What if Theranos, the company whose fraudulent activities were exposed in 2015, had been a hedge fund instead of a healthcare company? The comparison shows why investment “science” is not science.
One of the most remarkable trends in the financial markets has been the decline of publicly traded U.S. equities. About half as many stocks are listed as there were 25 years ago. What is driving this phenomenon and what are the implications for investors?
Quick – what was the second-worst U.S. stock market drop since the 1930s? What caused it? It wasn’t the pricking of the tech bubble in the early 2000s. It was the bursting of the oil bubble in 1973. Fossil fuels have been the life blood of economic growth for the entire time that economies have been growing – almost 200 years – and they have been responsible for many of their ups and downs.
The belief that detailed quantitative measurement will make performance easier to evaluate, manage efficiently, and improve has survived repeated failures of the doctrine. In fact, the failures serve only to bring forth calls for more of the treatment. Only very rarely is it admitted that quantification doesn’t work and should be scrapped.
The thesis of Chris Hughes’s book Fair Shot: Rethinking Inequality and How We Earn is stated right up front: “Most Americans cannot find $400 in the case of an emergency like a car accident or a hospitalization, yet I was able to make half a billion dollars for three years of work. Something is profoundly wrong with our economy and in our country, and we have to fix it.” But is Hughes’s solution the answer?
The financial industry can measure up by conveying capital to improve the future of humankind; in short, by creating value.
In his controversial book, A Higher Loyalty, James Comey says, “We are experiencing a dangerous time…” a time in which “basic facts are disputed, fundamental truth is questioned, lying is normalized, and unethical behaviour is ignored, excused, or rewarded.” What has precipitated this disastrous ethical decline? I will argue that as much as anything, it is Wall Street.
A Man for All Markets is an autobiographical account of the life and work of Ed Thorp, a brilliant, accomplished, but humble man who figured out how to win at blackjack and roulette and then ran a successful hedge fund.
David Enrich’s The Spider Network is an engaging chronicle of how employees of financial companies conspire to move LIBOR and its offshoots by small amounts for the sole purpose of benefiting derivatives traders who profited from the moves. The book implicitly raises a key question for the financial industry, indeed for the entirety of capitalism: Is there an ethical code that must be followed, apart from and beyond the requirements of the law; or is all that is necessary to be ethical merely to adhere to the law?
For 23 years DALBAR, Inc. has been publishing a research report reaching the conclusion, year after year, that investors underperform the investment vehicles that they invest in due to “poor investor decision making.” Wade Pfau recently discovered, however, that this conclusion is the result of a serious calculation error. Now, using Pfau’s results, I will prove that the evidence actually shows that investors do not underperform their investments.