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The price is just a symbol

[Recommend my two-volume book for more reading]:

BIT & COIN:  Merging Digitality and Physicality

In this post, the author accuses SEC of committing a crime for causing a drop in stock price.

People who do this assume that stock prices must be protected as if they were a value in themselves.

That is wrong.

It is a good example of what’s wrong with today’s financial industry as a whole.

It confuses symbols with reality and price with value.

A temporary drop in stock prices is not a destruction of value; likewise, a temporary rise in stock prices is not a creation of value either (see Value Creation).

Saying that the SEC committed a crime because its policy caused a market price drop is equivalent to saying that police stopping a vehicle in violation commits a crime against the driver. Likewise, praising the FED as a hero for its policy that pumps the stock price is like praising a doctor who prescribes steroids to athletes as a hero.

To a shareholder, a stock price may be real money (if he sells the stock) or future money (if he holds it). But looking at everything from a shareholder’s view only is self-centered.

From a system point of view, the price is just a symbol.

For a symbol to reasonably reflect reality, there needs to be proper regulators. The goal is not to get the measurement reading as high as possible but to have a reading that is as close to reality as possible.

The market itself is a regulator of the price, while the SEC is a regulator of the market. It’s all right to debate about the reasonableness of certain policies, but the standard is always whether they help more accurately measure and reflect the economic reality, not whether they’re more powerful in pumping or dumping on the readings (prices).

You want your thermometer to be accurate.

But, the stock price is not even an accurate measurement of reality compared to temperature.

When you take the temperature of an object, you are measuring the overall thermodynamic condition of all atoms and molecules in that object. It is physics, the nature’s perfect law.

In contrast, stock price only measures a dynamic boundary condition of an asset and presents it as a simplistic representation of the whole. Consider this simple fact: if you have 1 billion shares of a stock, just one trade of a single share at a certain price will result in the entire stock being priced at that price just traded. Compared to physics, it is an imperfect human artifact.

Symbols are useful (if properly regulated), but one should never use symbols to judge reality. Price is useful (if it’s not manipulated), but one should never use price to judge value.

Let’s step out of our self-centered interests once in a while to have a proper reading of reality. Otherwise, we could be stuck in temporary things, such as stock prices, and even start to believe that it is a basic human right that stock prices must go up.

The universe has its proper order according to its objective reality and ultimate purpose, and so should society and life.

[Recommend my two-volume book for more reading]:

BIT & COIN:  Merging Digitality and Physicality