Moving From Making Money to Creating Wealth
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Authors
Todd, Robert S.
Issue Date
2017-03-24
Type
Presentation
Language
en_US
Keywords
Stock market
Alternative Title
Abstract
By changing two rules, albeit drastically, U.S. stock markets can be transformed from a volatile casino for the few to a stable and reliable wealth-creation machine for the many. Currently, money can be made if the price of a share changes in either direction. It is in every trader’s (extremely) short-term interest to keep the prices changing. The idea presented here is to slow the fall of a stock’s price so that the market can soberly evaluate the true worth of a share. We hope to begin a conversation that will allow investors to realize that their long-term interest lies in a stable market, immune from shocks, rather than a market resembling a frantic casino. It turns out that by applying the proposed rules to a fictitious stock index made of 36 randomly chosen stocks that are traded on the NYSE, the recession from 2007 – 2010 would probably not have occurred. This “T2” or “TSQ” index (named for the authors) almost exactly mirrors the DJIA and S&P indexes during the same period. (We suspect that any randomly chosen stocks would also mirror the DJIA and S&P.) Companies that suffered greatly, either from being swept up in the selling frenzy in October 2008 or from being poorly managed, will still suffer but much more slowly. Money can still be made by shorting over-priced stocks but not as quickly. Overnight fortunes can still be made, but not by betting on price changes.