Thinking Out Loud

The Economics of the Free Lunch Counter Why is everyone always so amazed when well-defined, clearly-understood, and completely immutable laws continue to function? If you let go of your laptop from shoulder height, are you surprised when it drops to the ground? It does, you know. Because gravity works.

Why do most people invest in the stock market? To get money. (Not make money, mind you, but get money. Making money is a completely different concept that involves labor and mental effort.) It's called speculation. That's another word for gambling. Everyone's out there looking for the big score, the magic IPO, the ground-floor deal that will let them retire without having to actually earn the money with which to do so.

For some reason, we just can't let go of the notion that there really is such a thing as a free lunch. Thermodynamics be damned, I want my something-for-nothing.

When the bulls were in town, no one cared how a stock was valuated, only that it keep going up. We created a demand for higher and higher stock valuations and didn't care that they were based on thin air, pipe dreams, and smiles.

But now, when the bears come around, we scream and cry that we've been cheated. Let's face it, folks. It's the immutable laws of economics at work. We created a demand for artificially-high stock prices and people moved in to supply them. Were we conned? Sure. But you can't con an honest person. A con requires the willing participation of the mark. The mark has to believe in something for nothing, or the con won't work.

We ignored the fact that these silly run-ups were completely disconnected from any rational concept of "value." We were perfectly willing to pretend that the stock of companies that couldn't possibly be making a profit, and probably never would, were actually worth something. We didn't care to take the time to worry about whether the company's business plan made sense. Hell, half the time we didn't even bother to find out what the company did for a living. We threw money at it because a friend of a friend saw an article somewhere that said it was going to go up. (Pssst! Joey's Pride in the eighth to win.) We were getting our free lunch, at last!

Well, I've got some surprising news for you: Gravity works.