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Re: [LUG] Trading and IT.

 

On Thu, Sep 15, 2011 at 08:42:30PM +0100, Simon Waters wrote:
> 
> That suggests to me that the price mechanism is broken.
> 
1)  There is a classic cartoon in The Economist, the only copy I could find
    is at

    http://cicerossongs.blogspot.com/2011/08/buysell-by-cell.html

2)  I would agree with a thought made by both Benjamin Graham and Buffet that
    goes along the lines

    "In the short run, the market is a voting machine but in the long run
    it is a weighing machine."

    Otherwise phrased "if you can buy the same litre of milk one day for
    50p and the next day for £2, why buy it for £2?" (or MS office vs
    LibreOffice or ...)

> Time to switch the exchange to a more obviously auction like process? I
> appreciate you can't remove the time element completely, but it seems to
> me that a smart price mechanism would eliminate some of the daftness the
> stock market sees in shares with low volumes of trade where the current
> price mechanism falls apart because it doesn't emulate an auction well
> in such circumstances. I suspect such a mechanism would eliminate much
> of the profit to be made in short term transactions that the people who
> runs such things currently rely on to make it so lucrative.

This is in effect one of the arguments for small cap investing: you are
buying a company because what you think the company will do. The problem is
that buying the shares while difficult can be done: selling the shares can
be much harder. 

One of the arguments for High Speed Trading conversely is that it makes it
very easy to buy and sell at very low margins.


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Henry
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