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encouraging investment vs. speculation
Old 10-17-2008, 08:05 AM   #1
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encouraging investment vs. speculation

I was idly wondering the other day whether there are any structural improvements we could make to the way we operate our world stock markets that would discourage the speculative/gambling viewpoint and encourage the investment viewpoint.

The problem is that fixation on short-term stock market gyrations distracts people from much more important measures of economic health. This distraction is not at all surprising, since stock markets fluctuate daily and have an immediate and direct impact on a person's financial net worth, as reported by their brokerage accounts. The popular media certainly doesn't help - stock market gyrations regularly get front-page headlines.

So, what changes could be made? A couple of half-baked ideas occurred to me, none of which are necessarily any good:
+ reduce frequency of trading (e.g. once a week or once a month)
+ penalize a very short-term buy/sell or sell/buy transaction (some mutual funds use this strategy)

Of course, one perspective is that speculators/gamblers should be allowed to indulge their greed as long as they don't injure others. The question is whether we are accidentally encouraging a casino mentality by operating our stock markets like we do, and this mentality leads to a poor investment of our time and energy. This is a timely question, because we American taxpayers are on the hook for billions of dollars of bad gambling debts run up by greedy, irresponsible speculators. Think how this money could be invested instead to make America more competitive on the world stage!

OK, back to the grindstone.

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Old 10-17-2008, 08:50 AM   #2
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I was thinking about his a little more. Damn, I must have ADD.

There are a huge number of different types of markets. If we divided them into two sets: markets where speculation is OK, and markets where it isn't, then we would just go about implementing trading restrictions where periodic crashes/crazes puts the larger economy at risk.

OK, back to the grindstone (take 2).

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Old 10-17-2008, 09:42 AM   #3
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One of the big criticisms Bogle has had of Vanguard is that he's not happy that they introduced ETFs. His thought is that mutual funds better encourage buy and hold.
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Old 10-17-2008, 10:44 AM   #4
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Tax speculation. Not real sure how this would be implemented, but, it might help.

"There's those thinkin' more or less, less is more, but if less is more, how you keepin' score?
It means for every point you make, your level drops. Kinda like you're startin' from the top..." "Society" - Eddie Vedder
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