Let's face it. The markets are designed to transfer money from the uninformed outsider to the informed insider. The transfer is legitimized by analysts, investment bankers, and to some extent the media. Why would an insider/founder ever decide to sell his stake in a company? Only in the case where he can get a significantly better price from the uninformed public right now, than the expected return over his career/life at the company.
Don't give the shrewd investors and insiders too much credit. These lucky folks comprise less than 0.001% of those that lost their shirts. Pretty much EVERYONE got clobbered when the bubble burst and trillions of dollars of wealth evaporated into the stratosphere. If you want to make money, just short sell EVERYTHING!
I agree with the first part completely. I see people here saying it is a net zero sum game. It isn't at all. All that wealth did really evaporate. Other than Mark Cuban, I can't say I know of anyone who "cashed out at or near the top". And I don't know anyone who wasn't hurt in one way or another by the colapse of the market. You didn't need to be an internet stock inverstor, or even a stock investor to get hurt. As far as short selling everything, do you mean NOW?
No, markets are designed to facilitate the most efficient and fair transfer of goods and services among willing parties. What you've described is the <i>abuse</i> of markets -- a good means used for bad ends. Also, there are myriad unknowable reasons why a founder may wish to sell his company. In the vast majority of cases, over the vast majority of time to date, doing so to the public it has been a wealth producing bargain for the majority of people way beyond the seller and even beyond his generation and locale. The proof is in the long term chart of stock prices, and the higher standard of living in all societies that protect free enterprise to any meaningful degree. There is nothing wrong with a founder aiming to get the best price possible for his asset. Finally, an epidemic of abuse is a bubble phenomena. And, as bubbles are exceptions and by far rare, so, too, is the epidemic of abuse. OK, finally, I think what we are living through now is the culmination of things that have been in the works for a long, long time. No short term solutions.
Trading is most definitely not a zero sum game because the pot always expands or contracts. Also, traders have different time horizons. An investor who buys stock from me at a loss today, can sell it next month at a profit because the stock can appreciate if the company does well. Thus, I can make money and the investor whose money I took today can make money, but will have to wait a month to collect. Trading can be a win-win situation if the economy improves. It is NEVER a zero sum game because of the time factor. As for shorting everything, I just mean shorting good breakdown patterns and bear hugs in the NYSE. Nasdaq still has some good shorts but not nearly as many as NYSE.
I wasn't clear in my post above. I was referring specifically to the IPO process. I've probably spent too much time around VCs I saw many cases of where companies were "dressed up" with the help of analysts, the media etc., and where management sold a significant part of their stock on the open. After the IPO every transaction is really a transfer of risk/upside from one side to the other. Everyone is just about equal at that point.