Gambling and the stock exchange - possible analogy?

[kev67]

I am nearly a third through. The bit that amuses me most is that Lady Carbury and her son, Sir Felix, remind me of a friend and her grown up son (who gets up late and indulges his vices till the early hours, makes her despair, but is very attractive to women).

Sir Felix's vices are gambling and spending money he has not got. He and his gambling friends pass around IOUs in the absence of ready money, but the creditworthiness of some of these IOUs becomes increasingly doubtful. I don't know, do you think there might be some analogy with the goings-on in the City of London, Wall Street and other financial districts, as exemplified by Mr Melmotte and the board of the South Central Pacific and Mexican Railway investment opportunity?

[YesNo]

I haven't read the book, but there are two views regarding the analogy between gambling and the stock market. One view (traditional economics) would say they are very similar. This view would say the stock market is like gambling except for occasional news information that might modify the randomness of the market. This view would include ideas of random walks and the efficient market hypothesis. The existence of market crashes puts this view into question: randomness and news is not enough to explain market patterns. Investors who believe in this position usually just invest in ETFs and don't worry about picking stocks or trying to time the market.

The other view assumes there exists something, often called social mood, that the market is a meter of and it operates in a non-random pattern. This is what market timers believe is the case. The assumption that the market is not gambling and therefore not random implies the existence of something larger than the market and the individual participants which is being measured by the market. Generally people don't like acknowledging these top-down causal agents and so do not want to accept this position. Look up "socionomics" and Robert Prechter for more information about this position.

I don't know if the author accepts one of these positions or not or if the author even sees the distinction.

[YesNo]

Something else occurred to me this morning about literature and markets. You could attempt to do a literary analysis taking note of whether the market was bullish or bearish when this book was written. This is already done by socionomists, but it probably could be expanded.

In the two possibilities I mentioned earlier, the efficient market hypothesis would be a bullish idea. It is optimistic, individualistic hope for gain dominates. We believe we are in control and there is no need for gods or muses to help us. The bearish model would be pessimistic. We tend to come together for security and pray harder that those gods and muses we thought we didn't need don't abandon us.

Although there has been a general bull market since the 18th century there are smaller bullish and bearish periods during that time.

[kev67]

Something else occurred to me this morning about literature and markets. You could attempt to do a literary analysis taking note of whether the market was bullish or bearish when this book was written. This is already done by socionomists, but it probably could be expanded.

In the two possibilities I mentioned earlier, the efficient market hypothesis would be a bullish idea. It is optimistic, individualistic hope for gain dominates. We believe we are in control and there is no need for gods or muses to help us. The bearish model would be pessimistic. We tend to come together for security and pray harder that those gods and muses we thought we didn't need don't abandon us.

Although there has been a general bull market since the 18th century there are smaller bullish and bearish periods during that time.

There was quite a bad recession from 1873 to 1879 in Europe and America. The recession had many causes, but a major one was over-investment in American railroads. TWWLN was published in 1875. I think (but I am not sure) Trollope had been reading a book called Lombard Street: A Description of the Money Market by Walter Bagehot, published in 1873, which was inspired by the crash of the Overend, Gurney and Company discount bank in 1866, causing a financial crisis that was only averted when the Bank of England agreed to start backing all the other banks' loans.

No doubt the introduction of my copy of TWWLN will explain more about the background, but it probably contains spoilers so I am leaving it until the end.

[YesNo]

He may have had a negative view of the markets if the book was written during a bear market period. Calling investments "gambling" might have been a way to negatively describe the markets.