Turn on the news and all you hear about is the Dow Jones was down 100, 200, 300 or more points.
They make it sound like it's the end of the world.
People have been wiped out they say.
401Ks are gone, worth nothing.
Who's fault is this, and what can be done about it? Every expert, and there are plenty of them, has a different opinion.
I remember back in 1981 when I was a stockbroker, a man named Joseph Granville made a call that the market topped out and was going to plunge.
The DJIA dropped some 80 or so points that day.
A catastrophe.
The DJIA was only around 850 or 900 back then, and the NYSE was gearing up to trade 100 million share days.
What a difference to today.
The difference today is that we are now linked electronically worldwide through a vast network of computers.
Anything can be done at the touch of a button.
Back in those days, if you wanted to place a trade, you called your broker who filled out a ticket to either buy or sell.
Then the broker had to walk over to the trade desk, who would have to call it in to the floor.
This whole process could take several minutes, and it could even take longer to find out if your order was filled.
There was plenty of "monkey business" going on back then with the traders, specialists and market makers.
The lag time between filling orders and letting the customers know where they stood gave them ample time to make a little extra money on every order.
The markets today are international in scope.
Stocks, futures, options and commodities are being bought & sold worldwide in real time with direct access trading from the comforts of living rooms or the beach.
The stock market is a game of psychology, fueled by greed and fear.
It doesn't matter whether you run a hedge fund or your own portfolio.
The market doesn't know the difference.
For everyone that thinks a stock is going to go up, there is an opposing side that thinks it's going down.
All of the other explanation are BS.
For example let's say Company XYZ has a new wonder drug that will cure cancer and make billions.
People buy the stock because they think it will go up.
The person that sells it thinks it has reached it's potential and wants out.
That's it.
Not too complicated.
All of the Wall street wizards can give you all the fundamental reasons in the world why you should buy or sell XYZ but that's not what really drives the price in either direction.
Greed and fear, that's it.
The money only changes hands, it doesn't disappear.
Now, where this formula gets into trouble, is when you get the short sellers involved.
Short selling is where you sell something that you do not own, and hope to buy it back at a cheaper price.
Now there are rules on how this is done, but that is taken care of by your broker.
Can anyone tell me in what other business in the world, you can short sell something that you do not own in order to try to buy it back at a cheaper price later? Can you short sell dental practices or electronic stores? It just doesn't make sense.
If you don't own it, you can't sell it.
But you can short GM or Microsoft without any problem.
So what is my point? All short selling should be banned period.
This would allow for a much more orderly and legitimate pricing of stocks without massive manipulation.
There would be situations on thinly traded stocks where the spreads might become enormous due to the lack of buyers or sellers in that particular issue.
So what? There are thousands of issues that don't have that problem, and the spreads and liquidity would hold up just fine.
All you would be doing is keeping out the speculators who manipulate the markets for their own good.
Just for clarification purposes, I am an individual trader who has shorted countless times and I like shorting.
My argument here is that the markets would be a lot better off if we just outlawed it.
Buy something, own it and sell it when your done.
Selling a borrowed item, and buying it back when your done just doesn't make sense.
It leads to too much manipulation.
They make it sound like it's the end of the world.
People have been wiped out they say.
401Ks are gone, worth nothing.
Who's fault is this, and what can be done about it? Every expert, and there are plenty of them, has a different opinion.
I remember back in 1981 when I was a stockbroker, a man named Joseph Granville made a call that the market topped out and was going to plunge.
The DJIA dropped some 80 or so points that day.
A catastrophe.
The DJIA was only around 850 or 900 back then, and the NYSE was gearing up to trade 100 million share days.
What a difference to today.
The difference today is that we are now linked electronically worldwide through a vast network of computers.
Anything can be done at the touch of a button.
Back in those days, if you wanted to place a trade, you called your broker who filled out a ticket to either buy or sell.
Then the broker had to walk over to the trade desk, who would have to call it in to the floor.
This whole process could take several minutes, and it could even take longer to find out if your order was filled.
There was plenty of "monkey business" going on back then with the traders, specialists and market makers.
The lag time between filling orders and letting the customers know where they stood gave them ample time to make a little extra money on every order.
The markets today are international in scope.
Stocks, futures, options and commodities are being bought & sold worldwide in real time with direct access trading from the comforts of living rooms or the beach.
The stock market is a game of psychology, fueled by greed and fear.
It doesn't matter whether you run a hedge fund or your own portfolio.
The market doesn't know the difference.
For everyone that thinks a stock is going to go up, there is an opposing side that thinks it's going down.
All of the other explanation are BS.
For example let's say Company XYZ has a new wonder drug that will cure cancer and make billions.
People buy the stock because they think it will go up.
The person that sells it thinks it has reached it's potential and wants out.
That's it.
Not too complicated.
All of the Wall street wizards can give you all the fundamental reasons in the world why you should buy or sell XYZ but that's not what really drives the price in either direction.
Greed and fear, that's it.
The money only changes hands, it doesn't disappear.
Now, where this formula gets into trouble, is when you get the short sellers involved.
Short selling is where you sell something that you do not own, and hope to buy it back at a cheaper price.
Now there are rules on how this is done, but that is taken care of by your broker.
Can anyone tell me in what other business in the world, you can short sell something that you do not own in order to try to buy it back at a cheaper price later? Can you short sell dental practices or electronic stores? It just doesn't make sense.
If you don't own it, you can't sell it.
But you can short GM or Microsoft without any problem.
So what is my point? All short selling should be banned period.
This would allow for a much more orderly and legitimate pricing of stocks without massive manipulation.
There would be situations on thinly traded stocks where the spreads might become enormous due to the lack of buyers or sellers in that particular issue.
So what? There are thousands of issues that don't have that problem, and the spreads and liquidity would hold up just fine.
All you would be doing is keeping out the speculators who manipulate the markets for their own good.
Just for clarification purposes, I am an individual trader who has shorted countless times and I like shorting.
My argument here is that the markets would be a lot better off if we just outlawed it.
Buy something, own it and sell it when your done.
Selling a borrowed item, and buying it back when your done just doesn't make sense.
It leads to too much manipulation.
Source...