Circuit Breakers in Boring Utopia
Sourav Mitra -
Saturday, February 02, 2008 9:49 PM
In Boring Utopia there would perhaps be no need for stock market circuit breakers.
If there was a need for circuit breakers it would not be based on knee-jerk formulae devolving from headline grabbing market volatility via a collective madness. It would be based on boring fundamentals - a reasonable average of reasonable multiples of earnings, book values, industry averages, group averages, indices of management strength etc.
The circuit breakers in Boring Utopia would not apply across board to all securities traded at the exchange. They would only apply to individual securities that transgress their individual fundamentals.
And circuit breakers in Boring Utopia would not apply for pulse stopping hours. They would apply for hours or days or months or perhaps even long boring idyllic years - until the fundamentals changed.
But in the real world of greed, grabbing and survival of the fittest and destruction of the weakest (i.e. small investors, gentleman investors and other such misfits) who cares for Boring Utopia outside of fantasies?