Re: Market efficiency: good or bad?

John Clark (jonkc@worldnet.att.net)
Fri, 2 Jul 1999 12:45:26 -0400

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>> "Eliezer S. Yudkowsky" wrote:

>> >
>> >did I mention that letting people just bet, outright, on
>> > which way a stock will go, without actually having to buy anything and
>> > with no brokerage commission, would probably go a long way towards
>> > stabilizing the stock market? Which, if you ask me, has major
>> > volatility problems stemming from people out to make a fast buck.
>> > Remove the people who aren't actually investors, and the market will
>> > probably get a lot better.

At least at first there would be little reason for anybody to actually buy the stock, you'd do better just making a bet on the direction the stock will go (just as we do now). As a result trading in the stock itself would become very thin and then just a small sell or buy order would lead to a huge change in the stock price. It wouldn't take gamblers long to figure this out and try to cook the books in their favor so there would be no change from today.

Day traders do make me a little mad but that's life and they cause no net change, they just increase the volatility, not the end of the world. The best strategy is to buy stock in a company you have confidence in and ignore the day to day variation. At least that's what my brain tells me, I admit that when a stock takes a steep dive for no apparent reason the pain in my stomach tells me other things, but I try not to react to such hysteria. It's not always fun but no pain no gain.

John K Clark jonkc@att.net

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