A Monkey Economy

[gav]

35 million years of evolution and we are as risk adverse as monkeys...

http://www.ted.com/talks/laurie_santos.html

[So_Cynical]

Nice find Gav...i need to work on my loss aversion.

[Wysiwyg]

Mistakes are necessary.

When a cheetah chases a gazelle, leaps for the kill, and misses is part of the unique balance among organisms. A kill every time would see the population of gazelles dwindle and the population of cheetahs rise creating an imbalance. Not good for future cheetahs.

Everyone can't be right.

Laurie Santos did not mention the fact that for someone in the financial markets to profit, another must lose. Everyone can't make the right choice every time (there would be no market) but some can make the right choice most of the time.

Lesson = learn what it takes to make profits greater than losses.

[So_Cynical]

Quote: Originally Posted by Wysiwyg Everyone can't be right. Laurie Santos did not mention the fact that for someone in the financial markets to profit, another must lose. Everyone can't make the right choice every time (there would be no market) but some can make the right choice most of the time.

[Wysiwyg]

Quote: Originally Posted by So_Cynical Different time frames and objectives means that sometimes both party's to a trade can profit and be winners.

[nunthewiser]

Quote: Originally Posted by Wysiwyg A complex intellectual approach is all pee and wind, a big charade. The game itself is not complex but there is money on the sides by making it 'appear' that way. What do you think?

[nioka]

Quote: Originally Posted by Wysiwyg Well in the markets basic form there is simply a transfer of money from one person or group to another. Every single transaction either makes money, loses money or breaks even while the in between team (deal brokers) scrape some cream off the top. One has to be conscious of the basics when dealing with the financial system otherwise it will eat our lunch and strip the less experienced clean (I know ). A complex intellectual approach is all pee and wind, a big charade. The game itself is not complex but there is money on the sides by making it 'appear' that way. What do you think?

[So_Cynical]

Quote: Originally Posted by Wysiwyg A complex intellectual approach is all pee and wind, a big charade. The game itself is not complex but there is money on the sides by making it 'appear' that way. What do you think?

[basilio]

I fear that the stock market has become far more of a game to make money in itself as distinct from a mechanism to raise capital for business purposes.

In theory a group of people form a company to pursue some business. They sell shares on the market to bring in fellow investors. The mangers of the company try to make the company successful on behalf of the long term shareholders - the actual owners.

In practice however I suggest we can see a number of different events.

1) A group of people set up a company and immediately allocate themselves say 40% of the shares valued at $40 million.

2) They create a story to attract other investors who buy the other 60% of the shares for $60 m. Suddenly the paper shares the original owners gave themselves are now worth a real $40 on the market if they can just find some new people to come on board.

3) To get new people to come on board the "you beaut" company puts out very impressive stories, projections of huge future earnings, perhaps even short period successes. New investors pile in increasing the share price and helping to create an even create demand for the shares.

4) The managers of the company also hold a quarter of the shares and start to pump the price focusing on short term profits while taking out huge salaries.

All the time of course the Stock Exchange is getting it's cut from all sales, as are stock brokers and various fund groups which invest our super funds and take a regular 2% a year from the capital (win lose or draw).

So in the end who makes the money? As I see it the initial company developers turn initial paper scrip into real cash. The Managers take large chunks from whatever profits are generated. All the ticket clippers get a piece of the action.

The small investor shareholder overall seems to gain the least in the process.

Does this sound unreasonable? Ask a simple question. What are the actual long term returns to investors who buy into investment funds managed by the various insurance companies and super funds? When I have seen analysis by APRA of long term funds the results for investors have been very, very modest.

[nioka]

Basilio,
All too true in a lot of cases. There are all kinds of con men and spivs around. Directors have too much power to pay themselves much more than their real worth. However that is where fundamental investing pays off and DYOR becomes the most important in an investment program. There are many genuine companies with genuine products or services, managed by genuine people that will give good returns and make investing profitable. In between there are opportunities to join the game and enjoy the chase without losing your shirt to the con. It is a game played by consenting adults with no one forcing another to participate.

Hang on there is the government forcing people to participate. Super fund investing.

[wayneL]

Quote: Originally Posted by basilio I fear that the stock market has become far more of a game to make money in itself as distinct from a mechanism to raise capital for business purposes. In theory a group of people form a company... ....Does this sound unreasonable? Ask a simple question. What are the actual long term returns to investors who buy into investment funds managed by the various insurance companies and super funds? When I have seen analysis by APRA of long term funds the results for investors have been very, very modest.

[DocK]

Quote: Originally Posted by nioka Basilio, All too true in a lot of cases. There are all kinds of con men and spivs around. Directors have too much power to pay themselves much more than their real worth. However that is where fundamental investing pays off and DYOR becomes the most important in an investment program. There are many genuine companies with genuine products or services, managed by genuine people that will give good returns and make investing profitable. In between there are opportunities to join the game and enjoy the chase without losing your shirt to the con. It is a game played by consenting adults with no one forcing another to participate. Hang on there is the government forcing people to participate. Super fund investing.

[nioka]

Quote: Originally Posted by DocK But superannuation is merely a vehicle - you don't have to have your "super" invested in shares, most funds allow the option of cash, fixed int and property, and you can manage your own super if you wish via smsf