I’ve recently read an article somewhere doing a thought experiment: What if the markets were open only once a week? His conclusion was that there’d be much less meaningless “noise” and hysteria, more buy&hold investing, and lots of financial media the likes of cnbc going broke
A post was merged into an existing topic: When do we reach the bottom of the dip? (2022-24 Edition)
You just described the dinamic price model. An efficient market can not work under a fixed pricing.
like what happens if you only can buy a plane ticket 1 every month? You have much less noise, but its less efficient.
The dimanic pricing is also why we have basically the same iPhone/ Car/ etc. with 3 prices for small changes.
I totally agree. There’s a place for trading just as there is for investing. Still an interesting thought experiment: What if the market was organized to support more long-term investing through trading modalities? Would that support more sustainable investments?
Imho, no. It would just become more illiquid.
Since for Example, Stock price is 100. Trading resumes in 7 days.
George would buy at 91
John would buy at 95
Max would buy at 98
Sam would sell at 102
Sarah would sell at 103
Ivan would sell at 109
What is the new fair value? With this system your risk that all the seller don’t sell the stock, since it has not met the price, trading volume would shrink, volatility would go up, making investing less appealing since you cant enter or exit position that easy.
With more volume you get less volatility and get the maximum efficient system that can cover all the buy and sells. Volume is very important, it helps to build liquidity. Short term traders absorb some volatility, generating liquidity for the people exiting or entering position.
In return they get rewarded with some gains.
The stock market is a device for transferring money from the impatient to the patient (Warren Buffett)
Let’s say you meant professional high frequency traders and market makers. With professionals I mean people who put their data centers with dedicated data connection closer to the stocks exchange, because otherwise the latency of the trading system becomes limited by the speed of light and the time that it takes for electric signal to travel between servers.
I have read that in the beginning of 20th century stock trades were calculated manually, so it could take some 5 minutes before a new price was established. Nowadays it takes sometimes few minutes to calculate the opening price. I have also read that at some very hyped IPOs it took few hours before the very first trade price was calculated.
True, less liquidity would have a negative impact. However, I’m not so sure about your argument regarding less volatility. One of the greatest pro’s of less trading days would be to decrease the amount of decisions mainly based on fear & greed. I believe it would increase rational, long-term investing. This could actually decrease volatility.
Were some past huge and mainly fear-based market crashes really justified/necessary (due to terror attacks, catastrophes, wars, Fed or political decisions etc.)? Weren’t they sometimes incredibly exaggerated, mainly emotional, and often reversed to the mean relatively fast?
I actually believe lots of panic selling or hype buying could be avoided if people were prohibited from immediately acting on their very first emotions and forced to reflect a little longer (have a good nights sleep first )
Public markets are both a blessing and a curse.
A blessing because there is something beautiful about being able to buy or sell a partial interest in a company in 5 seconds with the click of a mouse.
A curse because way too often public market investors confuse the market price with the value of their holdings. Market prices are way more volatile than the business value of the firms underlying these stocks. As a result, investors forget that the market is supposed to serve them, not to be their master.
I can’t resist quoting an extract from the 2013 Berkshire Hathaway letter:
(Buffett discusses two former investments he did in a farm in Nebraska and in New-York real-estate)
There is one major difference between my two small investments and an investment in stocks. Stocks provide you minute-to-minute valuations for your holdings whereas I have yet to see a quotation for either my farm or the New York real estate.
It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings – and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his – and those prices varied widely over short periods of time depending on his mental state – how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming.
Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments.
Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of “Don’t just sit there, do something.” For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.
A “flash crash” or some other extreme market fluctuation can’t hurt an investor any more than an erratic
and mouthy neighbor can hurt my farm investment. Indeed, tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values. A climate of fear is your friend when investing; a euphoric world is your enemy.
Now i’ll admit that not all market participants have a long-term holding period. Some of them make a lot of money with very short-term trades, such as high frequency trading. It’s Ok, we just have to recognize that we are not playing the same game. But if we are long-term stock investors, then we have to recognize that long term business value drive long term stock prices, but short term prices can be anything. And if long-term investors start thinking that short-term prices dictate the exact value of their business holdings, well, they are in for a surprise.