Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

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7/12/04
Ecology
Mark Mahorney: Predator and Prey

A reader writes:

"You sound as though you are getting more pessimistic by the second. As far as I'm concerned, the "public" (which includes me) deserves what they get. To say the public isn't sophisticated is an untruth. I think the public is very sophisticated, in fact too sophisticated. The problem really lies with responsibility. When the tides turn, no one wants to take the blame, rather they prefer to pass the proverbial buck. As Mr. E says, take it like a man and as Lack says......get the joke."

The public does not always deserve what it gets. Cases of outright deception are one exception. You may recall that the two-faced fund company used to advertise very heavily that they dug deeper than anyone else but turned out that they were largest shareholders of several of the companies caught in the largest scandals.

So many examples of this sort of thing are accepted in the financial industry but unacceptable in other industries. The surface has barely been scratched re the wrong doings that in any other industry would cause class action suits galore. People don't 'deserve' to be cheated and stolen from as in the mutual fund / hedge fund after hours trading scandal. And solving those problems is beneficial to the markets and the public for many reasons. The most important one is that the reduction of the risk of deception attracts capital, which further propagates the equity markets, advances technology, increases productivity, etc... This is clear to see if you consider the differences in purchasing a stock say 80 years ago. The grift was huge and a constant with the operators and manipulators moving even the largest and most liquid issues at will. Even under those conditions the railroads probably would not have came about and everything that followed in any way that resembles what we have today if it weren't for the markets. But, I'm not talking about hokey newsletters and trading services here. I'm talking about some of the largest companies in the world serving all manner of education.

The endless debate about whether the "public" is sophisticated or not is ridiculously black and white. The market consists of participants from every walk of life. Some are very ignorant, naive, and readily manipulated. Others 'get it.' There are very dumb people with a lot of money and there are very smart people with little money. The one thing that all of them have in common is that they are all susceptible to being scammed by a major corporation that skims, steals, front runs, sells into its buy recommendations, and uses fund assets to feed hidden agendas. Even the so called 'smart money' gets abused. How many honest and sophisticated hedge funds had money with a fund company caught in one of the recent scandals? The answer is a whole lot of them, but we will never know the number because they're supposed to be too smart to fall for such things.