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Word of the day

investor confidence, n. — the belief that the share price of a publicly traded company will increase, not because there's any good indication (like, say, strong fundaments or intelligible earnings statements) that the company's actual revenues will increase over time, but because, um, the market's, like, going gangbusters. And stuff.

The only thing crazier than investors investing because they were "confident" is policy makers writing policy just to restore that confidence. The stock market has been (for how long, I don't know) a gamble for almost all investors (excepting a small group of corporate insiders) — a bet not that a company whose stock you own will continue to grow, but that other investors will continue to buy the stock.

This is a dumb bet, no matter how well it worked in the 1990s. It'll come back and bite you, sooner or later. Policy makers should not try to encourage a return to that style of "investing"; they should focus on the holes in the accounting (and accountability) rules that have enabled corporations to turn their earnings estimates and reports from informative statements about their actual operations into marketing tools for their stocks.

That is, investors should have confidence in the truth and meaningfulness of companies' financial statements — not in the magical continuance of ever rising stock prices.

July 10, 2002 1:18 PM

Comments (and TrackBacks)

True to my destined form, i'm still looking at this all through the lens of 9/11.

When the corner stone of our econo-empire crumbled, literally, it could not but stir and shake-out the rats living within. It's true to remember that, without the NASDAQ shake-out and the ensuing, complimentary shaking of 9/11 (true Chaos Theory at work here) brought a lot of this WASP-business-model crap to the surface, where we now deal with it -- all while we scurry to put back into place a new corner stone, hoping the water doesn't leak out too fast while we do this.

And we never thought the USSR could, or would, break-up. But, things change, sometimes perciptuously.

Got any variable interest rate loans?
I don't.


Posted by rob adams on July 11, 2002 11:41 AM

But whatever events happened to disillusion us of our irrational (and exuberant) belief that the market would magically rise forever aren't the issue, so much as the fact that it wasn't — something was going to bring it down, sooner or later. The losses the stock market has seen recently aren't the result of a freak occurrence; they're part of the correction of one.

Posted by M on July 11, 2002 3:59 PM

It's all about bad information. From the Wall Street analysts, from the press, from the CFOs, from the pundits, from the barbershop, from the boards of directors. And from the auditors, who signed off on the bad information.
But the market will rise, over time. We've gone through rough spells before -- decades-long rough spells. There's nothing fundamentally wrong with the system: there are problems, and no amount of changes will make it completely sound, but it's not beyond improvement in the short- and long-term. Investor confidence will come back when the economy comes back and when the information improves. And that will happen.

Posted by mike m on July 11, 2002 8:19 PM

So, G-d forbid, if a second terrorist attack, say of the same level of kill as on 9/11, happened tomorrow... i strongly doubt the market would survive -- we'd see a Dow loss of at least 500 and with at least a month of smaller, but no less withering losses.

And, that's my point.

And, that's how economies (and currencies) go belly up. This is why the current administration is going ape-shit trying to avert the next trigger.


Posted by rob adams on July 16, 2002 12:53 PM

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