First let me say that I agree with most of Cuban's thoughts in general.
But by "invest" he is not talking about the friction out there (paraphrase as "having to spend $400 and talk to a human") to purchase a stock but rather the price of the stock in relation to the value being manipulated by, as one example, high frequency trading and macro economic conditions.
Let's say someone decides to invest in Bingo Card Creator because they think there will be a market in China and that Patrick and BCC are the ones to be able to take advantage of that opportunity. So they invest in BCC because as a small operation, and after doing due diligence, they believe the "new chinese sales manager" that you hired can crack that market. Regardless of what else is going on in the world or in China.
But the truth is even though the stock market is less like that analogy today, I don't believe it was ever like that. (Look at 1929 as one example). Of course in the past I do believe people did make more long term investments. There were places to put "widow and orphans" money. Not sure that is the case today anymore (is it?) And that could also be just because of friction in distribution of investment information - there were less places to read things about companies and that actually helped create more long term investments (my thoughts strictly).
The game now is that people attempt to predict by all means possible what will happen in the future by triangulating any info available to determine how a company will do. And then those companies become bellwether's of the market and people make decisions in advance of those decisions. While this always happened to some extent (I'm sure before people could fly airplanes over shopping centers or before there were even shopping centers there were people who attempted to find out how a particular company was doing by evaluating any information they could. I just think the amount of people doing that was in the minority and now the majority of people are making decisions for non-fundamental reasons.)
>"but rather the price of the stock in relation to the value being manipulated by, as one example, high frequency trading and macro economic conditions."
HFT works to quickly create momentum in pricing (Note: there are alternative theories that this is not the case to be sure) which changes a large quantity of stock prices for the day. And when the market is having a down day other stocks that have nothing to do with the stocks being traded are changed as well. So if the market is down someone's investment in Patrick's BCC will have a large chance of dropping as well.
As far as macro economic conditions same thing. A report comes out that Fedex has shipped less packages or ADP reports that there are less people using their payroll service (bellwethers). So stocks start to drop and the market goes down because people anticipate it will effect earnings of all companies. Even though it has nothing to do with what is going on specifically with BCC or with a company whose business it is is to create the washers that are used in pumps in sewer systems.
Please explain what you mean by "HFT works to quickly create momentum in pricing."
What is bad/wrong/unlawful/unethical about:
>"And when the market is having a down day other stocks that have nothing to do with the stocks being traded are changed as well. So if the market is down someone's investment in Patrick's BCC will have a large chance of dropping as well."
And just to check: do you think it would NOT be bad/wrong/unlawful/unethical if one substituted "up day" for "down day" in your sentence?
It seems like you take issue with that fact that stock price changes have become more correlated. Is it bad/wrong/unlawful/unethical that traders may want to sell(buy) stock A when the price of stock B decreases(increases)?
>It seems like you take issue with that fact that stock price changes have become more correlated. Is it bad/wrong/unlawful/unethical that traders may want to sell(buy) stock A when the price of stock B decreases(increases)?
It suggests the market is no longer performing its intended function of allocating capital to those companies that will use it most efficiently.
A company's market capitialization is its capital allocation. It's reasonably common for companies to use their own stock when making big buys (such as other companies).
>Of course in the past I do believe people did make more long term investments. There were places to put "widow and orphans" money. Not sure that is the case today anymore (is it?)
I think you can find them if you look for them. Though generally I'd say stick your money in a low-fee S&P 500 tracker; if that's too volatile for you, you probably should be keeping it in cash rather than investing.
But by "invest" he is not talking about the friction out there (paraphrase as "having to spend $400 and talk to a human") to purchase a stock but rather the price of the stock in relation to the value being manipulated by, as one example, high frequency trading and macro economic conditions.
Let's say someone decides to invest in Bingo Card Creator because they think there will be a market in China and that Patrick and BCC are the ones to be able to take advantage of that opportunity. So they invest in BCC because as a small operation, and after doing due diligence, they believe the "new chinese sales manager" that you hired can crack that market. Regardless of what else is going on in the world or in China.
But the truth is even though the stock market is less like that analogy today, I don't believe it was ever like that. (Look at 1929 as one example). Of course in the past I do believe people did make more long term investments. There were places to put "widow and orphans" money. Not sure that is the case today anymore (is it?) And that could also be just because of friction in distribution of investment information - there were less places to read things about companies and that actually helped create more long term investments (my thoughts strictly).
The game now is that people attempt to predict by all means possible what will happen in the future by triangulating any info available to determine how a company will do. And then those companies become bellwether's of the market and people make decisions in advance of those decisions. While this always happened to some extent (I'm sure before people could fly airplanes over shopping centers or before there were even shopping centers there were people who attempted to find out how a particular company was doing by evaluating any information they could. I just think the amount of people doing that was in the minority and now the majority of people are making decisions for non-fundamental reasons.)