3 ms·
Trouble is that in order to remain competitive all companies have to take the same risk as the lowest common denominator. If there is a regulation, then there i
by willyt 7y ago
Trouble is that in order to remain competitive all companies have to take the same risk as the lowest common denominator. If there is a regulation, then there is no market pressure to take the risk.
- Consultant32452 7y agoLet's give it a shot. Let's let all the investors get wiped out this time and see how they feel about this risk next time.
- TeMPOraL 7y agoThis has nothing to do with how investors feel. Sufficiently strong competitive pressure will create the same situation again. The market fundamentally can't handle low probability events, even if they're absurdly high-impact (i.e. the so-called black swans).
- whatshisface 7y ago>Sufficiently strong competitive pressure will create the same situation again. What if nobody is willing to invest in an insane business? Then they will all have more difficulty accessing capital than sane businesses.
- TeMPOraL 7y agoA business like this is not insane per se. The time horizons relevant in investing are so small that you can round the probability of a black swan to zero. So there will be investors, and reserve capacity will be cut. Unless some completely new regulations are passed, nothing will change about the basic incentive structures of markets. And these incentive structures are more powerful than whatever an investor or a CEO may feel.
- deleted 7y ago[deleted]
- Consultant32452 7y agoI don't think this is true. People analyze every detail of the books on those public filings. If the culture of investors changes such that a low cash reserve (or whatever) is considered risk, that will be factored into the stock price. This is particularly true if having continually low reserves bumps you off important indexes.
- TeMPOraL 7y agoThe level of reserve investors require may initially be high after this, but it'll go down over time, bit by bit. What I'm saying is that market isn't static, and the forces that move it are stronger than individual risk tolerance. The pandemic will change the risk tolerance, but it'll revert over time. A related concept is the so-called "normalization of deviance".