On Wed, 17 Jul 2002, Ray Evans Harrell <[EMAIL PROTECTED]> wrote:
>I have a question. Kramer, I can't remember his first name, of the
>money show Kudlow and Kramer claims that the odds for American Casinos
>are much more stable and better than the odds on Wall Street. He listed
>them and they were surprisingly high. Also there are now "wave cycles."
>A few years ago we had a man on this list who was complaining that his
>son was making a living at gambling and blaming the Indians for running
>casinos but the point was that he WAS making a good living as a
>professional gambler. So my question is this.
>
>Did all of those little individual investors who have lost their entire
>retirements "betting" on World.com, Enron, and others do anything wrong?
Hmm. I don't see where this follows from what I wrote in the previous
post. I suspect, in your elliptical way, you are trying to gently
nudge me toward some insight by way of these questions, but I'm
apparently too thick to see it, so I'll just plow along in my linear
way and answer them as I can...
Did they do something "wrong"? If you mean, did they make a mistake, I
guess so. Should they have known better, ie was it a mistake they could
have reasonably forseen? Maybe; I have to admit I haven't shopped for
stocks in a long time, and I don't know if a wise shopper would have
spotted problems with those companies. I suspect not, though. It seems to
have come as a surprise to a lot of folk who ought to be quite skilled at
stock buying. Now, if you mean, did they do something immoral by
investing in those stocks, I don't know that either. I'm not sure
if I have an opinion on the morality of stock purchases, and then
I don't usually apply my morals to other peoples' behaviour, I figure
that's a personal thing, and I'm sure I can't answer for what their
moral position on those investments was for each investor.
>The second question is this: Is the falling market the "fault" of theft
>on the part of the market itself through lying about profits?
In my highly inexpert opinion, I would say yes in the immediate or
proximal cause, but as the US markets are 30% overvalued anyway,
even neglecting deceit, the bear market was long overdue regardless.
Would
>this have happened anyway? Has it happened before? Are all the
>"reasons" for "Panics", severe recessions, depressions, etc. due to some
>one doing something "wrong" or are they a part of the system like weather
>is a part of agriculture? I remember what the Los Alamos scientist
>said about Nuclear Energy. He said that they could build the "perfectly
>safe" Nuclear power plant but they couldn't build the "perfectly safe"
>individual to run one and that was the problem.
Again, just my inexpert opinion, but I would say that whenever there
is lots of loose money around to invest, stock markets become more
like casinos than simple capital banks, and speculation makes these
corrections inevitable. Especially when the investors don't have
a culture of extreme caution (sound like a country you know?).
>So finally does it come down to this. Only the one's who "strike it
>rich" on the market can truly afford to be in the market? That the
>market is not a place for small investors or large group accounts
>because what is a small loss to a group can translate into a life
>threatening situation for individual older members of a fund?
"The Astute Investor" knows never to allow himself to become overexposed
ie stick his neck out waiting for it to be chopped off, by hanging
all his money in equities and leaving it unattended. There are
two appropriate strategies. 1)diversify: keep a whack of money in bonds.
Bonds usually perform lamely, but When the equity market goes to hell,
everybody escapes the plummet by taking refuge there, which makes the
bond market surge, so if you have both, you average out reasonably Ok.
2) Be like the "everybody" above: play the aggressive investor who
keeps monitoring the market daily, and yanks all his money out
of the equity market and dumps it into bonds when things start to
look ugly on the market (and have those equities distributed among
lots of companies so you don't get caught by surprise when the one
or two stocks you hold suddenly fly an anchor). This requires more
work, considerable judgement, and generally costs more in handling
fees. There is also the third option, of the kamikaze investor,
who seizes the opportunity of the bear market by selling short
and making money on the downward trend. That is a stunt that requires
great detatchment from one's money, and skill and timing. And probably
a lot of reserve capital. If there is a position which requires
lots of capital to occupy, this would be it. But in general, a
modest investor can survive quite handily regardless of the market
conditions. I would say, though, that the market is no place for
a naive investor who has no advisors and no brains.
As to the comparison of equity markets and casinos, over the long run,
for the cautious player, this doesn't hold. The most client-friendly
games at casinos generally pay out about 80% of investment, ie the
house keeps 20cents of every dollar put in. So you will lose your
money. The more you play, the faster you will lose, but if you keep
playing, you must eventually lose everything. I have no idea how
a "professional gambler" can make money at a casino. As for the
equities market: the Dow Jones is currently just under 9000, I think.
It has been as high as 11000 and a bit, so it's slumped a little
in the last coupla years; but as I recall, it started some fifty
odd years ago at 100 (as I say, I'm no expert, so I may need to
be corrected here). So while the dollar has inflated about 20 or
25 times, the market has grown about 80+ times. In the very long
run, equities (on average) would seem to be a sound investment.
The "on average" is the key, though. Ultimately, every stock will
tank, and become wallpaper, if you wait long enough, though that
may be four hundred years (the Hudson's Bay Company, est 1669, is
the longest enduring company I know that's still plugging. There
may be older ones in europe, but I think incorporation as a concept
doesn't go back much farther than that). If your portfolio is
cycled to reflect the market average (say via a conservative mutual
fund), then you should ultimately get a return reflecting the
market's average trend.
-Pete Vincent
