salimma's Journal: Clamping down on speculators

SCO sues IBM with very flimsy, untenable accusations; SCO stock price shoots up. Now this might be due to traders expecting a massive settlement from IBM and all other parties concerned, or

<paranoia mode="conspiracy">a pact with Microsoft whereby they buy X numbers of SCO stocks for every statement issued against Unix vendors and Linux</paranoia>

IANA stock broker, though I have a rough idea of how the financial markets work; once in a while we see these examples of the herd mentality; someone assumes SCO would get a payout and bid up the stock price, soon everyone else follows, without analysing the merits of the case.

Stock trading has become very volatile and short-termist; a friend of mine took advantage of this speculating against British Energy which was heavily in the red due to its unprofitable nuclear energy operations.

There is a solution I can think of: companies have to pay a divident of at least 10% net profit; in exchange, investors are tied down to their shares for at least a year or so. If shares that have not matured are sold, the profit if any would go towards sponsoring a market watchdog, or third-world aid, or paying down the national debt - whatever.

Anyone cares to comment on the feasibility and impact of such a rule?

It depends.

[leeum]

There is a solution I can think of: companies have to pay a divident of at least 10% net profit; in exchange, investors are tied down to their shares for at least a year or so. If shares that have not matured are sold, the profit if any would go towards sponsoring a market watchdog, or third-world aid, or paying down the national debt - whatever.

I would say it really depends on what company you're talking about. There are already companies that do give out more than 10% of their net profit in dividends ( H [hsbc.com]

I don't see what the problem is.

[Elwood P Dowd]

If people are jumping on SCO's bandwagon, they will eventually get burned. This is good. The system is already designed to screw them.

There's no change necessary. At least, not due to this issue. The change that you suggest could prevent all kinds of liquidity in the market that allow us to quickly reassess the value of a company. It sounds like a horrible idea.

Remind me what the problem was?

Re:I don't see what the problem is.

[salimma]

If people are jumping on SCO's bandwagon, they will eventually get burned. This is good. The system is already designed to screw them.

Speculators who did not bail out in time will get burned, those who do make tidy profits; the system does not really generate value (near-bankrupt companies that speculators pounce upon normally can't be saved anyway) but encourages reckless risk-taking.

It's not mainly to tackle the SCO issue; this affair just prompted me to write about it, really. The main issue is the

Re:I don't see what the problem is.

[Elwood P Dowd]

The point of the stock market isn't to generate value, it's to determine the existing value. If morons with cash (some speculators) are irrationally disposed to desire ownership of a certain stock... then that stock is going to be worth more money. This is legit.

I don't know about your suggestion that stock price spikes might help pad bonuses. If someone buys at the top of the spike and rides it down, and that spike was due to fraudulent business practices, then the shareholder can sue the billy-blue jeepe

Re:I don't see what the problem is.

[salimma]

I don't know about your suggestion that stock price spikes might help pad bonuses.

Well, SCO's stock has been going up for a few months now. If you get the spike to happen prior to the end of fiscal year, you might just manage to award yourself bonuses.

Remember that corporate executives, more often than not, get bonuses even when the companies they manage are doing badly. Witness American Airlines currently, or a lot of investment banks.

In a perfect market shareholders would punish said companies for

I tend to give stockbrokers a bit more credit.

[leeum]

PS, 99% of stock brokers are morons. The remainder are manipulative liars. I wouldn't consider your suggestions any more credible if you were a stock broker.

I do personally know quite a few current/aspiring stockbrokers and they can be some of the more intelligent people in my circle of friends. At the end of the day, stockbroking firms are well known for paying rather well and it is the allure of the cash that attracts people smart enough to get the job. I remember a lecturer in my final year at universi