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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (49807)	1/15/2006 10:48:51 PM
From: Fiscally Conservative	Read Replies (1) \| Respond to of 110194

Grace Thank you for the reply. I try to remain open minded when drawing a picture so not to get lost in the abstract. That is never easy. Often enough,I am confused but do not know it. “The very first thing one should be taught about taking an equity position is that most companies fail, either right away or over time. The value put into them is retained simply because the knowledge from the failures is embodied in the successes just as every great invention contains knowledge gained from all the preceding failed experiments. So while many individuals lose, society at large gains.” If an average investor truly believed that most publicly traded companies fail over time I would bet there would be a lot less investors betting on the equity market. I do realize most companies do inevitably fail over time,so the IRS states. Although with publicly traded co.s that bar is expected to rise. As for what the common shareholder would expect outside a reasonable ROI (return on Investment) I doubt anyone would give a hoot about lost intrinsic value being replaced for the common good of mankind or society as a whole . Free markets in a capitalistic society would never survive if this were not so. “The much lower potential reward is offset by a reduced risk of losing it all.” You are of course speaking of the bond holder. Yes,the bond holder assumes a lower rate of return but also equated to a proportional measure of risk. His/her risk is offset by the fixed rate of returned set at Libor + whatever measure of credit risk calculated as a function over time. It would not be fair to exclude that many of these fixed rates instruments,or risk adversed investors,often have sweeteners thrown in for good measure. These sweeteners usually entitled the debt holders to a portion of the uncirculated shares that in the end get dumped on the market further diluting the common. The bond holder does ok. “Mom and Pop pretty much knew they were buying lottery tickets,they just pretended not to know afterwards.” Is that what you are calling stocks now,lottery tickets? As for Mom and POP knowing they were buying a lottery ticket, I would beg to differ. The system is rigged to attract as many players as possible. Wall street pulls out all the tricks. CNBC and co. and Kramer;“Buoooyah!” Even our government gets into the act;401K’, Roth’s,529’s…ect. You name it,they were all created to get everyone into the game. “Whatever they do it will be wrong because it isn't possible to know what the rate should be, only a free market in money could discover that.” You are talking about the FED or am I confused? Free market rates domestically speaking, are partly a reaction to US fiscal policy and the FED not the other way around,imo.