I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you….

For instance consider interest. The reason islam and medeival christianity banned it’s collection is that it’s easy to see the small guy who is paying interest to the rich merchant/bank as sympathetic while there is no obvious person you can point to as being hurt by barring the charging of interest. However, if you ban interest people stop offering loans which inhibits innovation, but this consideration just doesn’t have the emotional pull since you can’t point to particular innovations and enterprises that failed to happen. Similarly, workers who are paid low wages by factories are easy to point to but it’s hard to identify the particular poor farmers who would be slightly better off if increased demand let them work in a factory. Making money off of predicting a companies failure is a similar sort of situation where the people who are hurt are easy to see and trigger our sympathy while the people who are helped are diffuse and hard to concretely identify.

Ultimately the value of the financial markets is in directing societal resources toward useful, cost-effective projects. When money is wastefully invested in companies like e-useless-widgets.com as it was during the dot.com boom people lose money and we are all made worse off. Not only do the VCs or shareholders lose money in such circumstances but the entire society suffers because we lose out on the useful products the employees of e-useless-widgets.com could have created with their time. The dot com bust was a dramatic example of this, because of the massive waste of resources on useless projects the whole economy suffered.

Thus it’s to society’s benefit for the market to accurately reflect expectations of a company’s future success. If companies are undervalued they don’t get access to sufficient capital to create useful products, if they are overvalued we end up wasting resources that could have been used better elsewhere Selling shares short or buying puts helps adjust down the price of overvalued companies so the money can be used somewhere else more efficiently. Without this mechanism there is no effective way for the market to integrate the expertise of people who realize that a company/business method is undervalued.

Ultimately I find that the best way to avoid most of these economic confusions is not to think too much about money. Money is merely a gloss that confuses the issue. Once you think about the market as a way of deciding which projects we want to spend time and resources on it becomes obvious that it’s just as important to avoid wasting resources on less efficient companies as it is to recognize undervalued ones.

If you have been reading his blog, he has been very loud and clear in his opposition to the MSFT/YHOO deal and, I believe, was taking into account the best interests of YHOO and its employees.

All told, I am not sure from where this vitriol comes. Maybe you could write a follow-up with more of your thinking. I am interested.

i don’t really subscribe to that theory marc.

and i didn’t do the poll thinking i’d buy the stock on the basis of the poll. i did it because i thought it would be interesting. it was to me.

but i do feel YHOO is undervalued and i figured the stock would test the $20 level early in the morning

it didn’t and so i never bought the stock today

that’s too bad

fred