Shorter Hours for the Stock Markets!

You would have to live in complete isolation, without radio or television, to not hear voices telling you that the Dow Jones Average is, at this hour, going up or going down or that the Losers are advancing over the Gainers. Who Cares?

When one stockholder sells his/her (or theirs!) shares of General Motors to another person, what has changed? Its as though I sold my used car to you. Has anything happened worth making a fuss about?

Even if a lot of people have sold their General Motors stock to a lot of other people, what has changed? The General Motors Corporation has not gotten more money to buy more materials. It won't make Buicks and Chevys less expensive.

What has changed is the wealth of the stock brokers. No new value has been created. If some one, including the stock broker, has gained then, it stands to reason, some one has lost. No new wealth has been created!

What Change Will Be Made?

If some persons want to offer their General Motors stock for sell, they will contact a broker during the day and place a sell order - at market or at a specific price. The broker will 'enter' the offer into the 'system' to be processed when the Market opens the following morning at 12:01 am.

Likewise, persons wanting to buy some General Motors stock will contact a broker and place a buy order, stating the maximum price they would be willing to pay for the stock. Again, the broker would enter the offer into the system to be processed when the Market opens the following morning at 12:01 am.

The Market's computers would match the offers to sell and the offers to buy General Motors. When there is an agreeable match among buyers and sellers, for quantity and price, 'trades' would be made.

It should be noted, at this point, that the 'market makers' would input their top-price limits for their specific stocks as well as the maximum quantity that they would 'cover'. They would provide the same service and run the same risks as they did before the proposed change.

If there were unmatched offers to buy and/or to sell, the prices would be averaged, along with the successful trades, and this value would become the market's price for General Motor's stock and it would be that price that would be shown on the 'price list' sent to brokers and to others who report on such things to the public.

How Will This Change Improve Our Lives?

The speculators, following these same movements, jump into the market and their actions often compound the variations causing even greater swings in the price of General Motors or whichever stock or stocks are being actively traded.

But what has changed? Is General Motors, as a company, worth any more or any less just because the speculators are gambling with each other? The answer is, of course, a resounding NO. (Yes, GM's treasury stock will gain or lose value but that, like the effect on your stock and mine, is just a paper gain or loss and does not materially change the Company's worth.)

A true investor, as compared to the speculator, does some research to determine what the value of a company is today and what it might be next year. The variables considered in such research are such things as the company's products and their place in the market, the company's management team, the general economy in the company's market segment, the company's sales to cost ratios, the price to earnings ratio, the dividend paid to the share holders and many other important factors. Using the results of that research, he or she will buy, hold or sell the stocks of that company.

Instantaneous changes in the price of the stock brought on by the speculators tend to place stress on the investment decisions made by the non speculators. Slowing down the trading cycle, by having shorter hours in the Stock Market, will level the playing field for the smaller investor.

Where is the Opposition?

Since the actual 'trading' will be done by a computer, untouched by human hands, there will be no need for those persons seen frantically waving arms and making hand signals on the floors of the Stock Exchanges. It will no longer be necessary to have a squad of floor sweepers cleaning up the mess left by the 'traders'. Reams upon reams of paper will be saved!

Furthermore, it will no longer be necessary to have a dignitary stand on the balcony and pound a gavel to tell the system when to go into recess. The computer can do that and it will do the trading more swiftly, more accurately and certainly with less mess on the floor than ever before.

Is This a Radical Change?

First, the basic process of the stockholder placing buy and sell orders has not changed. Contacting a broker would continue much the same as it is today. Only the fact that the broker will not be able to report to the shareholder that the transaction was completed while still on the phone will change.

Second, today computers are used to 'confirm' the actual transactions - matching the buying and the selling of stocks. I am at a loss to explain why it is necessary, or even desirable, to have those guys and gals flapping their arms about on the floor of a stock exchange or, for that matter, to have the floor.

The overall effect of the new system will be to slow down a frantic market and to dampen the effect of the speculator.

NOTE: [10/28/97]
The rapid drop of the market yesterday and the recovery today is an excellent illustration of what has been stated above. Who became richer in these two days? The stock brokers, of course!

NOTE: [08/01/02]
Again, the large changes in the market these past weeks have been an excellent illustraion of the effect of the speculators on the market.