Text 1315, 65 rader
Skriven 2004-10-27 09:12:14 av Robert Bashe (2:2448/44)
   Kommentar till text 1301 av Björn Felten (2:203/2)
Ärende: "Proof"
===============
Björn Felten wrote to Robert Bashe on Wednesday October 27 2004 at 00:16:

[Stock market gyrations]
RB>> Not always, but often. The question is what people _expect_.

BF> No Robert, it's not about what people expect. That's probably what the
BF> big players want the small players to think, but those that always win
BF> on this casino are the ones with the best programs (as in computer-).

Think again. There a lot of funds operators with the best equipment and best
personnel money can buy that still guess wrong and lose. All you have to do to
see the truth of that is to take a look at the performance of several funds in
1999, 2000 and 2001. You'll notice that their performance runs roughly parallel
to the market.

Their advantage is, of course, that they don't put all their eggs in one
basket, or even a few "baskets" (stocks), as a private person generally does.

BF> It's all about buying and selling on the right second.

Yeah, sure... buy low and sell high. Simple, if you have a crystal ball to see
into the future. And of course some guess lucky. But most of us have to do
without such advantages and take what the market gives.

BF> And the losers are, just as in the genuine casinos, the small
BF> players...

Only if they put all their eggs in one basket and don't take the advice
professionals give, namely to cut their losses in a falling market, and "buy on
bad news, sell on good news". There's a lot of sense to such old sayings.

BF> This is far from the original idea, where you invested in a company,
BF> and relied only on the yearly revenue.

The original idea of the stock market, which is still the basis, was to provide
an equity market for companies to raise funds for expanding and strengthening
their business, and in return to give the equity purchaser a share in the
company. Otherwise companies would have to borrow money on the bond market,
which is often more expensive and would allow less growth for a given debt
level.

The share in the company can be profitable to the owner (stockholder) in two
ways. Sometimes the company distributes part (never all) of its earnings in the
form of a dividend. Sometimes companies retain their earnings, ploughing them
back into the business to expand it further, and the stockholder is rewarded by
a higher stock price as the business becomes more and more successful. Gillette
is a company with the former philosophy, and Intel's philosophy is mainly the
latter (although Intel meanwhile also pays a small dividend). Often the two
philosophies are combined.

But there was never a time when _all_ stocks on the market simply provided a
high dividend and people lived on the income. People who think this way
shouldn't buy stocks, but bonds. Those really do provide a steady income, and
depending on the market (yes, there is also a market for bonds) may even offer
a capital gains profit (if the nominal interest rate is higher than the market
rate at the time of sale).

BF> Any increase of value was just the icing on the cake...

No, here you're talking about bonds, not stocks.

Cheers, Bob

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