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Why is the Stock Market so Attractive?
We’ve got to the tenth article of the series! As an exception, this article will not be in line with the previously published. It will not be about a practical approach to the Stock Market, but rather a philosophical one.
It is of my view that as more thoughts a person gives to a particular subject, the clearer this subject becomes to the person. This is why, when we speak of very complex systems, such as the human brain, economics, society, or in this case, the stock market, it is important to analyze them from several perspectives. If we ignore the abstract approach to these topics, we could be missing on a lot of insights which could help us think in a more lucid way about them and, therefore, decide with better judgment.
I believe the appeal of the stock market can be explained upon the following phrase:
“The stock market is extremely attractive because it’s the point of convergence of many fascinating theories and disciplines.”
Complex systems are characterized for being the spot where all sort of theories collide. This theories by themselves already capture people’s attention and are, in most cases, a field of study on their own. So, imagine how indescribably exciting can something be if it agglomerates several of these fascinating premises.
Some of the ideas that converge into the stock market are the following:
The Pricing System
Friedrich Hayek states that every single agent in the economy, with its own individual knowledge and resources, helps building The Pricing System. The way they do so is by sending signals in the form of buying or selling according to their own personal needs and expected benefits. This is exactly what happens in Stock Prices.
At the same time, let’s not forget that the agents participating of the stock market are people in the form of personal accounts, institutions or a group of investors. What this means is that the combined rational decisions of buying or selling have, as a main component, Human Nature. Here’s where greed, fear, euphoria, happiness, loneliness, despair and all human emotions come into play, by affecting every person’s singular decision.
This is not a bad time to remember that the intrinsic value of a stock is the present value of all the future cash flows this asset will produce. Future Expectations then enters the room.
And, easily said, what is more captivating than trying to predict the future?
Now, to wrap it all up, imagine all of these (and many more) already fascinating by themselves conceptions, merging to form this unique creature called The Stock Market. How can this ethereal entity not grab people’s attention, when it’s an exhaustively demanding intellectual activity.
And, the cherry on top: People indirectly compete with their peers to determine who better performs in this philosophically impossible task.
This is an almost unanswerable question, but hope I got close to. Any thoughts regarding the subject are much appreciated!
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