4 ms·

So far I have read in various articles why monopolies, competition, rational actors, irrational actors (for overcoming crisis), long term investors, and short t

So far I have read in various articles why monopolies, competition, rational actors, irrational actors (for overcoming crisis), long term investors, and short term sellers are good for the markets. Are there any actors which are bad for the market?

lixtra 8y ago
Cheaters are bad for the market. I.e. insider trading, because it destroys trust in the market.
- logicchains 8y ago
  Insider trading isn't necessarily bad for _the market_; it brings more information to the market faster, so prices more accurately reflect all factors. Compare for instance a hedge fund using satellite imagery to notice that a refinery has much less oil and trading on this information vs some exec at the oil refinery trading on that information. The former is completely accepted, because of the information it brings to the market, but its effect on the market is the same as that of the latter. The big problem with insider information is that it generally represents a breach of fiduciary duty; essentially someone is improperly disclosing a corporate secret. See https://en.wikipedia.org/wiki/Insider_trading#Arguments_for_legalizing https://en.wikipedia.org/wiki/Insider_trading#Arguments_for_.... Even Nobel prize winning economist Milton Friedman argued that insider trading should be legal.
  - sonnyblarney 8y ago
    Insider trading is definitely bad for the market because there would be no outside investing ever if insider trading was the mode that information came about. Execs have not only access to 'current oil' stores, but basically everything about the company. It'd be crazy to invest in a company where execs can do as they please, it would be utterly gamified and suppressive to the entire market.
    - tormeh 8y ago
      With insider trading, the knowledge of insider traders would be priced in. If you're trying to just buy the market you'd get the same (maybe better?) returns. You'd only lose from insider trading if you were trying to outsmart the market, in which case you'd be at a disadvantage.
      - sonnyblarney 8y ago
        "With insider trading, the knowledge of insider traders would be priced in." Yes and the price would be near 0 (i.e. 'priced in' crazy risk) because nobody is stupid enough to buy shares from those who have massive leverage over them. Would you play poker against a guy who can look at your cards, but you can't look at his? Investing is not just 'putting money in a productive vehicle' it's buying and selling based in information. What person would be stupid enough to trade with someone with a massive information advantage over them? Nobody. You'd have only Private Equity firms and execs owning shares, where the PE firms would have some kind of leverage. There wouldn't be much of a market for equity, there certainly wouldn't be any 'publicly traded companies' because that would be pointless. It would massively depress the market and lead to considerably less investment.
        logicchains 8y ago
        >Yes and the price would be near 0 (i.e. 'priced in' crazy risk) because nobody is stupid enough to buy shares from those who have massive leverage over them. Even without insider trading laws, it would still be illegal for executives to do things that hurt the company in the name of their own financial gain, as this would be a breach of their fiduciary duty to the company. It's a separate issue to insider trading. >There wouldn't be much of a market for equity, there certainly wouldn't be any 'publicly traded companies' because that would be pointless. This is simply false, as evidenced by the size of other markets that lack insider trading laws, like real estate, commodities or cryptocurrency (or equities markets before insider trading regulations were introduced).
        sonnyblarney 8y ago
  - gallerdude 8y ago
    I think that leads to the fundamental question of whether the valuation of a company should be what it is or what people think it is. "What it is" sounds more nuanced, but I think "what people think it is" makes it a lot more approachable for everyday people.
  - simonh 8y ago
    I think this view is very naive because it doesn't take into account the perverse incentives legalising insider trading could create. Insiders often also have power over the behaviour of a company, so for example a corporate leader might short his company's stock and then take actions to ruin the business. Or they might release plans for some action that would be seen negatively in the market, depress the stock price, buy, and then change the plans to ones that will attract investors and pocket the difference when the price goes back up. This doesn't improve market information, in fact it's disinformation because those selling on the first announcement were deceived, but how could you prove it? Maybe they would get caught, maybe not, but legalising insider trading creates an incentive for these sorts of behaviour that would not exist otherwise.
    - logicchains 8y ago
      >Insiders often also have power over the behaviour of a company, so for example a corporate leader might short his company's stock and then take actions to ruin the business. Or they might release plans for some action that would be seen negatively in the market, depress the stock price, buy, and then change the plans to ones that will attract investors and pocket the difference when the price goes back up. Legalising insider trading wouldn't legalise such behaviour per se, as such behaviour would still constitute a breach of the leader's fiduciary duties. Look for instance at how Musk was prosecuted for doing that kind of thing; such prosecution was unrelated to insider trading laws, and could still occur without them.
simonh 8y ago
if you want to buy and people are selling thats good. If you want to sell and people are buying, thats good. Buying or selling with low transaction fees is good. Being able to do so quickly is good. Obviously if an individual loses money that's bad for the individual, but the health of the market is about liquidity. Being stuck in a position where you cannot buy or cannot sell, especially if there are people out there who would if they could, is the worst situation for the market. I don't believe monopolies are good, except that having a monopoly might be better than having no market at all. All the rest are just people participating in normal market activity.
fossuser 8y ago
People running pump and dump schemes, fraud, ponzi schemes, most ICOs, things the SEC exists to stop. Shorts are good for price correction, but bad when they start trying to manipulate things in order to get a price correction (shorting a company and then killing the CEO for an extreme example).
- illumin8 8y ago
  This. One thing I have noticed is that when you have $billions in short interest in a stock, the manipulation is incredibly subtle, but also incredibly blatant at times. For example, one can find many media articles that are almost certainly paid hit pieces against Tesla and Musk. When you have this much short interest, and news organizations that have contributors with financial interests aligned with the shorts, it is inevitable: https://insideevs.com/tesla-short-sellers-media-crusade/ https://insideevs.com/tesla-short-sellers-media-crusade/ I wish the SEC would begin to crack down on these abuses. Taking a short position against a stock is fine, but using your media connections to publish damaging and in many cases inaccurate stories is libel at best, and fraud at worse.
  - gamblor956 8y ago
    For example, one can find many media articles that are almost certainly paid hit pieces against Tesla and Musk. When you have this much short interest, and news organizations that have contributors with financial interests aligned with the shorts, it is inevitable: https://insideevs.com/tesla-short-sellers-media-crusade/* https://insideevs.com/tesla-short-sellers-media-crusade/* Those articles are literally just describing things that SolarCity, Tesla, and Musk actually did* (or in the cases of stated goals/promises, failed to do). How does that count as a "paid hit piece"? If Tesla wanted to remain a media darling it could have done so very easily: just hit the goals it set for itself. Instead, quarter after quarter, it failed to meet those self-stated goals. Quarter after quarter, they embarked on various stunts to distract investors from its failure to meet its self-stated goals, like selling "flame throwers" and other nonsense. And yet, despite the many quarters of lies, Tesla still has enough media goodwill that a single quarter of two of actually meeting its self-stated goals could result in it becoming a media darling again. Elon though...Doubling down on the pedophilia remarks and attempting to go to war with multiple government agencies when he was clearly in the wrong is a fast track to becoming a laughing stock, and he deserves the self-inflicted negative media attention he's seen these past 3 months.
wgerard 8y ago
> Are there any actors which are bad for the market? I mean, this is a somewhat flippant answer, but anyone engaged in massive fraud: P&Ds, Madoffs, Enrons, etc.
hellogoodbyeeee 8y ago
I think you have formed a bit of a strawman argument here. Monopolies are never good for markets, pretty much but definition. Regulated monopolies, such as utility companies, are sometimes good for consumers though. I don't exactly know what you mean by irrational actors are good for overcoming a market crisis, but I'd probably say that the market isn't functioning in a crisis and that irrational actors might put it back in a normal state, irrational actors are not good for functioning markets.
- UncleEntity 8y ago
  > Monopolies are never good for markets, pretty much but definition. Regulated monopolies, such as utility companies, are sometimes good for consumers though. I actually have the exact opposite opinion, natural monopolies are good for the market while government granted monopolies are not. Natural monopolies (i.e., ones not protected by fiat) gained their position through being the best in that space and there's nothing to stop competitors from overthrowing them if they lose their way while the opposite is far from true -- try to overthrow a gov't granted monopoly and you end up in court for patent (or whatever) infringement.
  - cjbenedikt 8y ago
    Hmmm....not sure about natural monopolies...think Amazon or Bloomberg...
  - smolder 8y ago
    Natural monopolies in any sizable market don't stay natural. They get their fingers in government or use their relative size in a legal system that favors money to create unreasonable barriers to entry. Once they make it to #1 they no longer have to be the best. Same goes for markets run by a duopoly or any number of entities that cooperate in some way to lower competition.
  - hellogoodbyeeee 8y ago
    You want utility companies to be a regulated monopoly because of their economies of scale. Consumers would be worse off with two small electric companies because their per unit of electrical price would be higher. Competition can't price away the fixed costs of building a power plant or stringing electrical wires all over town. However the monopoly has pricing power and needs the government regulation to prevent it from unfairly raising prices for consumers like they would to maximize profit without the regulation. Natural monopolies are bad because they can use their market position to unfairly prevent new entrants to the market. For example, Amazon may buy all of a key supplier's product and prevent the upstart from even having a chance because they can't buy any of that product. The monopoly can raise prices to whatever level they want, despite what the market would dictate because the consumer doesn't have another alternative.

lixtra 8y ago

Cheaters are bad for the market. I.e. insider trading, because it destroys trust in the market.

logicchains 8y ago
Insider trading isn't necessarily bad for _the market_; it brings more information to the market faster, so prices more accurately reflect all factors. Compare for instance a hedge fund using satellite imagery to notice that a refinery has much less oil and trading on this information vs some exec at the oil refinery trading on that information. The former is completely accepted, because of the information it brings to the market, but its effect on the market is the same as that of the latter. The big problem with insider information is that it generally represents a breach of fiduciary duty; essentially someone is improperly disclosing a corporate secret. See https://en.wikipedia.org/wiki/Insider_trading#Arguments_for_legalizing https://en.wikipedia.org/wiki/Insider_trading#Arguments_for_.... Even Nobel prize winning economist Milton Friedman argued that insider trading should be legal.
- sonnyblarney 8y ago
  Insider trading is definitely bad for the market because there would be no outside investing ever if insider trading was the mode that information came about. Execs have not only access to 'current oil' stores, but basically everything about the company. It'd be crazy to invest in a company where execs can do as they please, it would be utterly gamified and suppressive to the entire market.
  - tormeh 8y ago
    With insider trading, the knowledge of insider traders would be priced in. If you're trying to just buy the market you'd get the same (maybe better?) returns. You'd only lose from insider trading if you were trying to outsmart the market, in which case you'd be at a disadvantage.
    - sonnyblarney 8y ago
      "With insider trading, the knowledge of insider traders would be priced in." Yes and the price would be near 0 (i.e. 'priced in' crazy risk) because nobody is stupid enough to buy shares from those who have massive leverage over them. Would you play poker against a guy who can look at your cards, but you can't look at his? Investing is not just 'putting money in a productive vehicle' it's buying and selling based in information. What person would be stupid enough to trade with someone with a massive information advantage over them? Nobody. You'd have only Private Equity firms and execs owning shares, where the PE firms would have some kind of leverage. There wouldn't be much of a market for equity, there certainly wouldn't be any 'publicly traded companies' because that would be pointless. It would massively depress the market and lead to considerably less investment.
      - logicchains 8y ago
        >Yes and the price would be near 0 (i.e. 'priced in' crazy risk) because nobody is stupid enough to buy shares from those who have massive leverage over them. Even without insider trading laws, it would still be illegal for executives to do things that hurt the company in the name of their own financial gain, as this would be a breach of their fiduciary duty to the company. It's a separate issue to insider trading. >There wouldn't be much of a market for equity, there certainly wouldn't be any 'publicly traded companies' because that would be pointless. This is simply false, as evidenced by the size of other markets that lack insider trading laws, like real estate, commodities or cryptocurrency (or equities markets before insider trading regulations were introduced).
        sonnyblarney 8y ago
- gallerdude 8y ago
  I think that leads to the fundamental question of whether the valuation of a company should be what it is or what people think it is. "What it is" sounds more nuanced, but I think "what people think it is" makes it a lot more approachable for everyday people.
- simonh 8y ago
  I think this view is very naive because it doesn't take into account the perverse incentives legalising insider trading could create. Insiders often also have power over the behaviour of a company, so for example a corporate leader might short his company's stock and then take actions to ruin the business. Or they might release plans for some action that would be seen negatively in the market, depress the stock price, buy, and then change the plans to ones that will attract investors and pocket the difference when the price goes back up. This doesn't improve market information, in fact it's disinformation because those selling on the first announcement were deceived, but how could you prove it? Maybe they would get caught, maybe not, but legalising insider trading creates an incentive for these sorts of behaviour that would not exist otherwise.
  - logicchains 8y ago
    >Insiders often also have power over the behaviour of a company, so for example a corporate leader might short his company's stock and then take actions to ruin the business. Or they might release plans for some action that would be seen negatively in the market, depress the stock price, buy, and then change the plans to ones that will attract investors and pocket the difference when the price goes back up. Legalising insider trading wouldn't legalise such behaviour per se, as such behaviour would still constitute a breach of the leader's fiduciary duties. Look for instance at how Musk was prosecuted for doing that kind of thing; such prosecution was unrelated to insider trading laws, and could still occur without them.

simonh 8y ago

if you want to buy and people are selling thats good. If you want to sell and people are buying, thats good. Buying or selling with low transaction fees is good. Being able to do so quickly is good. Obviously if an individual loses money that's bad for the individual, but the health of the market is about liquidity. Being stuck in a position where you cannot buy or cannot sell, especially if there are people out there who would if they could, is the worst situation for the market. I don't believe monopolies are good, except that having a monopoly might be better than having no market at all. All the rest are just people participating in normal market activity.

fossuser 8y ago

People running pump and dump schemes, fraud, ponzi schemes, most ICOs, things the SEC exists to stop. Shorts are good for price correction, but bad when they start trying to manipulate things in order to get a price correction (shorting a company and then killing the CEO for an extreme example).

illumin8 8y ago
This. One thing I have noticed is that when you have $billions in short interest in a stock, the manipulation is incredibly subtle, but also incredibly blatant at times. For example, one can find many media articles that are almost certainly paid hit pieces against Tesla and Musk. When you have this much short interest, and news organizations that have contributors with financial interests aligned with the shorts, it is inevitable: https://insideevs.com/tesla-short-sellers-media-crusade/ https://insideevs.com/tesla-short-sellers-media-crusade/ I wish the SEC would begin to crack down on these abuses. Taking a short position against a stock is fine, but using your media connections to publish damaging and in many cases inaccurate stories is libel at best, and fraud at worse.
- gamblor956 8y ago
  For example, one can find many media articles that are almost certainly paid hit pieces against Tesla and Musk. When you have this much short interest, and news organizations that have contributors with financial interests aligned with the shorts, it is inevitable: https://insideevs.com/tesla-short-sellers-media-crusade/* https://insideevs.com/tesla-short-sellers-media-crusade/* Those articles are literally just describing things that SolarCity, Tesla, and Musk actually did* (or in the cases of stated goals/promises, failed to do). How does that count as a "paid hit piece"? If Tesla wanted to remain a media darling it could have done so very easily: just hit the goals it set for itself. Instead, quarter after quarter, it failed to meet those self-stated goals. Quarter after quarter, they embarked on various stunts to distract investors from its failure to meet its self-stated goals, like selling "flame throwers" and other nonsense. And yet, despite the many quarters of lies, Tesla still has enough media goodwill that a single quarter of two of actually meeting its self-stated goals could result in it becoming a media darling again. Elon though...Doubling down on the pedophilia remarks and attempting to go to war with multiple government agencies when he was clearly in the wrong is a fast track to becoming a laughing stock, and he deserves the self-inflicted negative media attention he's seen these past 3 months.

wgerard 8y ago

> Are there any actors which are bad for the market? I mean, this is a somewhat flippant answer, but anyone engaged in massive fraud: P&Ds, Madoffs, Enrons, etc.

hellogoodbyeeee 8y ago

I think you have formed a bit of a strawman argument here. Monopolies are never good for markets, pretty much but definition. Regulated monopolies, such as utility companies, are sometimes good for consumers though. I don't exactly know what you mean by irrational actors are good for overcoming a market crisis, but I'd probably say that the market isn't functioning in a crisis and that irrational actors might put it back in a normal state, irrational actors are not good for functioning markets.

UncleEntity 8y ago
> Monopolies are never good for markets, pretty much but definition. Regulated monopolies, such as utility companies, are sometimes good for consumers though. I actually have the exact opposite opinion, natural monopolies are good for the market while government granted monopolies are not. Natural monopolies (i.e., ones not protected by fiat) gained their position through being the best in that space and there's nothing to stop competitors from overthrowing them if they lose their way while the opposite is far from true -- try to overthrow a gov't granted monopoly and you end up in court for patent (or whatever) infringement.
- cjbenedikt 8y ago
  Hmmm....not sure about natural monopolies...think Amazon or Bloomberg...
- smolder 8y ago
  Natural monopolies in any sizable market don't stay natural. They get their fingers in government or use their relative size in a legal system that favors money to create unreasonable barriers to entry. Once they make it to #1 they no longer have to be the best. Same goes for markets run by a duopoly or any number of entities that cooperate in some way to lower competition.
- hellogoodbyeeee 8y ago
  You want utility companies to be a regulated monopoly because of their economies of scale. Consumers would be worse off with two small electric companies because their per unit of electrical price would be higher. Competition can't price away the fixed costs of building a power plant or stringing electrical wires all over town. However the monopoly has pricing power and needs the government regulation to prevent it from unfairly raising prices for consumers like they would to maximize profit without the regulation. Natural monopolies are bad because they can use their market position to unfairly prevent new entrants to the market. For example, Amazon may buy all of a key supplier's product and prevent the upstart from even having a chance because they can't buy any of that product. The monopoly can raise prices to whatever level they want, despite what the market would dictate because the consumer doesn't have another alternative.