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Patanjali Sokaris

Politics

Stock market

Speculation destabilises economies

The stock market is the official way that people provide finance for companies in return for a share of the profits. Speculation destabilises this process.

Superannuation funds invest in companies hoping to get enough to ensure that their members have a large enough nest-egg for their retirement. The funds are in it for the very long game and so want stability in the businesses in which they invest.

Technology, as with the property rental and hire car industries, has enabled a lot more people to engage in the securities industry. The business models didn't change, but there are much enlarged pools of players in them. In each of these industries, there were rules that were ostensibly there to ensure the stability of the industries, but they also tended to be a wall against those not interested in the rules getting involved.

Speculation ^

The larger numbers of people means that there are lots of players who are only interested in making money and are not interested in industry stability.

With cars and properties that instability mainly affects the main players, while the downstream users have benefitted from a greater range of choices. Users don't care about whether any one business remains, as long as there is some business to serve their needs.

When it comes to the stock market, each trade has a ripple effect as the new price affects the worth of every other investor. When many invest in the same companies, the value of the company can change significantly. This mechanism is open to gross manipulation, and hence some rules are put in place, yet not enough to stop the relatively few who do own shares actively making their fortunes by predatory practices that undermine the stability of companies.

The instability provides the opportunity for rapid wealth increase, but with the downside of companies having uncertainty about how much money they actually have to work with. Instability works against being secure enough to grow their business.

However, the ever-increasing need to make profits in excess of what they need to run their business just to provide shareholder income forces management to focus on what can make the most money in the short term. Vastly more fickle profit-oriented shareholders that are looking for short-term profits just exacerbate that process.

Stability ^

Economies cannot fulfil a society's long-term goals of stability if their ecomonies are at the whim of masses of self-centred get-rich-quick schemers.

Perhaps it is time to reduce the ability to inject too much volativity into stock markets and focus upon giving companies some measure of certainly to allow them to expand and keep more permanent workforces instead of relying upon gig-economy workforces that they can jettison quickly when the market gets too unstable.

The downside for some of the longer-term larger speculators is that providing stability by cutting out the fickle small investors will also reduce their ability to exploit loopholes that allow them to vastly enrich their own fortunes.

If we want to cater for long-term stability, then short-term destabilising opportunities need to be discouraged. Then people can be more certain of long-term incomes, both in having stable employment because companies have more trust in the future, but also for those investing for retirement. Stability allows the major companies and all those small businesses that are dependent upon them to invest in long-term propositions that enhance their own stability and that of those people directly and indirectly dependent upon them.

So what needs to be changed? The first step is to force investors to be more cautious about what they invest in. They don't need to be concerned about that if they can just sell their shares within days or even minutes of buying them. The solution is to prevent shares from being sold within one or two years of buying them.

That alone would stop people from frivolously tying up their money on a whim. Instead they would tend to have to think more about the real worth of the companies they intend to invest in. That would also mitigate against investing in companies that are not really viable. The dot com bust came about because too many invested in companies that never made any money and were not really set up to. Their value was all hype, and disappeared when people stopped believing it.

The next behavour is to stop betting on the viability of a company, known as short-selling. It puts unnecessary pressure on a company that may have a stable and workable business model, and that works for their management and workers, but just does not operate at the level that speculators want. After all, why should a business have to be in the top tier of so-called performance if they are ok with how they are, and that works for them in the long term?


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