Tuesday, October 19, 2010

Reading the creatively titled essay by Murphy "The Stock Market." was interesting. I thought the essay in general, especially the introduction was quite a basic outline of what the stock market is. It was an easy read, and quite interesting. The part in the paper where he started talking about how people with the most amount of stock are responsible for making decisions with sometimes millions of dollars at stake, usually make good decisions was interesting. I thought so because I had never really thought of the stock market as an incentive system before. On further thought it makes sense that an incentive system must be in place so that good decisions are made. However, it should be noted that many companies go bankrupt, others like enron commit fraud, therefore is the incentive not good enough?

I also thought that the example the author used of the acme stock not changing was interesting. Here too I saw the lack of an incentive structure. There obviously doesn’t seem to be a good incentive structure for a speculator to reinvest in stock after selling their share rather than say buy “fancy” clothes! However isint there the incentive that if you invest in more stock you might make more profit later, rather than buying clothes, that usually depreciate in worth (unless you buy a coco chanel vintage trench perhaps).

Also the author points out that Gordon Gekko in the movie “Wall street” was wrong in saying that when you win in the stock market, you do so at someone else’s expense. I think this is incorrect too. My thought son it are that its not about intrinsic worth but about the value the stock has. I would like to compare it to a shoe shopping example. If I had bought a pair of Brian Atwood’s say 10 years ago, and never wore them (that’s like stock right, because you never really use it), and lets say they were a classic black leather pump, 5 inch stiletto (in other words, never went out of date). Ten years ago I was correct in thinking that Brian Atwood was the next big thing even though he was the new kid on the block in shoe design, well today I could probably sell those shoes to someone for a 1000 dollars even though I maybe paid $200 for it. Im not really ripping them off, it is the what having an original Atwood shoe is worth, and that’s what the bidder is happily willing to pay to have perhaps a work of art. Its similar to why people pay a lot more for art as it grows older, or even first publications of famous books.


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