Stock Market Investing Greed Factor

Greed is what drives the stock market on a daily basis. For long-term passive investors – the people who buy broad mutual funds and just let their investments sit for decades – greed doesn’t play a major role. The long-term investors are playing the odds that the price of most stocks rises over time.

But the analysts and traders are basically speculating (gambling), rather than trying to do anything that has real economic value. They are seeking short-term gains, which, by definition, must come at the expense of someone on the other end of the stock trade. To some degree, this system functions fairly well, but it does generate some serious social ills and inequities.

Think about it. A company raises money by selling stocks. This is how Wall Street’s greed provides value. A sale of stock is a promise by the company to share its profits in the future with people who are giving it money now for expansionary projects. That is fine. Stocks are basically a different way of borrowing than going to banks or selling bonds.

The weakness in the system is that after those stocks are in the public’s hands, they stop producing societal value. The company that sold the stock now has its investment, and hopefully it is using the money wisely. But the person holding the stock isn’t doing anything with it. And speculators who are just trading these stocks – based on their guesses about which companies will be more successful in the future – are not offering to invest more in the company. They are not buying new stock. They are merely trading stock already held outside the company. And people who are good guessers or have good inside information, well, they become rich.