The Rittenhouse Review

A Philadelphia Journal of Politics, Finance, Ethics, and Culture

Friday, October 06, 2006  

Widgets and Doodads

Andrew Cassel, the economic columnist on the Philadelphia Inquirer's business page, isn't playing Pollyanna today, he's just really confused or otherwise simple-minded, as indicated in the headline assigned to today's scribblings, the oddly apostrophed essay, "Stocks', Bonds' Puzzling Messages," where we encounter this:

A wise observer of financial markets once observed that every trade involves two views of the future -- and that one of them is wrong.

Think about it. If I buy your General Widget stock, I'm betting that Widget shares will be worth more tomorrow or next month than they are today. You, by implication, are betting the opposite.

We can't both be right.

This is just silly, entirely misguided, and easily refuted.

You see, I might be very happy to sell Cassel my shares of General Widget in order to obtain the cash I want to purchase shares of Consolidated Doodad, not because I think the price of General Widget's stock is going to be worth less in the future than it is now, but because I think my potential gain from investing in Consolidated Doodad will exceed that which I expect to earn from the more modest anticipated appreciation of General Widget.

It's really that simple.

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