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I agree w/ your point except the part about trading being a value-added activity. Liquidity, if you ask Warren Buffett, is overrated. When people trade AAPL, f
by asdf333 18y ago
I agree w/ your point except the part about trading being a value-added activity. Liquidity, if you ask Warren Buffett, is overrated.
When people trade AAPL, for example, there is a loser and a winner. The real value is not created by those trading AAPL it is created by Steve Jobs and those working at AAPL. While trading is not zero-sum, it is a mostly zero-sum activity.
You might say. AIG may beg to differ, since it went under for liquidity, rather than solvency reasons. However if you don't employ dangerous amounts of leverage, it is not an issue. There are plenty of insurance companies in business who didn't dance too close to the edge like AIG did.
- gaius 18y agoYes and no. The price of AAPL is whatever people are willing to pay for it. AAPL is effectively a currency; Apple can use it to acquire other companies. Without an active secondary market, stock can't play this role at all.
- asdf333 18y agoSure. I am not saying we shouldn't have a secondary market. I am saying: "Hey if professional traders did not exist, the markets may be a bit slower but it'll still work." So yes, they provide liquidity but...at least in today's markets the CDO traders are not doing their job on the liquidity front! :)