Investment and Speculation

Problem

The concept of world stock markets may appear good for the simple fact that many people can enter and exit markets easily. But it is this ease that enables wild, short term speculation that generates market bubbles and is also responsible for their inevitable popping.

These excessive ups and downs are not good for the community. Unsubstantiated (greedy) investment into small rising sectors reduces needed investment in other sectors, causing their decline. Panicked removal of investment from a sector harms that sector. Both conditions cause job loss and reduced productivity.

Solution

The removal of baseless speculation prevents market bubbles from forming.

• Derivatives Trading should be Illegal: Derivatives trading is just gambling on market changes, and has nothing to do with investment in beneficial output.
• Force minimum duration of investment: Venture capitalists are a good example of value-adding entities. Their willingness to invest capital for long term periods (years) forces them to consider their investments thoroughly, and makes them stick to their investment commitment. We can do the same for the stock market, by forcing investors to hold on to their stock for a minimum period of time (maybe 5 years or maybe until they get back 30% of their investment). People would not be so willing to put their money into unsound markets (or at least learn from their mistakes).
• Remove RRSP Minimums: The Canadian government demands that there be some 80% Canadian content in a citizen's RRSP (Registered Retirement Savings Plan) account. This forces an undue amount of investment in the Canadian sector, causing over investing in bad business and under investing in good business. Many suspect that this over investing is the cause of the disproportionally inefficient big business that can be found in Canada. Removing the RRSP minimums will free the capital to invest in productive business, while letting inefficient businesses die.