Irrationality: Bane of the Stock Market
Sometimes when I look at the stock market, I get awed and repulsed at the same time. Awed sometimes by the fact of pure capitalism at work. Tremendous amounts of money literally flowing between financial and corporate entities. Deals, trades, etc. The business of America is business, indeed.
Repulsed sometimes by the fact of pure capitalism at work. Tremendous amounts of money literally flowing between financial and corporate entities. Deals, trades, etc. The business of America is business, indeed yet knowing that if you aren’t a player, your just a unit of value being shuffled to and fro. The average American’s income is just a little chip in the stock market stack. And the players are going to play. Maybe Joe Six Pack gets shafted. Maybe not. But hey, who cares? Wheelin’ and dealin’ for the win! There’s always more chips in the stack. And the real business-folk keep on winning and keeping the chip stack high.
Alex Epstein, a junior fellow at the Ayn Rand Institute in Irvine, CA, said the following in an op-ed about Enron and business-folk in general:
..Enron’s problem was not that it was “too concerned” about profit, but that it believed money does not have to be made: it can be had simply by following one’s whims. The solution to prevent future Enrons, then, is not to teach (or force) CEOs to curb their profit-seeking; the desire to produce and trade valuable products is the essence of business–and of successful life.
Instead, we must teach businessmen the profound virtues money-making requires. Above all, we must teach them that one cannot profit by evading facts.
Very true words. And that is what scares me about the stock market: not greed but irrationality (look at the recent sub-prime mortgage crisis and credit crunch). Money has to be made not materialized out of the ether. The stakes are too high to play an irrational hand.
8 Responses to “Irrationality: Bane of the Stock Market”
Our Techie has turned into a Blogger!
welcome T-Steel; brains and art both.
dr. e
I am curious. What would happen if the market operated completely rationally? Would everyone efficiently earn about the same amount of money?
Irrational is defined as without the faculty of reason; deprived of reason or without or deprived of normal mental clarity or sound judgment. You can be risky yet rational in your thinking. When the stakes are so high, there has to be a strong amount of rational thinking in the stock market. And the big money makers aren’t irrational thinkers. They weigh risk and proceed accordingly.
I really, really like that quote from Alex Epstein.
Wall Street analysts aren’t irrational? Company X fires 5000 and is cheered. Business Y fires 11,000 and is cheered. Corporation Z fires 20,000 and is lionized. The economy loses jobs and the market goes into a tailspin. Rationality, no. Delusional faith until the excrement hits the fan, yes.
Oh, I forgot Big Retailer T who reduces cost by forcing suppliers to ship jobs to China and has business studies written about them and TechyCorp who is lauded for the wisdom of offshoring jobs. Did I miss any of their contradictory stupidity?
Let me clear up what I said in my earlier comment: some of the big money makers aren’t irrational thinkers. But the lure of the irrational way of life has afflicted many of them.
Thanks for cleaning up my irrationality, Jim!