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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 provide

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.

BearOfNH 17y ago
Finally, why shouldn't the stock market be glacially slow? If Alice wants to buy and Bob wants to sell, and they've agreed on a price, what right do you have to demand they wait? If I want to buy GOOG with a stop-loss under last week's low, you have no right (legal OR moral) to prevent me from doing that. You may call that an "undesirable short-term trade", but I'm not gaming the system, I'm limiting my losses. If you get your way and trading becomes severely restricted, just watch how fast capital moves offshore to more user-friendly exchanges. That would not be good for the USA.
anigbrowl 17y ago
IT's true that my first example is a case of credit rather than stock, but I kind of wrote it as a throwaway example of why you'd want to be liquid. Rather than a loan, suppose that in the case of being broke I instead opted to sell something - a book or a guitar or a car, say. Now, would it be fair for someone to say 'no way, you can't sell that because you haven't owned it long enough?' I do think your heart is in the right place - managing for the long term and so forth - but your 6-month hold is extremely unfair to the individual investor, and would just result in the creation of unregulated off-market exchanges, like pawnshops for stock certificates. I mean suppose I buy IBM but next month they are hit by some financial scandal, I have to sit with my bad investment for another 5 months and watch the price crater as most of the existing shareholders sell? Short term investments are always (no exceptions) an attempt to game the system or trade on inside information I don't agree. I can think o a wide variety of reasons for short-term buying, and don't think regulators should be in the business of judging motives. I'm afraid I think this forceful imposition of long-term ownership criteria would only cause the market to become bloated and sclerotic and the cure would be just as bad as, if not worse than, the disease.

BearOfNH 17y ago

Finally, why shouldn't the stock market be glacially slow? If Alice wants to buy and Bob wants to sell, and they've agreed on a price, what right do you have to demand they wait? If I want to buy GOOG with a stop-loss under last week's low, you have no right (legal OR moral) to prevent me from doing that. You may call that an "undesirable short-term trade", but I'm not gaming the system, I'm limiting my losses. If you get your way and trading becomes severely restricted, just watch how fast capital moves offshore to more user-friendly exchanges. That would not be good for the USA.

anigbrowl 17y ago

IT's true that my first example is a case of credit rather than stock, but I kind of wrote it as a throwaway example of why you'd want to be liquid. Rather than a loan, suppose that in the case of being broke I instead opted to sell something - a book or a guitar or a car, say. Now, would it be fair for someone to say 'no way, you can't sell that because you haven't owned it long enough?' I do think your heart is in the right place - managing for the long term and so forth - but your 6-month hold is extremely unfair to the individual investor, and would just result in the creation of unregulated off-market exchanges, like pawnshops for stock certificates. I mean suppose I buy IBM but next month they are hit by some financial scandal, I have to sit with my bad investment for another 5 months and watch the price crater as most of the existing shareholders sell? Short term investments are always (no exceptions) an attempt to game the system or trade on inside information I don't agree. I can think o a wide variety of reasons for short-term buying, and don't think regulators should be in the business of judging motives. I'm afraid I think this forceful imposition of long-term ownership criteria would only cause the market to become bloated and sclerotic and the cure would be just as bad as, if not worse than, the disease.