What Happened to Real Investing?

A little more than 20 years ago, on the occasion of my bar mitzvah, one of my great aunts gave me a couple of shares of IBM. She gave IBM shares to all the cousins on special occasions and, from what I understand, she had plenty to give. I think she and her husband bought a couple thousand IBM shares in the 1950s and since then it’s split a few dozen times.

Now that’s what I call investing in a company.

I say this because these days it seems like the stock market is less about investing in companies in which you have confidence, and more about making bets or “taking positions” on companies and simply waiting for them to move so you can cash in. Now, there have always been traders that engage in this kind of speculation, but Thursday’s 1,000-point market freefall is an example of how this phenomenon can get out of control.

In case you missed the freefall, on Thursday evidently someone goofed, pressed the billion button instead of the million button on some sort of trade, and as a result the stock market went bananas. The Dow dropped almost 1,000 points in a matter of minutes – which is unprecedented – before quickly regaining most of the ground it lost.

Much of the reason for the drop, apart from human error, is the fact that lots of stock trading is automated. People often set computers to make trades when a stock falls below a certain number, which is usually both profitable and convenient, however in this case lost a lot of people a lot of money. There was a time when one mistaken trade, no matter how big, wouldn’t have had such a far reaching effect, and cause everyone else to sell everything else.

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