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Simply force purchasers to hold stock for at least 6 months, or some other long period, so that fundamentals will have to be carefully looked at. Buying a stoc

Simply force purchasers to hold stock for at least 6 months, or some other long period, so that fundamentals will have to be carefully looked at. Buying a stock signals confidence in a companies stock price for the duration you expect to hold the stock. If you make people hold it longer, the signal becomes more meaningful. Finally, market manipulation becomes much less rewarding, since you can only flip your money twice a year (profit from manipulation is % gained each time * capital * number of manipulations), and you can't foment at all really. Perhaps it would also be helpful to put a 5 (or more) day delay on any sell orders. I would personally be in favor of a 2 year delay or more. Currently, if you get really bad news (like a companies only drug was not approved, making the company worthless) you can sell the stock immediately via a market sell order, and get whatever the highest offer is. This is no different than collecting pre-signed contracts to buy your house, then signing the best one when you see smoke coming out of the windows. The person offering to buy the stock has obviously not had time to adjust their order based on the news, and so you are selling them something they weren't bidding on. If you give buyers time to adjust, selling on a panic would be completely retarded, since you will either lose all value (selling into a market with buyers who have adjusted their offers way down), or the panic will subside and you will get a fine price, but then could have just held it as you were planning before the panic anyway. Discouraging panic selling makes prices more stable (does anyone honestly think that the best estimate of the value of a large company could possibly vary 50% in a few days??) Also, automated trading triggers would be eliminated, which would be great. If a firm can setup computers to sell a stock if it drops 5% in 1 minute, then they are taking much less risk than someone who has to hear news, find a computer, put in login information, etc. However, the firm's buy order signals the same confidence as the careful stock researcher, while in reality they can buy stock with far less confidence since they are taking less risk. Both of these measures would reduce market volatility, if not effectively eliminate it over short periods. This would mean that corporations could borrow money on much better terms, since their stock prices would be more stable, meaning that stock is better collateral. It would also mean shareholders would insist on things like dividends and long term profitability and planning, since they are going to be holding the bags if things aren't good in the long term.

anigbrowl 17y ago
I'm against flash trading but 6 months (or even 6 days) is throwing the baby out withthe bathwater. Look, I'm broke - lend me $10/ thanks. OK, I paid my rent and got paid, here's $11, thanks a lot. That's what liquidity is, and it's important - with your suggestion everything would become glacially slow and tiny credit hiccups would become hugely amplified. You should be able to buy when you see an opportunity and sell when you need cash, even if your need of cash is to finance another buy. The problem with flash trading is that its practitioners are in effect paying the exchanges for the right to join in on a trade after it's been proposed and they can see whether it has profit potential or not. Sure, they are making tiny margins of a fraction of 1%, so they say it's not greedy. Good point. But you can only afford to do that if you've got fat money to participate and to make up for those tiny margins they're putting up big money on every deal that does show profit potential. I find it hard to believe it's been legal up to now. Every time I study it, I'm reminded of some old movie where a gangster has paid out money for a private telegraph line to get the results of the horse race while the betting is still open at a remote location. I think the long-term quantities you propose like 6 months and 2 years are absurd, but I agree with your basic premise that too much speed trading undermines the market's price discovery function and evaluates arbitrage over considerations of fundamental value. It would be interesting to model this behavior with an agent-based simulation of a virtual market.
- justin_vanw 17y ago
  Ok, I'm not sure why my post was modded down, it obviously shouldn't have been. The market _should not_ be liquid. Liquidity is great, but you haven't provided any reason it's better that the market be liquid. Your first example (loaning you money) is credit markets, not stock. And credit markets become looser if stock markets become stricter, since stock is better collateral for loans, so here your example supports my scheme. Credit hiccups would not go away in my scheme, but day to day sensitivity to credit markets would be reduced if executives were incentivized to look after long term stability of companies instead of quarterly profits. Do you believe Ford or Standard Oil, in their heyday, would have been crippled by being unable to get loans from WallStreet? If a company fails for inability to get a loan, they have been painting themselves into the corner with bad decisions for years. Finally, why shouldn't the stock market be glacially slow? Stock prices could change just as quickly as they do now, since buy orders could be entered and removed instantly, just as now. The only thing this would prevent is people flipping stock as short term investments, and so stock _would not_ fluctuate as much, since there would be so many less trades overall. Short term investments are always (no exceptions) an attempt to game the system or trade on inside information, and there is certainly no way to profit in the short term except by fomenting, using inside information or trading far quicker than the average investor so you can respond to news more quickly. All of these activities hurt the efficiency of the market, so the market becomes more stable and prices more accurately signal company health than they do currently. When you have a stable market, price ratio's can increase since risk is reduced, and that is good for everyone when it is sustained.

anigbrowl 17y ago

I'm against flash trading but 6 months (or even 6 days) is throwing the baby out withthe bathwater. Look, I'm broke - lend me $10/ thanks. OK, I paid my rent and got paid, here's $11, thanks a lot. That's what liquidity is, and it's important - with your suggestion everything would become glacially slow and tiny credit hiccups would become hugely amplified. You should be able to buy when you see an opportunity and sell when you need cash, even if your need of cash is to finance another buy. The problem with flash trading is that its practitioners are in effect paying the exchanges for the right to join in on a trade after it's been proposed and they can see whether it has profit potential or not. Sure, they are making tiny margins of a fraction of 1%, so they say it's not greedy. Good point. But you can only afford to do that if you've got fat money to participate and to make up for those tiny margins they're putting up big money on every deal that does show profit potential. I find it hard to believe it's been legal up to now. Every time I study it, I'm reminded of some old movie where a gangster has paid out money for a private telegraph line to get the results of the horse race while the betting is still open at a remote location. I think the long-term quantities you propose like 6 months and 2 years are absurd, but I agree with your basic premise that too much speed trading undermines the market's price discovery function and evaluates arbitrage over considerations of fundamental value. It would be interesting to model this behavior with an agent-based simulation of a virtual market.

justin_vanw 17y ago
Ok, I'm not sure why my post was modded down, it obviously shouldn't have been. The market _should not_ be liquid. Liquidity is great, but you haven't provided any reason it's better that the market be liquid. Your first example (loaning you money) is credit markets, not stock. And credit markets become looser if stock markets become stricter, since stock is better collateral for loans, so here your example supports my scheme. Credit hiccups would not go away in my scheme, but day to day sensitivity to credit markets would be reduced if executives were incentivized to look after long term stability of companies instead of quarterly profits. Do you believe Ford or Standard Oil, in their heyday, would have been crippled by being unable to get loans from WallStreet? If a company fails for inability to get a loan, they have been painting themselves into the corner with bad decisions for years. Finally, why shouldn't the stock market be glacially slow? Stock prices could change just as quickly as they do now, since buy orders could be entered and removed instantly, just as now. The only thing this would prevent is people flipping stock as short term investments, and so stock _would not_ fluctuate as much, since there would be so many less trades overall. Short term investments are always (no exceptions) an attempt to game the system or trade on inside information, and there is certainly no way to profit in the short term except by fomenting, using inside information or trading far quicker than the average investor so you can respond to news more quickly. All of these activities hurt the efficiency of the market, so the market becomes more stable and prices more accurately signal company health than they do currently. When you have a stable market, price ratio's can increase since risk is reduced, and that is good for everyone when it is sustained.