The stock market as an example of 'free markets'. (1 Viewer)

[Torus34]

Much has been written about markets. Extreme positions range from markets as casinos to markets as true reflections of the evaluation of available facts, resulting in accurate evaluations of the worth of, say, stocks. The US stock market, reflected in such indices as the Dow Jones Industrial and the Standard and Poor's 500, has shown a remarkable resistance to the 'fact' of the Covid-19 pandemic and its effect on the world of business. [Ref: Any chart of the DJIA or S&P's indices, not to mention such 'derivatives' as the DJIA p/e/ratio.]

How can this be reconciled with the extremes given above? That thought has interested me of late. I believe I've discovered a rational middle ground.

There is a huge amount of information available to investors. Once we've set insider trading aside, roughly the same information is available to all. This, though, does not mean that each investor weights each fact in the same way. That, I believe, is the key. There's a Zeitgeist, if you please, that causes many investors to skew the weighting of the available facts. This, in turn, can result in the stock market improperly reflecting the actual state of business.

Comments?

Regards, stay safe 'n well. Remember the Big 3: masks, hand washing and physical distancing.

 

[swing_voter]

The stock market is rarely rational.

 

[PeteEU]

Stock market is hardly free or rational and to easily manipulated by the big boys or influential politicians... Yes Trump.

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[Ringo Stalin]

Capitalism is beautiful until you work for a penny and you are ruined by taxes, until you close your business and you are evicted on the street, until you die without medication and you are sent to the oven. It is fine, as long as you personally are not in danger. But the queue is moving.

 

[Torus34]

The term 'free market' is something of an ideal. In practice, there are restrictions on markets. There are many good areas for discussion on just what controls should be placed on a market. The underlying intellectual framework behind the restrictions is also of interest.

Regards, stay safe 'n well.

Reminder: I try to respond to all posts that quote mine. If I don't respond to your post, it may be that you've managed to make it to my 'ignore' list.

 

[Ringo Stalin]

The "sanctity" of private property ends where it intersects the interests of other, larger private property.