(But there are such things as ridiculous extremism, and the fact that many, many people will eventually end up getting hurt badly by this internet stock craze. Tell me, how will such ludicrously overdone to the max speculation help us all to become better off?
Now with some moderation I would agree with you, but there is none of that to be seen in this sector, and it will come back to haunt "us" for sure. It's not a matter of if, but only of when.)
I can't disagree with your POV, but just as lotteries serve positive purposes in _part_ by financing education, etc., and substituting for taxes, speculation serves at least two positive purposes.
1. The speculative part of the market re-allocates financial resources from losers to winners, helping direct productive resources to their highest and best use in satisfying consumer requirements. It can be considered as a form of financial 'evolution in action'. Irrationally extreme pricing just provides better opportunities and thins the speculative herd quicker. Speculators without an edge will lose eventually, and if it happens sooner, rather than later, it may just mean that the tuition is less for a freshman year flunk-out.
2. More important, speculation is essential to the primary economic purpose of the equity market, which is to enable the overall creation (and distribution) of wealth by the formation of new companies and new and better products and services. It accomplishes this by providing the liquidity that founders and venture capitalists can expect to be present at and beyond the point of an IPO. This promised liquidity greatly increases the potential financial returns that can be expected from a successful enterprise, as well as decreasing the potential risks. The speculative liquidity is also essential to the risk/reward parameters of the secondary market investor. Neither the company insider, nor the secondary market fundamental investor, can prosper in an environment of an illiquid market for their shares.
Regards, Don |
