Initial draft of thoughts about an alternative economic system for setting prices in stock markets based on logic, in order to increase stability in nations and societies, and to increase the welfare of everyone living on Earth. It is not without pitfalls (nothing ever seems to be), but it seems like an improvement.
Can we make the world a more predictable place for our children?
More predictable, and as such, a better place to grow up and live.
Initial date of publishing: 2022-02-06.
This evening, I had some thoughts about how psychology runs the stock markets. This is a known fact. What I realized, is that this is a liability for the stability of the global welfare of nations and humankind.
It can cause human suffering, animal suffering and abuse/destruction of nature. It can cause recessions that manifest themselves suddenly and violently. It can cause a single stock to collapse in a day. It can cause stock market crashes and collapses within days.
What do we get in return for this risk and liability that psychology represents? Do those gains warrant the current system to be kept as it is? Time for an overhaul of the system? I cannot think of any unambiguous gains from keeping psychology in the mix. Striking luck on hypes will mostly be a thing of the past (buy a stock in the morning, that goes up 50 %, and sell in the evening).
I had this idea of a future where stock prices are systematically dictated by the earnings, value and success of a company, objectively, as reported, preferrably at frequent intervals, such as daily. Initially, it can maybe be weekly or even monthly. Quarterly regulation of price will mean too much instability because of too sudden, potentially big, changes - plus, it's boring for three months and then suddenly too exciting. Daily seems best at first glance.
Instead of our current stock markets where arbitrage sets the price (if my understanding and terminology is correct, I sure hope so), and panic can strike, we will have a national organ for setting stock prices. People can still buy and sell, but only at "today's price". Day trading will cease to exist as a phenomenon. But shorting will remain (and be less risky than today given that your research and predictions are solid).
A name for such an organ could be The National Corporation Stock Price Regulation Department, or something along those lines.
It occurred to me that, in some ways, this is similar to mutual funds in how it would function. Mutual funds work today.
To achieve this, it will be necessary to use information technology to design a system - that should eventually cover the whole globe - or a whole nation trying out the system - wherein companies report earnings, purchases, sales, debt, cash balance, owned property value, owned asset value, holdings of goods and the value thereof, etc. Everything, every day.
This requires that the accounting and reporting system is built in advance and functions "flawlessly". It is an imagined, ostensibly better, future where such a framework is feasible. It can definitely be built. It is within human capabilities, given the motivation to do it. Hey, we put humans on the moon in the 60's.
All the information will be collected in a (rigidly protected) database. Everything that is the company and represents its development should be reported. And every day at, for instance, noon localtime, the company's value will change - simultaneously as the results are presented to the investors/public. You immediately see the reason why the price changed the way it did. It would be much more predictable than today's rumpus. I can just see how the stability and safety spreads and has beneficial effects. At least, that's my prediction.
If a company does poorly, based on the virtually all-encompassing measurements, its value goes down a smidge at noon. If the company does well, its value goes up a smidge at noon. This repeats every single day. There ought to be limits on price variations per some stretch of time, in order to ensure stability and reduce speculation.
This will all be automated and seamless in this imagined future. People will wake up to yesterday's stock price, and at noon they can see it change, along with the results. All information will be public and available to everyone.
You can still "go long" and win big on being right about successful business strategies companies implement. But there will, quite naturally, be less speculation, and intraday trading will be rather pointless for the sake of profits.
Insider knowledge will be a bigger problem in this imagined society than it is today.
If we begin to imagine the results of such a change, I can see multiple benefits. Increased stability and predictability financially are the key points I see changing for the better. This reverberates in society and creates a more stable and desireable world for us to inhabit. At least that is my prediction.
Stock market crashes almost can't happen. Just imagine how much more stable this world would be! Surprises would be once-a-decade-or-century events as I envision this reality. Surprises could be the result of natural disasters, terror or war (but I think war is slowly losing its foothold; incidentally, suicides represent 4x more dead people per year than armed conflicts as of 2021-2022).
I predict it would significantly improve living conditions for humans, animals and likely even nature itself (biomass well-being, the goal/requirement Adam Smith forgot about in The Wealth of Nations).
The details about how the government, orderly and predictably, sets the value of a stock will need to be worked out. P/B, P/E, and other key indicator figures we use today, are natural to use, at least in an early version of a logical and orderly system for evaluating the companies.
It will be complex! But it can be done. It would help us. Someone get cracking on the details, please. Thanks! Then spread the word and gain political momentum. Boom! 200 years later, there is global peace on an Earth where contented people take it for granted, living a life of unimaginable luxury and well-being, possibly as amortal beings (not immortal, but amortal, it means they will not die of old age, but accidents and violence can still kill them).
Author: Joakim Borger Svendsen. Idea conceived and put into words 2022-02-06. I feel like I just tried to write something like the communist manifesto, except it's not religious, not as detailed, and not as well-written. Next up is designing a system in which everyone has plenty. I see little reason beyond selfish, greedy stupidity why we/they can't all live lives of luxury in the future.
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