Investors retreated from Wall Street again, driven by worries about the nation's big banks and General Motors Corp.But, investors don't react positively to news one day and negatively the next. Traders do. Investors are in it for the long term and will buy or sell according to trends lasting longer than a day. Traders are in for the short term whether it's minutes, hours, or days.
I had another insight into what investing thanks to Michael Gerson, "A Week of Revelation", Washington Post, 2009-03-04.
In it, he said that governments don't invest, they spend. Gosh darn it, governments do invest in education, roads, basic, and many support activities that people and businesses rely on in order to make money. We can see what happens in too many countries that don't invest. They don't have the human capital to build a strong economy when free schools are few and far between. Their businesses have higher transportation costs because of the poor quality or lack of roads. They have to rely on imports for medicines and technology because they have little basic research. And they don't have a civil society in which business can thrive because the police are ineffective or corrupt and bureaucracies are a tangle of competing interests.
It's easy to criticize government investing because no balance sheet shows the return on investment, a return that might not be seen for years or decades.
Are Gerson's investors really investing? Or are they merely providing liquidity for those who bought from investors who bought from investors ... who bought from the original investors who started an enterprise. We could consider any person who bought or sold shares a trader. They didn't start the companies they "invest in" or provide a dime of capital when the company started. As I wrote at the beginning of this paragraph, they do provide liquidity for the market. When any original investor wants to sell shares, there is a market for the shares. Of course, the persons who buy the shares want the same ability to sell the shares later. Without these markets less money might be invested in the first place.
Similarly, without government investment the stock market would be a shadow of itself. What would our country be like without the government investment in the transcontinental railroad, the interstate highway system, the Internet, and an educated citizenry.
