Professor Bernard's picture

On Speculation

By Bernard

We need to distinguish between speculation and the classic market.

Speculators are not producers:  they are merchants, buyers and sellers of existing assets.  When a trader buys, he thinks he can sell later at a hier price.  When he sells, he believes that the price will fall.  It follows the market.  But this market, which is subject to the law of supply and demand, is not a production market, but a public market, such as stock exchange, a grocery store, a fair, etc.

The speculators who buy large quantities of a good do not have not necessarily a lower price because they buy a lot of that good, but because they have a lot of information about that good on the market, which is quite different.  The real market of the speculator is the information market, not the goods traded.

The rich dad of Robert Kiyosaki speaks in this sense, according to his spiritual son in "Guide to Investing":

"Many people who think they are investors are not really investors.  In reality, they are speculators, traders or - even worse - gamblers."

Indeed, most are teally gamblers, most of it in China, where governments control nearly all the corporatons publicly traded.  How else to explain that the composite index of the Shanghai Stock Exchange (SSE ) has reached the 6124 on October 16, 2007, at the same time as holding the congress of the Communist Party of China, before descending below 2000 a few months later?


The SSE Composite Index 1991-2008

20140102