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#1
07-31-2006, 01:24 PM
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Not entirely true, but close:
"No money is ever really made in financial markets. Markets merely transfer wealth. As to how to make money? Well, it is basically theft, misrepresentation, lies, cheating, deception or force. It is impossible to make the staggering amounts made in derivatives in good years honestly."
from: Traders, Guns & Money: Knowns and unknowns in the dazzling world of derivatives (Paperback) by Satyajit Das Discuss. 
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#3
07-31-2006, 06:00 PM
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Re: Not entirely true, but close:
Fairly true I suspect... It is a common fact amongst finance academics that insider trading and corporate deceit sucks up a large amount of "value" from public investors like you or I who have to be satisfied with single-digit returns as a result... As my finance professor once said when discussing this point, "I know this but I don't care because, in spite of this, the return I get on my portfolio is still better than I could get from bonds or other investments..." Not sure whether I buy that or not.
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#4
08-01-2006, 02:36 AM
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Re: Not entirely true, but close:
[ QUOTE ]
Fairly true I suspect... It is a common fact amongst finance academics that insider trading and corporate deceit sucks up a large amount of "value" from public investors like you or I who have to be satisfied with single-digit returns as a result... As my finance professor once said when discussing this point, "I know this but I don't care because, in spite of this, the return I get on my portfolio is still better than I could get from bonds or other investments..." Not sure whether I buy that or not. [/ QUOTE ] There are no "common facts" amongs finance academics, just a variety of poorly supported theories. Finance makes economics look like a hard science. And one could make the argument that insider trading benefits most investors, in that it leads to a more efficiently priced market. There are a number of talented investors who are able to crush the market's returns without any special information. Warren Buffett is just the most successful example. The problem is that the entire market can only have "market average" returns, and that means that the vast majority of investors are going to be market average or worse. In the end, the market can't provide returns any higher than corporate earnings growth over any long periods of time. Otherwise the average PE ratio would trend ever higher until bonds offered much better risk adjusted returns. And corporate earnings can't outgrow GDP over long periods of time, or corporate earnings will become larger than the GDP, which is of course impossible. And stock market returns seem to be similar to corporate earnings growth. So while I'm sure that while the total amount of theft, fraud and misappropriation is a very large number, as a percentage of your returns it is likely fairly small. Essentially the returns we get are pretty close to the returns we deserve.
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#5
08-01-2006, 03:55 AM
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Re: Not entirely true, but close:
very good desert cat. right on. except that the fraud that costs more than realized that isnt taken into account. is the money lost from companies that are managed by ceo's that get more benefit from short term spikes in the stock for their options rather than building business for long term growth.
one of my criteriors for investing in a stock is that major owners of the company are on the boards.
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