Of Casinos and Stock Exchanges

Article excerpt

MANILA, Philippiens - A former president of the Philippine Stock Exchange agreed with the observation that the casinos and the stock exchanges are both engaged in gambling.

In both instances, the players take a calculated risk when they place their bet or decide to purchase stocks. However, in the case of the stock exchanges, the investor can analyze the financial performance of the company, the character, experience, and expertise of the board and management; and analyze industry trends and the business environment before making his decision to sell or to buy.

In the casino, despite banking on the law of probabilities, not knowing the exact universe of the cards and the behavior of the other players makes betting more of a game of chance than in the stock market.

In the casino, it is commonly believed that the odds are stacked in favor of the house. Despite this, betters come in with the hope that they can "break the bank." When winning, they continue betting to take full advantage of their luck and when losing, they continue to bet, hoping that the tide of their fortunes will change just around the corner.

In the end, it's the house that generally rakes the money in with a few of the betters also emerging as winners with none able to "clean" the house. In the stock exchanges, there is no house; rather, there are players in the market where the loss of one is the gain of another. Some question whether the playing field is level, taking note that the smallness of a stock exchange can enhance the capability of a group to manipulate the market movements.

Others contend that major corporations who are listed but are also shareholders of the stock exchange could have an undue advantage over other listed companies, especially in the application of the rules of the stock exchange. The presence of independent directors on the board should temper those tendencies. The regulatory oversight of the Securities and Exchange Commission will also check any such deviations. …