake in a company that you hope as a whole will be worth more in the future than it is today. That stake gives you legal right of ownership to a percentage of that company and its cashflows. If it's a dividend paying company you collect regular profits from it as well.

wskinner 9y ago

Markets aggregate information in a (usually) efficient way. Information is useful to different people in different ways. Just to take one example, if the stock price of a company falls and stays low for a whole, that could reflect some negative future prospects for the company, which traders know about. That could affect my decision to move across the country to work for that company. That is valuable to me. Since you asked for a source, I’ll give you one: pick up any introductory economics textbook.

technofire 9y ago

> Why would gambling on a companies future ever help anyone Most transactions in the market are not gambling. Trades happen, yes, but that is because the prospects of companies are continually changing. When it became apparent pretty much everyone would move to Netflix and streaming video, would you want to continue holding Blockbuster stock? No; you would want to sell it. People who simply "gamble" in the market lose money about as often as they gain it, and soon stop. Hedge funds and mutual funds generally try to invest in shares on a longer-term basis rather than continually trading them; trading incurs transaction costs, and if an investment was correct and is generating better-than-benchmark returns there is no reason to sell it. The "day trading" books you might see at your local Barnes and Noble are get-rich-quick books and are not representative of the actual professional investment industry.

eru 9y ago
> [...] would you want to continue holding Blockbuster stock? No; you would want to sell it. For every seller, there's a buyer. The market will settle on a price at which those are evenly matched---even if that's close to zero. You have to offer a good enough price on your Blockbuster stock to find a buyer who thinks it's a good idea. (Unless it's someone who has to cover a short position, those guys are basically forced to buy. But they'll still buy from the seller with the best price.)

lmm 9y ago

> Why would gambling on a companies future ever help anyone(except the lucky?). Prediction markets are the most efficient way to make societal decisions; they allow everyone to combine their information and predictions without having to directly coordinate with each other. There's academic literature arguing they'd be the best way to do politics etc. At the moment all we do with them is capital allocation, but that has real-world effects: ultimately the idea is to give more money to companies that can use it better (so that they then e.g. build more factories, hire more people, make relevant buyouts) and less money to companies that will make less good use of it.

gjulianm 9y ago
Sorry but I have to make the precision: market optimized for monetary output and not necesarily social good. Companies doing well in the stock market might be exploiting workers, unnecessarily exposing consumers to different dangers, destroying the environment or a plethora of any other bad things and the stock market would not care as long as it does not create a PR problem that could affect sales of the company. Similarly, a company that does well socially (e.g, a public hospital) but not economically would get obliterated in the stock market.
- liotier 9y ago
  > Companies doing well in the stock market might be exploiting workers, unnecessarily exposing consumers to different dangers, destroying the environment or a plethora of any other bad things and the stock market would not care That would be regulatory failure - it is not the market's fault if the government is weak... Fix the government, get decent labor laws, let companies internalize externalities, regulate environmental impact ! > Similarly, a company that does well socially (e.g, a public hospital) but not economically would get obliterated in the stock market Which is why, in civilized countries, public services are provided by the government or on behalf of the government. Foisting government responsibilities upon the market is bound to create disappointment...

dkrich 9y ago

I can understand your point. We are so many layers removed these days with trading platforms and online brokerages that it's easy to forget that when you buy an equity, you are actually holding shares of a real company that produces real products, employs real people, and maybe most importantly, holds real assets. One of these assets is future cash flows and this is pretty much where the value of shares in a company come from. In any moment it seems like you're just buying thin air for money and selling that air later for (hopefully) more money. But that's the short-term view of it. In the long run you are taking a stake in a company that you hope as a whole will be worth more in the future than it is today. That stake gives you legal right of ownership to a percentage of that company and its cashflows. If it's a dividend paying company you collect regular profits from it as well.