Forum Archive Index - July 2001

["Phil Eriksen" <phil@acepay.co.nz>]

Hi Jeremy,

>Therein lies the crux of the matter.  Your term 'investment in the
>sharemarket'  The sharemarket produces no net value.  It is a glorified
>gambling hall, no less, no more.


Very strictly speaking, "the sharemarket" itself produces no net value.
Think of it like the "Businesses for Sale" section of your newspaper.  A
place where buyers and sellers are matched up, to trade something that has
some underlying value, for a price that is mutually agreeable.

>If you said, 'investment in company X'  where your investment is to provide
>funds to the company to allow it to create value from the works it does,
>then it is an investment.


When a company lists on the sharemarket, the money either goes into the
business "to provide funds to the company to allow it to create value" or it
goes to founding shareholders, who have effectively put up a "Business for
sale" sign, after investing their dollars to allow the company to create
value.

>Direct investment, that is providing funds to a company that it can use to
>create value, can be considered ethical.  Buying and selling on an open
>stock market where your money simply goes to another speculator without
>helping the company doesn't seem ethical.


I struggle to see the difference.  Lets say two people have $200k each and
are interested in retail.  Person A takes his $200k and he starts a retail
store.  Coincidentally enough, he starts his retail store right next door to
a Warehouse, the business where Person B has just decided to invest his
$200k.

Person B created no value when he bought his Warehouse shares.  He bought
shares on the sharemarket, and the money "went to another speculator".
Nothing has happened.

However..

Both people now have a $200k investment in retail.  One takes the form of
stock, staff and a business plan, and the other is a bit of paper that
wiggles around.  At that time, no value has been created for either party.
However, over the next few years, both the retail store owned by Person A
and The Warehouse will operate day in and day out, and how well they go will
determine the ultimate reward each investor receives.

Buying the Warehouse shares on the market may not seem as "real" as putting
the same amount of money into starting a retail store - but as Person A, now
competing against the Warehouse will probably tell you, just because the
Warehouse is owned by thousands of people with wiggly bits of paper, it
isn't any less real or easier to compete with!

How is Person B any less ethical than Person A?

Cheers,
Phil



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