The stock market actually has a two-fold social purpose:

1.  to allow individual savers to invest directly in a business

2.  to aggregate and efficiently allocate capital to those who will create the most value with it

Both these noble social purposes are assisted by liquidity, but daily ups and downs of the market are relevant to neither; only the long term matters. Unfortunately, the stock market as currently structured and regulated seems to favor high-speed trading more akin to casino betting than intelligent investing for the long term. For one thing, three months is much too short a time to evaluate a business, thus quarterly reporting creates too much emphasis on short-term movement in earnings. High-level managerial talent becomes focused on massaging the numbers rather than on running the basic business and creating long-term value.

And one year is way too short a period for preferable capital gains tax treatment. Five years is a much better timeframe. Five years forces investors to think long term, which then forces management to think long term. And that is a social good worth rewarding with favorable tax treatment.

Closing quotes:

“Our favorite holding period is forever.”  — Warren Buffett

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”  — Warren Buffett