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STOCKTALK

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To: Andrew G. who wrote (71796)	2/26/2001 11:30:07 PM
From: Don Lloyd	Read Replies (2) \| Respond to of 436258

Andrew - ...Yes, for all the high language and grand purpose that is put in books, we know that human nature loves a good bet and the Houses loves to sucker a gullible gambling public. For this reason, the casino, the cock-fight, sports, and the stock market are thriving to this day and for which no man of means would have doubted in centuries past. ... I've never seen a book which said anything about the purpose of the stock market, but its evolved purpose doesn't seem too obscure. Your problem with the stock market is like the problem of seeing the icing and thinking that you're seeing the entire cake. The icing that you see in the stock market is the short term trading that would be a zero sum game except for spreads and commissions. This also provides a valuable service in helping to provide liquidity for the underlying market that is investment and business based. However, the real purpose of the stock market is allow entrepreneurial founders, venture capitalists, and corporate insiders to exchange ownership and risk with the public, to the advantage of both. Because of the economic underpinnings of the subjective theory of value and the law of diminishing marginal utility a single stock price can represent an advantageous price for both a corporate seller and a public buyer. This is because the subjective value of the marginal holding of 100 shares of a large shareholder is almost always less than the value of cash to be received at almost any stock price due to the law of diminishing marginal utility. Conversely, an investor with cash will often be able to find that he subjectively values the first 100 shares to be purchased higher than the cash to be expended. Thus we have a mutually beneficial exchange, the basis of free market capitalism. The existence of the stock market thus both increases the reward and reduces the risk of an entrepreneur and his backers as a new venture is contemplated. In turn, this represents an increase in the productive economic activity of the overall economy, and increases the standard of living for all. The lack of a stock market would greatly reduce the efficient allocation of diverse and specialized talents and resources. Regards, Don