The Stock Market's wild volatility:

[olegramps]

Basically I thought that the stock market was a collection of private companies that were either or privately held. A person or group could have a product or service that they believed could be profitable but lacked the capital to transform it into a viable product. To solve this problem they sought to attract investors who bought shares in their company. These investors were not putting up the capital for a short time investment but were committed to the venture being a success. The investors in turn elected a board to oversee their investment and the general management of the company in order to protect their investment.

It seems to me that what has transpired has been at complete odds with the original concept. Those who choose to invest in the company may have little or no regard for its long time future and may only hold the stock for hours if not minutes. The boards that are elected to oversee the running of the company are not answerable to the investors nor even elected in many cases by the bulk of the investors. The are most often today elected with proxy votes they have acquired from those who can not attend the annual stock holders meeting. Often these meeting are scheduled in some God forsaken out of the way place. Many on these boards sit on several boards as they elect each other into their exclusive group of insiders.

It appears that the speculators have turned the stock market into little more than a crap shoot with stock wildly vacillating in value. Up one moment, down the next as the speculators attempt to heap short term profits. It has evolved into something that is a far cry from the original concept.

What if buyers were required to hold stocks for a certain period rather than rolling them over and over selling long and then short. The market has become little more than a madhouse that churns with every rumor and report of impending disaster. Every bit of news results in wild fluctuations not terribly unlike people stampeded into runs on the local bank.

What are your thoughts on this matter? I know this is a rather view of the situation, but what are the solutions?

[no_hypocrisy]

1. Enough players are treating the stock market like a casino rather than investing

prudently toward the future, enough to make a negative impact.

[ipfilter]

2. Raising short term capital gains taxes

would put an end to a lot of day trading.

[Turbineguy]

3. Essentially, the Market

as we used to know it has been destroyed. Traders can exist in a market controlled by investors, but investors cannot exist in a market controlled by traders. In the last couple of years rules (like the "uptick rule") have been changed to allow traders to take control and thus destroy equity and with it a lot of perceived values of pensions.

Traders simply look at the change in price and act accordingly whether long or short. What the worth of a company is becomes meaningless.

As many of us who are (or were) in the markets get a sense of our personal worth from the stock prices in companies we own, we feel poorer. And, in fact, we are.

There are people who take money from the markets, such as sales people, advisers and all those who work in the financial industry. After all, the market has to pay for their incomes. Then come the traders and do the same thing. Those who invest in the hope of some future benefit or current income are left high and dry. The market exists on the notion that the population grows and that people expect a reasonable rate of return and therefore invest their savings. Under the current circumstances, the stock market cannot provide that.

The idea of a market for raising capital is a good one but the market has to be orderly and transparent. Two qualities that no longer exist.

If we want this sort of system to survive, it has to be regulated to make it attractive for new investment.

The difference between the stock market today and a casino is that the casino has a big sign that says "Casino" and the casino is more organized and fair.

[FormerDittoHead]

4. Long term vs Short Term gains

>What if buyers were required to hold stocks for a certain period rather than rolling them over and over selling long and then short. The market has become little more than a madhouse that churns with every rumor and report of impending disaster. Every bit of news results in wild fluctuations not terribly unlike people stampeded into runs on the local bank.

For those buying and selling stocks under a year's time, the gov't already taxes them at a higher rate than those holding them for a longer time.

Maybe we should increase the (net) short-term capital gains tax to include social security? Hmmm.

[ozone_man]

5. The volatility will pass when prices reach the bottom.

For many years, from 2003 to 2006, volatility was at an all time low. People were complacent and we were happily at war living off of deficit spending. As a result, the markets were overpriced by a factor of three or so. Now price correction is in full swing and volatility will be experienced until it has settled in a several years.

The basic problem with what you are suggesting is that there is no reality to the reporting of corporate earnings, since they are being leveraged by debt, personal, national, and corporate debt. Once that leverage has fully unwound, we'll get a clear picture of what true earnings are and it won't be nearly as high as it is presently reported.

P/E ratios at bear market bottoms are in the 6 to 8 range and we have much further to go to reach that. And since earnings will be getting less, it is much more than what present earnings might indicate, since they are still leveraged. We're bailing out the financial market, the auto industry, and now the consumer, i.e., we're still trying to keep the leverage bubble inflated. Once it finally pops, we'll see where we are.

Hopefully, we'll have a fairer system one day, one that reports true earnings and evaluations. But the idea of requiring a fixed time to hold stock doesn't seem like it would work. They are not free markets in that case. There is too much of a greed mentality that expects stock to grow, that expects our economy to grow. There is only one Earth and it is finite in size, and it can't support continual growth. Sustainable markets that don't require growth are the ultimate answer. We need to promote savings not investment in Ponzi growth schemes such as the stock market is. I think bonds are a more healthy thing to invest in. Stock market promotes a greed oriented casino mentality like you say, but requiring a minimum ownership time isn't the answer in dealing with that.

[muriel_volestrangler]

6. Stock markets have been like that for at least 300 years

See 2 crashes that almost bankrupted both France and Britain, within a year:

http://en.wikipedia.org/wiki/Mississippi_Scheme

http://en.wikipedia.org/wiki/South_Sea_Bubble

All about schemes to transfer debts around, irrational exuberance, wild rumours to build up stock prices, printing money to try to get out of holes, and everything else we've seen in the intervening 300 years.

[KurtNYC]

7. the market has always been that way

which is why the equity market is so much bigger than the NYSE, AMEX and NASDAG combined. The current melt down is because the equity market has been subverted by this "fantasy football" mortgage backed securities issue. The equity market was supposed to be the safe play while the stock markets were where the games were confined.

Many of the best and most profitable companies are NOT public traded. It avoids all of the rollercoaster stuff. Plus if you have a profitable company why would you want to subject it to public financing?

The market was gamed and exposed as fraudulant with lack of separation between accoutning firms and their clients 10 years ago which drove many people into real estate and other investments where they didn't have to rely on the word of corrupt accounting firms.