Quote:
Originally Posted by coma  2. Take advantage of market inefficiencies to extract money without contributing any value. "
Steve, would you consider what most financial traders do to be activity number 2, ie. "mooching" ? I did ask this question in another section and I got some pretty good answers, but for the most part trading in markets such as futures/options are effectively zero-sum. |
Coma:
I'm not Steve (obviously) but I'd like to put my $.02 in...
I think that #2 unfairly characterizes "taking advantage of market inefficiencies" to be "not contributing any value."
If you don't provide value, it means that you're mooching, but I don't think that merchants inheirently fail to provide value.
A market ineffieciency is just what it sounds like -- the seller is unable to find/reach the buyer, and so the transaction fails to take place, due to inefficiency of communication. Someone who fills in this gap - brings the buyer to the seller or the seller's goods to the buyer - is creating a more efficient market, and that's value.
In the days when it was impossible for British nobility to get silk or cinnamon without traveling to Asia, merchants traveled to Asia, bought these items at low prices, and traveled back to Britian to sell them at a higher price. For this service (actually doing the travelling, finding the goods, negotiating the goods, and transporting the goods back) they were paid fair compensation for their value. Were they "mooching"?
Not too many years ago, people often found themselves in a situation where they had too much stuff and not enough money. Surely there was a buyer out there who had too much money and not enough stuff, but how to find them? Often there was no easy way to find a buyer, and they couldn't wait until one came along. So the pawn shop broker stepped in, bought the goods at a lower-than-market price, which allowed the overstuffed person to extract value from their items immediatly. The broker took the risk of not selling the item and of having to wait for the value. For this service (being willing to just sit there with built-up value and no way to use it) he was paid the difference between the buying and the selling price.
Then, a couple of years ago, Pierre Omidyar realised that he could use technology to hook up buyers and sellers more quickly and convienently. He founded ebay, and now anyone can extract market value from anything they own, excepting organs and such
. Omidyar provided
much more value than any individual pawn shop broker, and thus is compensated
much more highly. Both people provided value, and both were compensated.
In the case of day traders, I would point out that the people on the other end of the transaction want to sell. It may be a good reason (they had an emergency and needed cash) or a bad reason (they see the stock price falling and panic) but they
want to sell. The stock market isn't some vast cloud where shares magically appear and disappear -- if they sell,
someone has to buy. Someone has to hold onto those shares while they're low, and in most cases the issuing company isn't willing to do it. So the day trader provides that service. They buy it when other people don't want it, hold onto it until they want it back, and sell it when other people do want it. Because of market economics, this means they buy low and sell high, and so they are compensated for this service.
If you want to see a moocher, read Dilbert. Wally is a moocher: he's entered into a contract with the company to trade value (engineering services) for value (money.) But he's found a way to get the company to fulfill their end of the contract (paying him) without providing any value on his end. No one is helped by his presence or actions in any way.
IMHO, anyway.