Quote for the Week
What is that frenzied activity that we see in financial markets all about? Financial markets are the grease in our economy that keeps the wheels of enterprise turning. Financial markets are in the first instance a vehicle for financing governments and enterprises that need money. But why is it that financial markets are so important in this process? Financial markets are a place where owners of outstanding assets can convert those assets into cash, or where owners of cash can find longer-term uses for their money. Financial markets thus give holders of assets with future cash flows the option of realizing the discounted value of those future cash flows in the present. Financial markets are a kind of time machine that allows selling investors to compress the future into the present and buying investors to stretch the present into the future. Without financial markets, all assets would be buy-and-hold and the cost of capital would be orders of magnitude higher than it is today. In panic conditions, as Alan Greenspan so often reminds us (he uses the expression “fear-induced disengagement”), financial markets come to a screeching halt because buyers evaporate and even supposedly liquid assets are transformed into buy-and-hold. — Peter Bernstein (source)
From the Archives
Last Call
- 150 Years of Global Stock Returns: The Birthplace Lottery – Beyond Passive
- What Doubters Get Wrong About the 60/40 Portfolio – Morningstar
- Risk Tolerance & Portfolio Size – Nonmaterial
- No-Man’s Land – Investment Talk
- Long TIPS Yield 3%. Time to Buy? – Advisor Perspective
- You’re Brain Doesn’t See Reality, It Tries to Predict It – Big Think
- Why Everything Is Starting to Look the Same – Lauren’s Data
- Nobody Reads Anymore – The Leap
- Replacing the Global Monetary System with Corn – Rabbit Cavern
- Which Countries have Already Passed Peak Population – Our World in Data