Today’s world has several problems, the scale and frequency of which is unprecedented. Climate change, pandemics, rapidly rising rich-poor gap, global poverty, homelessness and hunger; human life has never been filled with such misery. Much worse, our efforts to address them is far from being effective. While much of our problems are rooted in our economic systems that evolved and the institutes that promote them, the impact of stock market in our sociology today is hardly realized. The relevance and impact of stock markets in today’s societies deserves a closer look, which requires an urgent correction.
In contemporary share market and trading, we have lost the original intentions and purpose of share trading. The original idea was to pool funds to begin a business and share the profits accordingly. The value of a share was expected to rise proportionately as the business grew. The asset value of any business at any time was to include its real estate assets, infrastructure, raw material and finished goods that would aptly be approximately reflected by cost per share multiplied by the number of shares.
However, things have evolved tremendously and all relevance to the original intentions in a share market has been lost. The share market of today is led by speculations. Endorsements by celebrities, financial results announcements, any significant development within the organization, have immediate huge impact on the share price. Unfortunately, it could be nowhere reflective of the true asset value of the company.
‘Speculative trading’ is the order of the day, which is attributed to ‘sentiments’. Returns from stock markets are generally progressive and in certain cases phenomenal. Unrealistic returns override the true worth of a company. At the same time there also remains a possibility for a stock to lose all value, despite all its assets.
For instance, even in the midst of pandemic on April 11, 2020, Forbes describes the stock market development for the week — “The unemployment rate and the COVID-19 case count continue to soar, but the stock market is faring a bit better. The Dow Jones Industrial Average and the S&P 500 both surged by more than 12% in the week ending April 9. (The markets closed on April 10 for Good Friday). Stocks made a notable jump on Thursday as the Federal Reserve announced $2.3 trillion in loans to support the economy. The market gains led to a combined $51.3 billion boost for 10 of the world’s billionaires since the market closed a week ago, on April 2.”
Returns from share market have largely been significant and the performance of the major indices is a testimony to this. Stock markets are responsible for the phenomenal rise in the number of billionaires world over. The huge rich-poor gap as it exists today must be significantly attributed to the stock markets. There is very likely a complex phenomenon that siphons money from the streets and dumps it into these markets; making the rich richer and the poor poorer.
Given the precarious living condition of the majority populace, rising disparity, and environmental degradation, it is very important to introduce corrective measures to this stock trading methodology. It is important to control the indiscriminate churning out of speculated money to mitigate its ill effects on the society. The returns from stock market could be capped to correlate with the true asset value of company, which would also help avoid big losses. Alternatively, the returns could be capped with existing interest rates too. Whichever; it is important that stock markets shed out some part of its sheen and cease to be avenues of blatant money. At least for the sake of our Earth and our sustenance.
