How do we quantify non-philanthropic contributions from Buffet and Soros?

post by Philosophistry (philip-dhingra) · 2024-12-20T22:50:32.260Z · LW · GW · No comments

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I can't find the videos where they said this, but I remember Buffet and Soros rationalizing their choice of profession by saying that they make market prices more informative. Is there a way to quantify that? What units would we use? Could we say that Buffet added $100 billion of "liquidity" to markets over the course of his life?

Providing information in the form of liquidity helps ensure that when large companies raise money from markets, investors will get fair prices. Can we put a social value on that economic function? Surely it's not zero. But are there diminishing returns? For example, if a company with a $10B market cap gets $100B of liquidity over a year, how much different would it be if they had just $10B? I suspect that the relationship is logarithmic. Obviously, the market finds a balance between total liquidity and market caps, since after some amount of liquidity, the alpha for bigger funds starts to shrink, at least in some vague efficient market hypothesis.

What does the liquidity-to-utility ratio actually look like? It's possible that the shape is parabolic, whereby too much liquidity makes prices less informative. Prices can get frothy and sensitive to small changes in information. High volatility then has a way of capturing the attention of uninformed, unsavvy investors. Or there could be negative externalities, making the broad economy prone to boom-and-bust cycles.

If that $100B of liquidity was provided to microloans, would it provide more social value than adding a little extra liquidity to, let's say, Qualcomm?

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