Thursday, December 8, 2011

Up is Good? Down is Bad?

The first thing I learned about markets was the truism that for every buyer there's a seller.  So why is it that everybody I read minus my beloved bears automatically connect rising prices with good and decreasing prices as bad?  I hear a lot of frustration towards Europe for creating an equity market that's unpalatable to a lot of longer term investors and traders of all kinds.  I think we need to step back and recognize exactly what the stock market is.

Stocks are not an investment vehicle.  They were a way for rich people to speculate on the relative success of companies.  I count dividends as part of the speculation.  After all, any company can just as quickly raise dividends as it can take them away.  If you want, stocks are just variations on horse racing.  Nasdaq is nothing more than an Off-Track Betting establishment where losers fund the winners and the house takes a cut.

Somewhere along the line, people believed stocks were a great way to save for retirement and began to pile money in either institutions or retail accounts.  Now the arguments are rehashed ad nauesum to every newbie: the long term trend is up and "in the long run equities beat bonds."  This obfuscates the essence of equities, that there is really no investment.  When you buy a share of Apple, Apple does not get that money to turn around and invest in their business and then you get a cut later on.  The money goes to the guy who sold that sheet of paper to you.  Ironically, real investments are ultimately debt vehicles (bonds), which people only see as "hedges" against their predominant equity portfolio.

Now because everyone is a stock "investor", they are almost always long.  Whether they mean to or not, they have turned stocks into a game of football.  The home team scores every time S&P goes up and we boo every time we see red.  What the fuck?  Prices of shares are just a reflection of what people think that piece of paper is worth.  Nothing more nothing less.  It is your fault that you bought into this retardation and think stocks should always be going up.  If it doesn't, it's Europe's fault.  Or Obama's fault.  Or God forbid, the central banks' fault for not printing enough.

My Jam of the Day: