[aeternus]

This is not really true. The market overall works as a surprisingly efficient resource allocation engine. Onions aren't a great example as they are a commodity rather than a stock.

Regardless, if someone does bid up the price of onions, it will typically trigger increased production of onions as farmers can make more profit by growing onions vs. another vegetable. This increased supply will pull the price back down.

[H8crilA]

The same happens in the stock market, increased demand (roaring stock market) eventually produces new equity (IPOs). But it doesn't necessarily mean that the new equity is of identical quality (ex: 2000 boom IPOs like Pets.com, or Uber - though we still don't know if Uber is a good stock or not; check back in 5-10 years).

And in the credit market - after all the good debtors are served, and there's still demand for new credit - bad debtors start being served. This keeps on going till it bursts (like in the housing bubble).

[burroisolator]

Perhaps my argument can be simplified as follows. If everyone had the same models, they would pick the investment with the highest ROI adjusted for risk (ignoring externalities). That same investment is now not available for someone else: they now have to take the second best.

[aeternus]

Thanks for the explanation, your argument makes sense.

I'd just look at it in a slightly different, perhaps more optimistic way. The fact that this investment has the highest ROI means that society as a whole would benefit from injecting additional capital into that investment.

In that sense, you're right that other investors have a less desirable price. However in theory at least, everyone is better off since that investment now has more capital, and is able to produce more output, positively contributing to the overall economy and increasing the size of the overall pie.