« More on the Deepwater Horizon | Main
For a few exciting minutes on Thursday, the Dow-Jones Industrial Average was down a thousand points, with some major stocks momentarily falling to a penny a share. The basic story appears to be as follows. Initial strong selling in some stocks such as Procter & Gamble led the New York Stock Exchange to halt trading temporarily in a few stocks until specialists could sort out what was going on. But trading in those stocks continued on other exchanges, where as a result of their thinner books, orders to sell at any price went far down the list of existing buy bids. These lower prices triggered further automatic selling that sent some stocks all the way through the list of outstanding bids until encountering basement bids at one cent a share.
One popular meme is to attribute these fireworks to the existence of multiple trading venues that didn't all get shut down simultaneously (e.g., WSJ or NYT). But I think we should also be taking a closer look at the folks who were sending the sell orders rather than just blaming the exchanges for carrying out the instructions they received.
Let me frame my discussion of Thursday's drama in terms of two very different views of what your strategy might be for investing in stocks. One view was articulated by John Maynard Keynes on page 156 of his General Theory: Read Full Article »
