December 19, 2011
Many weaknesses in the current economy have come to light in recent years, but a fundamental weakness remains that needs to be addressed if investors are ever able to truly have confidence in the market and not feel that they might as well be gambling. This weakness is the fact that the share price is allowed to vary wildly, following fears and hopes of large investors. Neither fear or hope help make sound decisions. Some call this an efficient market, but that only works in the area between the extremes. Trees don't grow to reach the sky, nor can they grow with insufficient nutrition.
Rather than apply limitations to the current market, I propose an alternative market that investors could choose to place their money and limit their exposure. This alternate would be actual shares in the equity of a company, where share price was based on a share of the total equity. Thus, as the company grew, so would the share value. As more shares were sold, the equity would grow to match, so no dilution would be necessary. This means new shares would be sold at the value of current shares.
If such a choice had been available in 2007-2008, investors would have been able to move money into these shares, keeping the companies alive, and not suffering the huge losses in their own accounts that pulled the rest of the world down the drain.