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SPECULATION AND INSTABILITY

Instability of private investment arising out of the behaviour of speculators and ‘amateur’ investors on the stock markets, where they wish to get rich quickly. Speculators are not long-term investors. A professional long-term investor would make a careful calculation of the prospective yield of a capital asset before making up his mind about whether to invest or not. But in the most modern free enterprise countries, a large percentage of investors are ‘amateurs’ like ‘mum and dad’ investors, or speculations. These ‘amateurs’ and speculation operate through the Stock Exchange. By buying shares of a listed company on the Stock Exchange, any individual could become a part owner of it. This means that because of Stock Exchange, it is possible for a person to become an owner of investment without undertaking the responsibility of its management. To be able to invest it is not any more necessary to have the patience and ability to estimate the marginal efficiency of capital of that investment.

However, the big advantage of a share market is that it introduces an element of liquidity of investment. A person can buy shares in one company today, and then he can withdraw funds from that company tomorrow and buy shares in another company. Stock Exchange facilitate the transfer of investment rapidly from one industry to another. Prior to the emergency of the stock market, a person’s decision to invest was not easily revocable. For instance, in the days of single ownership firms (individual proprietary concerns) the business was generally owned by an individual, or by a single family. In those days it was not easy to move from one business to another; and investments were generally illiquid. But with the emergency of a joint stock company, any person can become an investor by buying SPECULATION AND INSTABILITY

Instability of private investment arising out of the behaviour of speculators and ‘amateur’ investors on the stock markets, where they wish to et rich quickly. Speculators are not long-term investors. A professional long-term investor would make a careful calculation of the prospective yield of a capital asset before making up his mind about whether to invest or not. But in the most modern free enterprise countries, a large percentage of investors are ‘amateurs’ like ‘mum and dad’ investors, or speculations. These ‘amateurs’ and speculation operate through the Stock Exchange. By buying shares of a listed company on the Stock Exchange, any individual could become a part owner of it. This means that because of Stock Exchange, it is possible for a person to become an owner of investment without undertaking the responsibility of its management. To be able to invest it is not any more necessary to have the patience and ability to estimate the marginal efficiency of capital of that investment.

However, the big advantage of a share market is that it introduces an element of liquidity of investment. A person can buy shares in one company today, and then he can withdraw funds from that company tomorrow and buy shares in another company. Stock Exchange facilitate the transfer of investment rapidly from one industry to another. Prior to the emergency of the stock market, a person’s decision to invest was not easily revocable. For instance, in the days of single ownership firms (individual proprietary concerns) the business was generally owned by an individual, or by a single family. In those days it was not easy to move from one business to another; and investments were generally illiquid. But with the emergency of a joint stock company, any person can become an investor by buying share of a company, and does not need any special knowledge, or skills to become an investor. The real big disadvantage of investment through the share market is that these institutions are dominated by speculators, who are not interested in long-term returns on investment but want to et rich quickly by buying share of a company when share prices are falling and selling these shares when price o up. Speculation may have some rational basis, but most often speculative activity is conducted on the basis of rumours, such as the possibility of a  war, the chance of a major mineral discovery, and similar other rumours which may not have any real basis. Such behavior of speculators based on rumours could wide fluctuations in share prices. Professional speculators have access to substantial funds. They can sometimes deliberately manipulate the market by moving their funds from one industry to another, or from one country to another.of a company, and does not need any special knowledge, or skills to become an investor. The real big disadvantage of investment through the share market is that these institutions are dominated by speculators, who are not interested in long-term returns on investment but want to get rich quickly by buying share of a company when share prices are falling and selling these shares when price o up. Speculation may have some rational basis, but most often speculative activity is conducted on the basis of rumours, such as the possibility of a  war, the chance of a major mineral discovery, and similar other rumours which may not have any real basis. Such behaviour of speculators based on rumours could wide fluctuations in share prices. Professional speculators have access to substantial funds. They can sometimes deliberately manipulate the market by moving their funds from one industry to another, or from one country to another.

Source : marketstechno

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