My view is that the fundamentals are *not* OK. That it in large part *is* a Casino and that the system encourages cheating.
arthur -----Original Message----- From: Ray Evans Harrell [mailto:[EMAIL PROTECTED]] Sent: Thursday, July 18, 2002 2:46 AM To: pete; [EMAIL PROTECTED] Subject: Re: FWk: Re: NYTimes.com Article: Plutocracy and Politics Interesting. What I hear you saying is the same thing as Bush. That the fundamentals are OK, that it isn't a Casino and that it was just a bunch of bad guys cheating. Am I reading you right? REH ----- Original Message ----- From: "pete" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Thursday, July 18, 2002 12:35 AM Subject: Re: FWk: Re: NYTimes.com Article: Plutocracy and Politics > > 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 > > >
