Jump to content
Objectivism Online Forum

What is the Objectivist view on profiting from the Stock Exchange?

Rate this topic


Recommended Posts

Despite my early adherence to Capitalism - I called myself a Capitalist without any Capital in those years - I have always felt a little uneasy about trading on the Stock market.

I suppose the ideal for me was the privately owned business or industry ( a la Atlas Shrugged ) and while I understand the economical principle of the free flow of money to finance growth in publically owned Business, increasing value as it does, I am still uncomfortable.

Is there not an element of 'second-handing' in profitting by others ideas and work, their success or failure?

Doesn't this also contradict the virtue of individual productiveness?

Link to comment
Share on other sites

Uh, stock is ownership. It is also taking risk. THere is nothing wrong with profiting from a financial interest in a company. Other people's work and ideas succeed because I finance them by investing in the market.

Link to comment
Share on other sites

Well yes. Of course I agree, as far as it goes.

This wasn't meant to be a "strawman" topic, and stating that there's 'nothing wrong' with an honest profit by having a share in someone else's idea and energy, is not quite the same as saying that there's everything right in it.

Woudn't you agree that to profit from one's own mental input and work is ( perhaps hierarchically ) a better thing?

Does this ring a bell with anyone? Because I'm willing to concede that my position is a bit "off the wall".

And isn't there an element of gambling, in that very risk-taking?

Link to comment
Share on other sites

Woudn't you agree that to profit from one's own mental input and work is ( perhaps hierarchically ) a better thing?

Does this ring a bell with anyone? Because I'm willing to concede that my position is a bit "off the wall".

And isn't there an element of gambling, in that very risk-taking?

No, and no. Keep in mind that in order to be able to invest in the stock market, you have to earn money to begin with--which means that you always start with your own input and work. The fact that you can earn returns by wise investment is a wonderful side-effect of division of labor and a free-market economy. People are always looking for ways to maximize their profits while minimizing their labor. That's a great thing, it frees you up to do all sorts of other things. Now, if someone had, say, a trust fund that was managed by a financial advisor and never did anything but sit on their duff and drink margaritas, that'd be immoral. But that's rarely the case. Most of the people I know who trade the market do so in order to free up time for other pursuits that they love but that don't bring in much cash. So not only are they financing business ventures, they're financing their own pursuits. It's a win-win.

Doing *anything* is a risk. It's only "gambling" if the result of the risk is fully determined by random factors outside of anyone's control. I like the way Marilyn vos Savant once explained why gambling is a poor choice of activity--if you lose, it's a very poor way to spend money (you didn't get ANYTHING as a return), and if you win, it's a very poor way to "earn" money (you didn't learn anything that would help you reproduce the result). If you "win" money on the market, however, it's an excellent way to spend it--your companies are prospering and you are prospering. And if you "lose" money on the market, you learn something about the companies involved that enables you to invest more wisely in the future. That's completely different from gambling.

Link to comment
Share on other sites

Woudn't you agree that to profit from one's own mental input and work is ( perhaps hierarchically ) a better thing?

I understand what you're saying. You're saying that the profit in the stock exchange seems to be made without your own effort, merely hoping that a bet will succeed. But that's ignoring the fact that a good investor needs to work to decide "Why do I want to invest in this company? Why does this company have any value?" If your investment pays off, you will have made a profit off of your work for finding a company worth investing in.

Link to comment
Share on other sites

Francisco d'Anconia played the stock market to put himself through college. So, I'd say Ayn Rand saw nothing intrinsically wrong with the stock exchange.

Also, I can't imagine on a more meaningful level what aspect of Objectivism would actually be against strategic ownership of a stake in a corporate entity...

Link to comment
Share on other sites

Francisco d'Anconia played the stock market to put himself through college. So, I'd say Ayn Rand saw nothing intrinsically wrong with the stock exchange.

Also, I can't imagine on a more meaningful level what aspect of Objectivism would actually be against strategic ownership of a stake in a corporate entity...

So says the non-Objectivist. If this is an example of your erudite and highly rational methodolgy to divine what Miss Rand would have thought, then you've given us a great example of why you're having so many problems in other threads.

Objectivism is not what Rand's characters did in her books, and thinking in principles means that sometimes even though her character does something in one context does not mean that she would have sanctioned that activity in any context or in general.

Best to speak for yourself and not for Rand, eh. Especially since that's addressed specifically in the forum rules.

Edited by KendallJ
Link to comment
Share on other sites

Well yes. Of course I agree, as far as it goes.

This wasn't meant to be a "strawman" topic, and stating that there's 'nothing wrong' with an honest profit by having a share in someone else's idea and energy, is not quite the same as saying that there's everything right in it.

Woudn't you agree that to profit from one's own mental input and work is ( perhaps hierarchically ) a better thing?

Does this ring a bell with anyone? Because I'm willing to concede that my position is a bit "off the wall".

And isn't there an element of gambling, in that very risk-taking?

You agree and yet the application of that agreement doesn't actually agree. I know it wasnt' meant to be a strawman topic, but one has to state the principles clearly and then apply them consistently.

From what you're saying the basic issue here is the erroneous idea that the only person doing any sort of productive work is the guy inventing the product. That somehow if a product gets to market and is successful the only guy who gets credit for it is him. By that reasoning anyone who profits from the deal other than that person is a 2nd hander. This invalidates the whole idea of a Midas Mulligan.

The act of investing in a company is in and of itself a productive activity because it represents the use of one's mind in making a selection. Successful companies are not obvious (other than in hindsight) and the act of making a successful investment choice subsumes a whole bunch of knowledge and experience and confidence in one's choices. THis is also the reason that insider trading should be allowed. Because sometimes the only poeple who really should be investing in a company are the ones who know the most about it.

As to the question on risk, this works in reverse. Don't you think the the inventor of some product is taking a big risk in believing it will be successful (since so many aren't) and therefore gambling?

Edited by KendallJ
Link to comment
Share on other sites

So says the non-Objectivist. If this is an example of your erudite and highly rational methodolgy to divine what Miss Rand would have thought, then you've given us a great example of why you're having so many problems in other threads.

Objectivism is not what Rand's characters did in her books, and thinking in principles means that sometimes even though her character does something in one context does not mean that she would have sanctioned that activity in any context or in general.

Best to speak for yourself and not for Rand, eh. Especially since that's addressed specifically in the forum rules.

I'm sure the forum rules allow you to be an asshole, but you could help us all out by perhaps being justified in choosing to behave that way.

I'm fully aware that Objectivism is not what Rand's characters did in her books, however, you'll have a tough time telling anybody that has read the book that his playing the stock exchange was an example of immoral behavior. She specifically uses this event in the character's time line to demonstrate how it was in fact quite the contrary. And the context behind his playing the stock market was of nothing incredibly unique, special, or significant. In fact, it was just his normal attempt in rising above and investing the money he'd made working at the copper plant, if I remember correctly, with the goal to ultimately purchase that plant for himself.

What exactly about this story makes the OP's situation so distinct that the example couldn't apply? Anybody who's read Atlas Shrugged should be able to easily distinguish which aspects of Francisco d'Anconia's behaviors were moral to Ayn Rand's Objectivist code and which ones weren't. You're not even arguing a point here - you're just being a dick for the sake of being a dick. I'm not sure what precisely about my post makes it so much more prominently against the rules, when you will find an enormous percentage of all the posts here amounting to the theme of "What would Ayn Rand do?" when answering questions.

Link to comment
Share on other sites

Well yes. Of course I agree, as far as it goes.

This wasn't meant to be a "strawman" topic, and stating that there's 'nothing wrong' with an honest profit by having a share in someone else's idea and energy, is not quite the same as saying that there's everything right in it.

Woudn't you agree that to profit from one's own mental input and work is ( perhaps hierarchically ) a better thing?

Does this ring a bell with anyone? Because I'm willing to concede that my position is a bit "off the wall".

And isn't there an element of gambling, in that very risk-taking?

I think the premise has intellectual merit, but we must remember at all times that it's not the "work" itself that is judged on any level of positive or negative, but rather how you do that work.

There is nothing wrong with playing the stock market, or even being a garbage man, as long as you are doing it the right way, with the right results, and for the right reasons.

Link to comment
Share on other sites

I'm fully aware that Objectivism is not what Rand's characters did in her books, however, you'll have a tough time telling anybody that has read the book that his playing the stock exchange was an example of immoral behavior.

I'm not suggesting that it's immoral behavior.

I'm suggesting that you have in this thread someone who read the book and wasn't convinced or at least is asking for clarification. So simply pointing out the fact that a character behaved that way would in and of itself be a useless approach. It is an argumentum ad veracudia in that context.

For you to choose NOT to use an explanation of principles is yet another hack job attempt to stick words in Ayn Rand's mouth.

Calling me an asshole doesn't make it so. I'm letting your behavior speak for itself.

Link to comment
Share on other sites

I think the premise has intellectual merit, but we must remember at all times that it's not the "work" itself that is judged on any level of positive or negative, but rather how you do that work.

There is nothing wrong with playing the stock market, or even being a garbage man, as long as you are doing it the right way, with the right results, and for the right reasons.

That's not true either. It is possible for an endeavor itself to be entirely second-handed, regardless of how you do it. Theivery would be such an example. Some people claim trading in the market is theivery. Some people claim that theivery is a form of making a living or "work". It is a question of both the what and the how.

Link to comment
Share on other sites

That's not true either. It is possible for an endeavor itself to be entirely second-handed, regardless of how you do it. Theivery would be such an example. Some people claim trading in the market is theivery. Some people claim that theivery is a form of making a living or "work". It is a question of both the what and the how.

I would ask anybody who calls thievery a profession to check his premises. I'd also ask anybody who calls stock trading thievery to check his premises. Companies choose to go public and make shares of their company purchasable by the public.

If you're producing something, without initiating force against another person, how could it possibly be immoral based merely upon the means of accomplishing this task?

Link to comment
Share on other sites

If you're producing something,

Exactly the reader isn't questioning the how. His question is really getting at what is being produced when you buy a share of stock.

Your answers continue to be useless.

Link to comment
Share on other sites

Exactly the reader isn't questioning the how. His question is really getting at what is being produced when you buy a share of stock.

Um what? He asked if it's better to make money based on the merits of one's own mental work instead of correctly investing in the minds of others.

Why don't you take a look at what I quoted from him:

Well yes. Of course I agree, as far as it goes.

This wasn't meant to be a "strawman" topic, and stating that there's 'nothing wrong' with an honest profit by having a share in someone else's idea and energy, is not quite the same as saying that there's everything right in it.

Woudn't you agree that to profit from one's own mental input and work is ( perhaps hierarchically ) a better thing?

Does this ring a bell with anyone? Because I'm willing to concede that my position is a bit "off the wall".

And isn't there an element of gambling, in that very risk-taking?

Your answers continue to be useless.

The only useless thing here is your ridiculous attempts at trying to belittle me with your absurdities and superficial attacks, spurred by a disagreement you had with me in another thread. Why don't you grow up?

Edited by Andrew Grathwohl
Link to comment
Share on other sites

Um what? He asked if it's better to make money based on the merits of one's own mental work instead of correctly investing in the minds of others.

I read it. In fact, I answered it directly.

This is exactly the point. The answer to this is not how one invests. He already grants that one makes an "honest profit" by correctly investing. His question is isn't there something about being the guy to come up with the idea, than being the guy to invest in it, that is better. His quote is a direct comparision of the substance of the work, not of it's method. He's granted the method can be "honest."

As to growing up. I'm not the one hurling insults. So far, I've dealt with the substance of your arguments which have been wrong and/or useless every time I've engaged you. If your own shoe fits...

Link to comment
Share on other sites

Thanks for all your considered replies - I am fairly well convinced that my image of the "margarita-sipping" trader is invalid.

So, anyone have a tip for me? I see WalMart is looking good...... :P

Link to comment
Share on other sites

Speculation is intellectual work: making judgments about the future. Successful speculation also requires a large degree of independence, because one's speculation will be more profitable when few others see what you see, and you nevertheless turn out to be right.

If you've read, AS, think Midas Mulligan, making a decision whether or not to invest in Hank Rearden. That's a good example of speculative activity.

BTW, even mixed-economy economists, who view "the good" as "what is good for society", often see speculators playing an essential role. In this view, the speculator's role is to ensure that the capital in the economy is invested profitably.

Edited by softwareNerd
Link to comment
Share on other sites

Thanks for all your considered replies - I am fairly well convinced that my image of the "margarita-sipping" trader is invalid.

So, anyone have a tip for me? I see WalMart is looking good...... :P

There is soooo much to the world of investing. Types of investments, personal investing preferences (like how much risk you're willing to take on with respect to your goals, and life goals), types of industries (and how familiar you want to be before putting your money in them), government controls, company management, industry competition, current stock price compared to actual company value... it just goes on and on.

If you're interested, the very first place to start is to pick up an intro book from B&N or amazon, something like The Neatest Little Guide to Stock Market Investing. The stock market has historically been a good place for your money, but you'll know more or less how interested you're going to be after reading an intro book.

Link to comment
Share on other sites

Excuse my ignorance on the matter, but under Capitalism the government would be forbidden from saying "put your money in a 401(k) or we'll take it from you at gunpoint" so wouldn't this change the way an actual free stock market would work from the current system?

Link to comment
Share on other sites

Despite my early adherence to Capitalism - I called myself a Capitalist without any Capital in those years - I have always felt a little uneasy about trading on the Stock market. ... Is there not an element of 'second-handing' in profitting by others ideas and work, their success or failure? Doesn't this also contradict the virtue of individual productiveness?

Information and risk-taking have already been covered so I wont go into those again. What's been left out is the issue of capital formation itself.

In the primary market, ie the purchase of new stocks and bonds, the investor is creating value by turning resources into capital. Prior to then, the owner of those resources is entitled to consume them, which is the end of their story. By investing them, however, they are forwarded to the company and are then used to generate goods and services that in turn aid production of more goods and services. By delaying consumption now the investor is creating value by making possible extra production in the future and so earns a chunk of that extra production fair and square, even when that investor is only occasionally checking out what the CEO et al are doing or plays no part in business operations.

I think anyone who isn't anti-business will have few problems with the primary market, so I'll leave it at that. What's more problematic for the unitiated is the secondary market, which I will give more attention to.

In the secondary market, ie trading of existing stocks and bonds, the investor isn't giving new money to the company but just buying the stocks from previous investors. What value, then, is the second investor generating (besides information and risk-bearing already covered)? Again it comes back to provision of capital, in two ways.

The first benefit is that it preserves the company's business capital (ie its buildings, machines, IP, etc) against having to sell some of it to allow an investor to exit. This separation of investor trading of financial capital from company usage of business capital then allows the CEO et al to spend a far greater proportion of their time dealing with operating the company, and also to do so on a longer term basis with less fear of having to sell assets to cover disinvestments. That makes the use of capital more efficient, and keeps the total amount of capital in existence higher than it would be without the secondary market. Together this means more production than would otherwise take place, and so the secondary market investors earn a share of that production because they helped make it possible.

As a counterpart of the CEO acting with greater certainty of future conditions, the secondary market also also allows investors themselves to act with greater certainty in getting their money back. This is especially important when the company rules out investors withdrawing capital before a set time so they don't have to deal with partial liquidations. The benefit here is that the increased ease of investor exit reduces the barriers against primary-market investors investing in the first place. That makes then it worthwhile for more people to be primary investors than would be the case, which in turn leads to there being more primary investment total than would be the case. Once again the secondary investors - ie the day traders and Wall Street firms et al - make that possible, and so are in turn entitled to a share of what the companies themselves produce.

JJM

Link to comment
Share on other sites

Excuse my ignorance on the matter, but under Capitalism the government would be forbidden from saying "put your money in a 401(k) or we'll take it from you at gunpoint" so wouldn't this change the way an actual free stock market would work from the current system?

Not necessarily. Making saving-for-retirement free of government interference would likely just mean a change in the particular vehicles by which people save and invest, and in turn see a movement of capital about the various financial industries. That may mean some people exit those forced-savings programs and invest in stocks directly, or invest via ordinary mutual funds, or not in the stock markets at all (eg in property or bonds). Any changes at that level may lie in the average size of individual trades, alongside the shift two or from stocks in total vs property or bonds or bills, or even reduced rates of saving.

What would significantly change the way the stock market works is a change in the listing, disclosure and trading rules themselves.

JJM

Link to comment
Share on other sites

In short, a common stock is an equity stake in a particular company.

If trading in stocks is morally problematic, then any activity which involves the purchasing and selling of an ownership stake in a capitalistic enterprise would present the same problem. For example, it would be immoral for one to purchase the gas station on the street corner and sell it tomorrow at a profit. In such a world, everyone would have to own all of their equity investments for an infinite time period.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...