P.J. O’Rourke is a genius. One of the books I’m reading right now is Eat the Rich: A Treatise on Economics. A quick summary of the stock market, according to O’Rourke:
“In a bull market we have an idea that stock is only being bought. … In a crash we think stock is only being sold. The wealth of the nation has been converted into T-bills or Franklin Mint commemorative plates. But every share of stock that sells has a buyer. There are no stocks sitting empty with OPEN HOUSE ON SUNDAY signs out front. At the end of the worst possible day for stocks, the market contains the same number of shares it started with. The market is not a different size, we just like it less. And this isn’t some fuzzy hormonal mood we’re in. Out feelings can be measured precisely, in dollars.
In fact, when we own any ‘financial instrument’ (as people in the money business call anything worth money), what we basically own is an opinion. When the British pound loses value, the number of pence in a pound doesn’t change. We just don’t feel the same way about pounds anymore; we’re nuts about Euros now. It always takes the same number of pigs to make 1,000 pork belly futures, but next year’s bacon suddenly smells bad to us. One share of common stock continues to represent the same percentage of a corporation’s assets, and the corporation is probably not growing or shrinking very fast, but our love for that corporation can swell or pop overnight.
We have an opinion. That opinion is a price. And since prices are constantly changing, our opinion is always about to be wrong. Think of the stock market as an endless Gallup poll with 207 billion things that people can’t make up their minds about.”
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