WE CAN GIVE AWAY WITH EQUITY MARKETS!

What started as an opportunity for businesses to raise money and at the same time small time investors to invest money, has now become a game of gambling. I once had a debate with my friend on whether intra-day trading should be banned as its completely speculative and how can one buy a stock and want to sell it the some day (or vice versa) for investment purposes. But then how do we decide what the minimum holding period should be for equities, given how dynamic the businesses are today.

Coming to stock markets representing the nation's progress... As P. Sainath, the rural reporter, mentioned in one of his talks, when Tsunami struck the Asian countries, the stock markets of the 4 worst hit nations rose to their highest peaks. So what does the market indicate? And when less that 1% of the world population actually owns any equity, we should be concentrating our efforts on bridging the gap between the rich and poor by microfinancing their projects rather than juggling money amongst the 1%. If not for humanity, for ourselves. Because the 1% can easily be held to ransom by the 99%, and as one of the articles in Hindu Business Line said - 'The day is not far when the have-nots will hit the streets. In a way, it seems to have already started with the monstrous and grotesque acts of the Maoists.'

Perhaps we could start by having another platform similar to the Exchange, but not exactly an Exchange, a platform that provides small investors to invest in agriculture, not large companies, but small farmers. And make it a more engaging experience rather than just exchange of money. Since the money of the investors is in question, they can educate the farmers on issues like managing the risks, having insurance, help them to do their own small research perhaps, collaborate with other farmers across the world on issues like manure, pesticides, on anything & everything. This can be then extended to other professions, but agriculture being a major one and of late, being a problematic one, could be the one to start with.

We can give incentive for businessmen and production in agriculture and other productive small sectors to the small investors and other entrepreneur!

There are good reasons why equity markets, in their current form, need to be eliminated. Some of these are as follow--------------

• Less than 1% of the world’s population actually owns any equity. Disproportionate media attention is focused on Wall Street and other stock markets across the globe, at the cost of more productive activity.

• The financial industry’s primary reason for existence – efficient capital allocation – has been exposed as a myth in the meltdown. Innovations in financial services are not focused on delivering more capital to productive activities. Instead, debt is sliced and diced to create multiple transactions out of the underlying debt – increasing deals and commissions but not leading to new capital.

• Similarly, trading a company’s equity on a daily basis does not bring the company fresh capital –the same equity changes hands and only the brokers get rich. The only purpose it serves, if and when it works, is price discovery.

• Everyday people have no clue about stock prices – most buy after prices have risen and sell when prices are bottoming. For most everyday people, who have little knowledge of the markets, buying stocks is akin to gambling. The so-called experts aren’t much better – they just have more money and more discipline to get in and get out ahead of the crowd. There is no justification for an investment banker earning many times the salary of a plant manager, a sales manager or a branch manager on Main Street.

• Stock prices are artificially inflated by the markets. Like Mark Cuban says, stocks should be valued only by what they earn – their dividends. Otherwise, it is like valuing land at more than its rental value. The idea of a joint stock company, popularized by British shipping ventures, is outdated. Venture capitalists fill that role today, allowing rich people to make risky investments for a chance at enormous payoffs. We need to put more emphasis on traditional businesses, family owned, operated as partnerships or proprietorship firms, with unlimited liability. Those firms traditionally access debt from private sources or banks; managers are personally accountable, and run their companies with more discipline and oversight.

Small investors like to think of themselves as part owners when they buy shares. This is a myth perpetuated by companies, banks and the media. The fact is that owning hundred shares, or even a million shares, of a company will not fetch one even an ounce of a say in how that company is run, or how that company keeps getting merged and demerged. The shareholder is at best a supplier of money. The stock goes up and down and changes hands, but none of those transactions have any direct impact over the functioning or finances of the company.

We need a clear distinction between venture capitalists – who understand the risks and the returns related to their equity investments – and normal investors who are better served by debentures and bonds that offer predictable returns. Further, valuations of companies should reflect dividend yields rather than hopes about future growth or profitability.

The Connected Age will bring about fundamental changes to the way these markets operate. It will offer opportunities for rich people to back ventures and have a say in how they operate. We should also provide lay investors opportunities to earn predictable market returns. Welcome to Stoppressbd.com