http://www.morningstar.es/es/news/article.aspx?articleid=101641&categoryid=13 Its actually surprising that my thoughts exactly matched what Bogle thought about the current investing climate. I have been thinking about this for a long time...what do you think?
Well I agree investing has some degree of speculation. However investing consists primarily of finding instruments with good fundamentals (not just price and volume). Most trading these days are primarily based on frontrunning investors(mutual funds, some hedgefunds, individual investors, institutional investors). This is not something that is sustainable. If it continues for long, no investors will be left. The wall street system in my opinion was created to efficiently transfer wealth to where its best utilized, and reward those to try to do so. The current environment doesnt reward those who try to invest, but rather rewards the frontrunners. In my opinion the huge increase in trading vs investing over the past couple of decades, maybe partially responsible for the decline in the US economy.
The decline of the US economy is due to many factors-- cultural, economic, political. Among them, the rise of trading is insignificant. Excellent article in today's Financial Times on the subject of decline: http://www.ft.com/intl/cms/s/0/6327a7f4-21bb-11e1-8b93-00144feabdc0.html#axzz1gJV9vBmw
Dont you think that if more people focused on trading based on fundamentals rather than technicals, the basis for the current crisis would have been discovered much before it actually progressed to the current status. Probably the debt crisis and the various other preceding crisis would never have happened or atleast their magnitude would have been much less. Trading purely based on technicals only increases volatility. It doesnt make price more informative. While I know a lot of people here trade purely on technicals..in my opinion..thats just legalized theft. I define theft as when there is exchange of money without exchange of value.
A mutual fund's average hold time for a stock is 2.7 months, less than 1 quarter. Whose policing the boardrooms?
Well..you cannot prevent people from trading on technicals. What you can do is put guidelines which would encourage trading based more on fundamentals rather than technicals. Some of them would be a)minimum hold time of say 1 week or more. If you reduce the hold time too much you risk making price non-informative. However I dont believe having hold times of a day or so will make price very non-informative. b)remove decimalization and have have 1 tick ~ 1$. Here too may be some study has to be done to determine the optimum tick value. c)ban short selling. Normal buying and selling pressure should be sufficient to make price informative. Professional trading at present is more akin to professional gambling rather than investing. Investing and trading have just 1 commonality: you are buying and selling. I think there are 2 or more reasons why trading hasnt been banned and probably wont be in future a)there are really smart traders in wall street, and they know how to extract money from the system very well. Because they have so much money their power over wall street is more than any body else in the market place. And since they make so much money from the current system they are never going to agree to change the current system. b)because trading and investing are based on buy low and selling high, there maybe some difficulty in distinguishing between them from a regulatory viewpoint. Occupy wall street was in my opinion a good movement in that direction. However I dont think the people there even understand how much broken the wall street system currently is. We need a much stronger/more informed movement to overcome the interests of the top 1% or so. As far as mutual funds go, if you are trying to trade with an average hold time of 2.7 months purely based on technicals good luck. I believe Wall Street has a very important role in US economy and the World in general..but maybe a few people or groups of people have destroyed it for their own benefit. Currently most of Wall Street is essentially a drain on the US economy and a brain drain.
I fundamentally agree with you. Trading is a largely pointless endeavor, but it can make you rich. An actively traded market helps facilitate investors and inspire confidence. If an investor knows he can get sell a stock at a reasonable price because he doesn't like or because he needs money, he's willing to pay more for that stock. Naked short selling, elimination of the uptick rule, high frequency trading, etc. don't do any good and probably destabalize the market (causing harm). But liquidity providers are very valuable. I don't think they are trading on technicals but it goes to show it's easier to sell a stock than to effect corporate change. Even Warren Buffet, "Mr. I buy companies not stocks," has stated that if he doesn't like a way a company is being run he just sells the stock instead of weighing in with his opinion.
Dunno, I remember a lot of 'fundamental' people saying housing values will always go up because population increase/demographics will always support it.
Without being an insider, there is no way to know what the fundamentals really are (and even then...) That's why value investing is speculating, just like fading ES with 30 second hold times.