After the Financial Crisis, it’s understandable that many people harbor resentment for the financial community. But Medium’s Mike Yu recently defended financial markets.
“Finance serves as society’s allocator of capital and risk, over parties and states of the world,” Yu wrote.
Economic Innovation
He argued that the reason why startups like Tesla Motors Inc TSLA 1.64% have any chance to compete with larger, well-established rivals like General Motors Company GM 3.39% is because society “supports” Tesla’s ideas by providing the company with capital via equity fundraising.
In other words, the stock market is one of the major facilitators of economic innovation.
Once a company has its IPO, the primary role that the stock market serves is to provide enough liquidity that future investors can rest assured that 1) any shares that they buy are accurately priced and 2) any time they want to sell their shares, there will be buyers.
Liquidity
Trading firms like Goldman Sachs Group Inc GS 0.31% and Morgan Stanley MS 0.44% play a large role in creating and maintaining market liquidity by facilitating trades in the market.
Yu went on to defend the controversial futures and derivatives markets, which played a central role in the Financial Crisis. While many people associate derivatives trading with risk, Yu believes the opposite is true.
“You can think…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!