Idea about markets

Why is that we have people who stand on the floor of a physical stock exchange in order to buy and sell things? Why do we call someone who physically houses the stock certificates in large filing cabinets to call someone else to buy or sell a stock or some other kind of asset? Furthermore, why do we get people who do not understand the market to invest in it?

Growing up everyone said that you needed to be invested in the stock market because that was the way that you created wealth. A stock is some type of nominal ownership in a company that actually confers no ownership of the company and furthermore protects you from any risk, if the company fails, except of course whatever money you put up. I have never looked at a company balance sheet. I'm sure if I ever did I might be able to make heads or tails of it but I've never actually looked at one. Why then should I own stock. I obviously have no knowledge of any individual company that would tell me if buying some nominal piece of it is a good idea.

Bonds are debt. If you buy a bond, then you have loaned someone money. Or actually you've bought the bond from someone who in a chain of ownership lent someone money. You didn't loan anyone money except in some metaphysical way. We'll say for accounting purposes that you loaned someone money. Again, when a company releases a bond at a particular interest rate, you need to know if the interest rate matches up with the risk that the company will not pay back the loan.

Once again, I've never looked at a balance sheet. There should be no reason for me ever to buy a particular bond. But we tell everyone that they should be invested, when they are older, in bonds because bonds are something.

I don't think that I'm unique. I don't think that most people who have invested in their 401(k)'s even know why a 401(k) is called a 401(k). (Has to do with the section of the tax code that allows you to put money away tax free until you take it out past a certain age). Why do should people put there money in something that they have no understanding of. Why should they pay someone else who claims to have knowledge of these things to invest for them. They can't exactly judge the correctness of the person they're paying's decision. So they look for proxies like how much money they are making. And if another person is making more money then they'll go to them even if the reason that the other person is making more money is because they are taking on more risk.

We have a cultural tale about bridges and the wisdom of jumping off of them visa vi that actions popularity but apparently when it comes to handing over your money with the promise made that you will get more back, we think bridges must not be very high up.

But really the whole point of this is to ask, if the money going into the system is only being judged on the basis of how much money it makes in so far as the average investor is not particularly good at judging risk, and in so far as that's the money's judge then that's the final judge. It doesn't matter that the people who make the particular decisions have better knowledge of the risks. They will ignore that because the thems that control the money control what information is most important. Lets also note that the people who we say have knowledge, don't appear to actually have pertinent knowledge. Which makes it seem, if the determining factor in where the money goes is who gives the biggest return within reason (and its amazing how elastic within reason can be) then the market is naturally bubbulicious. The rise of individual investor apart from profession doesn't lead to more information in the market, it leads to less because actual information gets swamped by one concern, who will make me the most money.

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