Apr

10

 The talk recently about evil men, the Titanic Thompsons, the Barnies, the Madoff's, the flexions et al…. the …., has led me to consider that it might be interesting to consider what is an evil and benevolent market. As a start, consider that when a market creates a bust, and then goes back to where it was, many weak players loses everything at the expense of the strong, and had they held out for just a little longer, they would have been whole. How would you gain footing on such a quest, and what predictive, and insightful ideas might derive from such a quest?

Sam Marx adds:

What I find interesting and somewhat overlooked is that getting into a stock after a crash and near the bottom can result in profits of 200%, 300%, 700%, or more and that trivializes the attempt at 18% returns which seems to be today's holy grail as attained by Harvard, Yale, etc.

The formula seems to be get out of a bull market when it becomes fully priced, even if it has more to run as Jos. Kennedy Sr. did in 1928, a year before the crash, and then bargain hunt (vulture invest) strong undervalued companies or in Kennedy Sr.'s case NYC real estate.

Timing and valuation are the keystones. But who are the good timers?

Steve Ellison writes:

Robert Drach, a commentator who has appeared on Nightly Business Report, has said that the stock market is an evil mechanism that transfers wealth from individuals to wealthy institutions during panics.

Jeff Watson writes:

But the fact that the public rushes in means nothing to me. Without any judgment on my part, it does not matter to me if the public makes money in the game, it only matters if "I" make money in the game. The professional spectator has no interest in whether the public will make money, or if society will benefit from his speculations, he has a personal interest in that he will make money. Society will benefit from that man's speculations by increased supplies, better availability of product, and all the other good things that result from speculation. The public is just betting that there will be a greater fool to come along in the future to ensure that the public makes a profit. (see Greater Fool Theory). Those evil hands earlier described are just running up the market and ensuring their profit now. Really, the difference is just in the time frame, "Will I make my profit now by running up the market and catching the public, or will I buy the market now and hope that a greater fool will come in and bail me out at a later date." Gaming the market, running the market, goosing bids, camouflaging positions, and fading offers, protecting bids, protecting positions…….none of this is evil or larcenous unless there is dishonesty or fraud involved. The market is just a huge game with many different smaller games being played simultaneously. The public is playing one game, the small spec is playing another, the spreader has his game going, while the broker dealer might be playing an entirely different game. Sometimes, the players don't even know which game is being played, and they are the ones that have no business being in the game. But unless dishonesty, fraud, or cheating is involved, none of the game is evil. 

Stefan Jovanovich writes: 

 Our esteemed surfer could have been a railroad man.

After William H. Vanderbilt, president of the New York Central Railroad, arrived in in his private railroad car in the yards of the Michigan Central Railroad in Chicago on Sunday October 8, 1882, a freelance reporter, Clarence Dresser, entered the private car and asked to speak to Vanderbilt. (In his memoir, Melville E. Stone, who had been the head of the Associated Press, described Dresser as "one of the offensively aggressive types—one of those wrens who make prey where eagles dare not tread. Always importunate and usually impudent.") Vanderbilt's interview with Dresser began by Vanderbilt's saying that he was in the middle of eating dinner but, if Dresser would wait until he had finished, he would give him a minute. According to Stone, the interview continued as follows:

"But it is late," Dresser said, "and I will not reach the office in time. The public—"

"The public be damned," Vanderbilt burst out. "You get out of here!"

John Steele Gordon says that Dresser tried to sell the story to the Chicago Daily News, where Stone was then editor. When the night editor refused to print the story, Dresser went to the Chicago Tribune, who ran the story the next morning. It was reprinted throughout the country and became the scandal of the year; and to this day, the only quotation for which Vanderbilt is remembered in Bartlett's. Here is the version of the interview Dresser sold to the Tribune:

"Does your limited express [between New York and Chicago] pay?"

"No, not a bit of it. We only run it because we are forced to do so by the action of the Pennsylvania Road. It doesn't pay expenses. We would abandon it if it was not for our competitor keeping its train on."

"But don't you run it for the public benefit?"

"The public be damned. What does the public care for the railroads except to get as much out of them for as small a consideration as possible. I don't take any stock in this silly nonsense about working for anybody's good, but our own because we are not. When we make a move we do it because it is our interest to do so, not because we expect to do somebody else some good. Of course we like to do everything possible for the benefit of humanity in general, but when we do we first see that we are benefiting ourselves. Railroads are not run on sentiment, but on business principles and to pay, and I don't mean to be egotistic when I say that the roads which I have had anything to do with have generally paid pretty well."

Vanderbilt's nephew, Samuel Barton, was traveling with his uncle that day. His version of the interview, as told to William A. Croffut, who published a biography of Vanderbilt in 1886, went like this:

"Why are you going to stop this fast mail-train?"

"Because it doesn't pay. I can't run a train as far as this permanently at a loss."

"But the public find it very convenient and useful. You ought to accommodate them."

"The public? How do you know they find it useful? How do you know, or how can I know, that they want it? If they want it, why don't they patronize it and make it pay? That's the only test I have of whether a thing is wanted—does it pay? If it doesn't pay, I suppose it isn't wanted."

"Mr. Vanderbilt, are you working for the public or for your stockholders?"

"The public be damned! I am working for my stockholders! If the public want the train, why don't they support it?"

in his article for American Heritage magazine (September/October 1989) John Steele Gordon notes that Vanderbilt had said things that matched much of what was printed in each of the versions of the Dresser interview. When Vanderbilt gave testimony to a committee of the New York State Assembly in the 1860s, he gave the following testimony:

"I have always served the public to the best of my ability. Why? Because, like every other man, it is my interest to do so, and to put them to as little inconvenience as possible. I don't think there is a man in the world who would go further to serve the public than I."

"My system of railroading is … to take care of it just as careful as I would of my own household affairs, handle it just as though it was all mine; … and take good care of its income; that is my aim, you know, and give that to the stockholders."

Vanderbilt, controlled the largest railroad company in the world. He never took a salary as president of three railroads; he paid himself solely out of the dividends on his shareholdings. By the time of his death he was, by his own calculation, the richest man in the world and, as he told a friend, "I would not cross the street to make another million." Harper's Weekly estimated that Vanderbilt's fortune exceeded the total value of all assessed property in Nebraska, Colorado, Nevada, and Oregon combined. In his own calculations Vanderbilt did concede that the Duke of Westminster might have a slightly larger fortune ($200,000,000 vs. his $194,000,000); but Vanderbilt thought his was the greater actual wealth because the Duke's landholdings paid less than 2 percent while his own portfolio of government bonds and railroad securities paid 6 percent, Vanderbilt's investment income was roughly a million dollars a month at a time when a middle class salary was $80-90 a month. When he suddenly died in 1885, the report of his death was the only story on the front page of The New York Times.


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4 Comments so far

  1. david on April 11, 2011 1:19 pm

    The “I” that Jeff points out also applies to Big Institutions as pointed out by the article in New York Times, titled “JPM accused of breaking it’s duty to clients”, and JD named in the suit. I’d like to see some of the polish taken of that rock……may be behind bars, not glass……

  2. steve on April 13, 2011 3:24 pm

    A few quick thoughts.

    Lou Holtz said “You are never as good as you think you are nor as bad, you are always somewhere in between.”

    Someone said Cash is king, especially in a bear market. Perhaps Trump said this when in 1990 he had 9.Billion in assets and 9.8 Billion in debt.

    Time is the next to consider. During bear phases, individuals time horizons compress to days. They look at liquidated value rather than expected value.

    I say “If you cannot look at something objectively do not look at all”

    “Those who are the least qualified are the most willing to offer advice.”

    “A fool and his money should have never gotten together in the first place.” Canada Bill Jones

    “Some people consider it a crime to take money from a pigeon, I say it is a crime not to.” Canada Bill Jones

    “Do not cast your lot with fools.” anonymous

    It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle. Sun Tzu Wikiquote

  3. steve on April 14, 2011 2:27 pm

    One is not necessarily good because one is benevolent. John Gotti shot off fireworks in the neighborhoods for holidays.

    Gangster Frank Lucas handled out food to Harlem residents while supplying them with heroin.

    John Rockefeller handed out dimes to children set up one of the largest endowments in history AFTER HE CRUSHED all the small competitors around him.

    Gaes ibid.

    Joe Kennedy was a bootlegger, market manipulator and criminal.

    Ted Kennedy The Lion of the Senate. killed Mary Jo Kopechne.

    Mike Milken at Drexel cornered the hi yield market and sets up a foundation for prostate and general cancer research.

    Alfred Nobel invents dynamite and then establishes Foundation.

    enough for now.

  4. steve on April 14, 2011 3:11 pm

    “Who is John Galt” Atlas Shrugged opens tomorrow.

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