I wrote last time about how ego is messing up the Democrat’s nomination process. Candidates with no chance of winning continue their Quixotic crusades and draw support away from those with the best chance of bringing down the Man Who Would Be King. This time, I write about how that close cousin of ego – selfishness – is messing up the stock market.
The Caronavirus is upon us. But, we can avoid that plague easier than we can avoid the frantic reports about how that disease is causing the stock market to plummet faster than Harvey Weinstein’s Nobel Prize chances. Does this stock crisis have to happen? No. Why, then, is it happening? Selfishness.
No question that the Caronavirus is damaging the economy. People aren’t going out and buying shit. That’s bad. If people aren’t buying what companies are producing, investors shy away from buying stock in those companies. But, here’s the thing – they don’t have to. See, a company’s stock price is not a function of the success of the company. It is solely a function of how many people want to buy that stock – supply and demand.
The success of the company can influence the decision about whether to invest in it, but only if the investor lets that happen. For example, if the manufactured jargon spouting loudmouths who call themselves “analysts” (in sports betting they are called “touts”) all promoted one company, and a slew of people followed their meaningless hype, then that company’s stock would soar. It wouldn’t matter if that company was selling a cure for cancer or “Bernie Madoff for President” T-shirts. All that would matter would be that people bought it.
That’s the demand part. The supply part is why companies are now using their gifts from the Trump tax cut to buy back their stock. The less stock in circulation, the higher the price can go.
There was a time when the success of the company did matter. That was when people bought stock for the dividends, the distribution of profits. Those days are gone. Now, the market is just a casino, only less regulated.
However, no self-respecting casino would operate the way the stock market does. If it did, then a bet on red in roulette would not be determined by whether the ball actually landed on a red number. Instead, you would win only if more people bet the way you did.
All of this is to say that today it is only because investors choose to sell their holdings that stock prices are going down. If they chose otherwise, which there is no financial reason not to do, then the market disaster we now fear would be avoided. Keep buying, and stocks will rise. Keep selling, and stocks will fall. So, the patriotic thing to do would be to buy. People aren’t doing that, though. They are selling. They are thinking only of themselves. They are selfish.
Sad, but not surprising. It is selfishness that fuels our economic system. But, that is a blog for another day.
We were right 