Tackling a Stock Market Myth

Stock Prices Up = Good

Stock Prices Down = Bad

Is this correct?

Anyone familiar with shorting knows that it's not correct. Some people make a very good living profiting off price declines. Try telling them that lower prices are bad.

However, if you watch (or read) the financial news, you're constantly reminded that rising stock prices are good....while falling stock prices are bad. I think this is very irresponsible; not only because it ignores short sellers, but because it also ignores the whole purpose of market prices.

Market prices are a critical element of the free market. Entrepreneurs make plans and decisions that are based on them. Market prices provide valuable supply and demand information. They expose the desires of consumers. These prices are most accurate when arrived at through the voluntary actions of individuals...using sound money.

Market Prices are neither good, nor bad....They are merely information.

But let's say the media is correct...and let's imagine that every single stock went to $1,000/share overnight. That would be utopia, wouldn't it?

But what would this new situation tell us about supply and demand? What would it tell us about consumer desires? What would it tell us about how and where economic resources are being allocated?

The truth is: We would be in the dark...with no idea of what to do next.

It's critical that companies who no longer provide goods and services that consumers desire see their share prices decline. If the decline is precipitous, it may be a signal that the assets and labor of these companies can be used somewhere else. After all, should we still be mass producing horse and buggies, car phones, or beepers?

No.

So it doesn't matter if it's a Bull Market or a Bear Market....All that matters is that it's a genuine Free Market.