Re: [tlug] Open-source Japan

["Stephen J. Turnbull" <stephen@example.com>]

Curt Sampson writes:

 > I certainly didn't formulate my thought correctly. Basically, markets
 > are a way of exchanging information and products (which themselves may
 > be information, of course), right?

Yes.

 > So what I guess I'm trying to say, is that in a good market (i.e.,
 > one that contributes to economic growth, encourages people to
 > trade, etc.), you can get trustworthy information about just what
 > you're buying. In a bad market, you can't.

But in fact, the prepurchase information that you get about an
automobile, or its manufacturer's stock, is fairly untrustworthy (in
the sense of being imprecise).  That is as compared to the information
you have about, say, Asahi Superdry.  Those are still "good markets",
though, although the market for auto manufacturer stock is looking
decidedly chancy these days.

The reason is that even though the variability of the outcome is quite
large, the expected value is sufficiently large to make purchases a
good bet.

So it's not a question of the trustworthiness of the information, as
long as you know how trustworthy the information is.  What matters is
that you can evaluate the risk that the net value is negative ... if
that's acceptable, buy.  But that evaluation may be quite expensive.
For example, when someone buys a used car, they typically spend a few
percent of the price on a mechanic's appraisal, no?  And when somebody
buys software from you, if they have any sense at all they probably
spend the same order of magnitude on managerial effort toward
specification and review as they pay you in yen, no?

(That last example is why I'm comfortable discussing this on-list, by
the way.)

 > People tend to be much more reluctant to buy there than on the NYSE
 > because of the unreliability of the information and consequent
 > number of scams, and thus it's also a much worse place to go to
 > raise capital.

Deliberate fraud is another matter.  I don't think that's what Shawn
was referring to.

[Off-topic: I also suspect that the VSE has a lot of inherently
volatile small-cap issues, making it more risky in general.  It's not
obvious to me that it's the risk of scam per se that makes people
reluctant to buy there.]