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The Crash of ’87, from the Wall Street Players Who Lived It
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Re: The Crash of ’87, from the Wall Street Players Who Lived It
#72Earlier quoted context omitted.
> What benefit does the stock market provide to us ? Direct benefit: liquidity - whether you need to buy or to sell, you have a place where you'll find a counterpart quickly. Indirect benefit: information - just watching the bets lets you have an idea about how much people with skin in the game value things, letting you take better decisions about resources allocation.
Direct: I can understand. Indirect: that seems like a losing game. Why would gambling on a companies future ever help anyone(except the lucky?).
I can understand your point. We are so many layers removed these days with trading platforms and online brokerages that it's easy to forget that when you buy an equity, you are actually holding shares of a real company that produces real products, employs real people, and maybe most importantly, holds real assets. One of these assets is future cash flows and this is pretty much where the value of shares in a company come from.
In any moment it seems like you're just buying thin air for money and selling that air later for (hopefully) more money. But that's the short-term view of it. In the long run you are taking a stake in a company that you hope as a whole will be worth more in the future than it is today. That stake gives you legal right of ownership to a percentage of that company and its cashflows. If it's a dividend paying company you collect regular profits from it as well.
Re: The Crash of ’87, from the Wall Street Players Who Lived It
#73The stories are interesting to get a sense of what things were like, but they fall short as evidence of who knew what was going on in the moment. Holding up a stock analyst who "saw it coming" is survivorship bias in the extreme.
The article itself calls this out:
> Most of the people willing to share their memories count themselves as winners who seized the moment as an opportunity not only to make money, but also to insert themselves in the new financial order—Paul Tudor Jones, Stanley Druckenmiller, Nassim Nicholas Taleb.
Re: The Crash of ’87, from the Wall Street Players Who Lived It
#74A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me, and I'll admit a completely naive person to this whole system, it seems to have taken an 'inbest in company with money to help them succeed', to a 'who cares let's just cut and run to make the best profit'. I'm perfectly willing to take a link to a great expla…
If there's an IPO of two otherwise identical companies, which one would you pay more for: - company A who's shares will be traded in a deep and liquid market, so you can get rid of them whenever you need money (eg for unforeseen circumstances) - company B who's shares can not be sold easily afterwards? If the answer is A, you see how the secondary market can help the first issuer reap a higher price, thus helping the…
A company's management cares about share price (and sometimes dividends) because that's what the owners of the company (shareholders) care about. If the directors of a publicly traded company don't care about share price, then the shareholders will vote in new management that does.
At the same time, share price isn't something management can directly change. They do so by running the business well so that it generates profits and growth.
So the question "why would a company's management ever care about share price?" can be answered "because it's usually an indicator of whether or not they're doing a good job and provides job security."
Re: The Crash of ’87, from the Wall Street Players Who Lived It
#75My fake portfolio as a kid was heavily IBM weighted. I think it was 120 or 126/share before the crash.
This is one of the reasons I got a degree in finance (and economics). I wanted to know what to do with my money if I ever had any.
Re: The Crash of ’87, from the Wall Street Players Who Lived It
#76Does anyone else find it surprising and remarkable that Paul Tudor Jones' monospaced letter is perfectly flush on the left and right margins with apparently no hyphenation nor additional inserted spaces within the lines? Surely this did not happen by coincidence (?).
Looking closely, it doesn't actually seem to be monospaced. For instance in the last-but-two line the "t" in "we project" is pretty much midway between the two letters of "it" in the line below it. The text has been justified I think both by increases in inter-word spacing and by putting slightly more space between letters as necessary.
Does that mean there's a 1/4 space button on his typewriter that he started using towards the end of the line?
Re: The Crash of ’87, from the Wall Street Players Who Lived It
#77Let's say there is a big crash coming, where would you put your money for a safe bet and for a speculative bet (and please don't say bitcoin) ? During the crash of 87, it seems like you could still get a good fixed income yield. Parking it today for 1.5% just doesn't seem that valuable.
Re: The Crash of ’87, from the Wall Street Players Who Lived It
#78A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me, and I'll admit a completely naive person to this whole system, it seems to have taken an 'inbest in company with money to help them succeed', to a 'who cares let's just cut and run to make the best profit'. I'm perfectly willing to take a link to a great expla…
The "explain like I'm 5" version, partly to answer you, and partly as a clarifying exercise for myself.
In a market, you trade dollars for other valuable things.
In a stock market, you trade dollars for stocks.
Why is a stock valuable?
It represents a small piece of a company. If you bought up all the pieces of a company, you would own the entire company. But most people can't buy an entire company, so they buy small pieces of a company instead.
Why would you want to trade dollars for a small piece of a company?
A few reasons:
1. Because a company owns valuable assets, and if you own part of a company, then you own a part of those valuable assets.
2. Because a company earns money, and if you own part of a company, then you get some of that money. (Either directly as a dividend, or indirectly as more your shares gain in value.) Think about it: if you own part of a company, then for some small fraction of the day, every single person in that company is working for YOU. YOU get the fruits of their labors for that fraction of the day. If you do this with enough companies, then you can quit your job.
3. Because a company makes decisions, and if you own part of the company, then you get to vote on how those decisions are made.
4. Because dollars become less valuable over time, by about 2% per year, assuming that the economy is operating as planned. (Inflation.)
Re: The Crash of ’87, from the Wall Street Players Who Lived It
#79A side note, and I'm really hoping someone can explain this. What benefit does the stock market provide to us? I understand investing in companies, but for me, and I'll admit a completely naive person to this whole system, it seems to have taken an 'inbest in company with money to help them succeed', to a 'who cares let's just cut and run to make the best profit'. I'm perfectly willing to take a link to a great expla…
Stock markets exist to allow multiple people to invest in a company which allows for spreading risk for the venture. The price of the shares reflects the underlying view of the price of the risk in buying a stake in the company, in addition to the outright value of the firm / venture.
Clear, transparent information about these prices and the ability to buy and sell this risk reduces overall costs to the economy for operating these ventures, greatly increases overall liquidity in the market, and overall greatly lowers overall costs and provides much more ready access to capital for ventures.
Re: The Crash of ’87, from the Wall Street Players Who Lived It
#80Earlier quoted context omitted.
In theory that's a big deal. In practice most people are looking at days to weeks to liquidate stock and that's not a big deal. As your holdings go up, into the billions, it can take months to years to unwind major investments without tanking the price. Further, having ~six months of living expenses outside of the market is considered prudent anyway. However, the reality is if the market disappeared today informal ma…
I hope one to one day have enough wealth that it takes months to liquidate my stocks. The number that can’t be liquidated almost instantly is very large. Additionally, IPOs are almost priced incorrrectly, and show the problems with the informal market.
IPO pricing is deliberate on the part of investment banks to reward some customers.