<br>
<br>
<p>I was replying to this:</p>
<br>
<br>
<p>I should have been more clear. At any rate, I cleared it up in a subsequent
post.</p>
<p>My point still stands though.</p>
<br>
<br>
<p>My reading is fine.</p>
<p>Yours is suspect.</p>
<p>If you were paying attention, you’d have read that I use a combination
of fundamental and technical analysis.</p>
<p>Speculation is required to build wealth. We have speculation and it
does build wealth in many cases. In others, it spectactularly fails.
But we are willing to take that risk. Leverage is a problem though.
I don’t use leverage in my trading.</p>
<br>
<br>
<p>Most people that want contemplation don’t go in with guns blazing.</p>
<p>Is your usual approach to having a conversation to look for a fight?</p>
<p>I would like to contemplate what your contribution to society is in
the context of what you want me and society to do. I’ve made a career
of contributions to society in engineering terms. Where are you
contributions?</p>
<br>
<br>
<p>That’s why money based on precious metals puts an unseen hand of
control on bubbles. You can arbitrarily grow the money supply as
easily. Sure, you can play games with fractional reserve rates
and alternate currencies but you just can’t create millions, then
billions, then trillions with a few keyboard clicks everyday.</p>
<p>Not criticizing and not justifying…just remember that the man who makes $550,000 per year pays almost 1/2 of that in taxes. And yes, that is still a lot of money.</p>
<p>Note to self: put in an order to sell all shares of pharmaceutical stock of companies producing benzodiazepines and other sleep agents. This thread will surely become the new cure for insomnia 
</p>
<p>zzzzzzzzzzzz…</p>
<p>
Speculation is required to build wealth? You financial folks seem to be shorting hubris.</p>
<p>Let’s back up the clock a bit (the 1800’s), where a person could through his/her own labor with a little added capital (a plow and seeds) could improve a piece of property (40 acres and a mule) (they call this farming) and create wealth (a farm). No speculation necessary.</p>
<p>Next came the speculators - the city guys (know nothing about farming) who buys the future crop of and additonal land for the farmer to plow. The speculator is betting on prices being higher. The farmer is betting on the weather to turn enough of the invested seed money (the futures contract) planted on his new acreage to pay off the speculator (in the commodity planted) and make payment on the land he bought to run this operation. In a few years, the farmer will own the land.</p>
<p>Unfortunately, the drought happens, the crops don’t cover the futures contract and the farmer has to sell his farm (at a distress auction to a banker) to fufill his contract. The farmer is now a tenant on the bank-owned farm. With the drought, the speculator has made a killing reselling his contracted crop because of the shortage caused by the drought. In the speculator’s eye, he has created wealth. The banker, who acquired the farm at a bargain has made a killing. The farmer, on the other hand has speculated and lost.</p>
<p>The only wealth created here was the actual crop tended by the farmer. Everything else was redistribution of assets.</p>
<p>By and large, these types of stories repeated themselves during the 19th century across rural America as the first futures contracts on agricultural products were created. There were plenty of bubbles that centered on years of both drought and bumper crops. Winners and losers were more dependent upon weather than actual investment skill. And by the way, we had a metals-backed currency in those days.</p>
<p>This was just the beginning of the problem on this continent as we were lucky enough not to be involved with the Dutch tulip fiasco primarily because of distance. Today, with 24-hour trading we’ve increased the velocity at which bubbles can be formed. Given enough unsophisticated players (just like the farmers of the 1800’s) lots of damage can be spread while more “sophisticated” speculators pat themselves on the back while not actually doing a darn thing to actually improve the business.</p>
<p>Speculators do not create wealth. Buying an asset without contributing to the plans to exploit its use to generate wealth doesn’t magically create value. Just because someone else is willing to pay more for that later doesn’t mean you added value to it.</p>
<p>
</p>
<p>I did not come here to pick a fight. You seemed to be doing a fine job of that with jym when I pointed out the parallels between your investing by the numbers strategy (speculating in my book) contributing to bubbles and Mr GE’s actions.</p>
<p>My contributions to society deal with data management both having done it in the public and private sector, and I’ll leave it at that. Nothing speculative. However, I have learned that while data may be accurate, the use of it is usually not accurate, at least in a repeatable manner. Many claim to understand data and can use a piece or two to tout their superior knowledge, but most lack the overall reasoning skill to understand that they do not have enough data for the degree of certainty they want. I have a healthy suspicion of data and a larger suspicion for those who portend to know how to use it. When it comes to matters of human behavior, I trust my instincts more than I trust data. Markets are mostly about human behavior in dealing with imperfect data.</p>
<p>And ultimately we are all human and will make mistakes and fail. While you “accept” that you are risking your own money, you reflect the culture of “Live, freeze, and die” of your home state that seems to have little compassion for those less sophisticated who are losers in the speculative bubble game, as you seem all too happy to accept the carnage that comes with the bubbles.</p>
<p>Mr. GE was a player in the big bubble. He lived well off of it. Probably never though it was his responsibility to think of his role in the matter. Probably would deny his level of culpability for less sophisticated folks losses to this day. His role just seems more clear to us. Smaller players whose actions are not easily tracked back to the problems have an even harder time realizing that they too bear responsibility. The folks who let standards for loans slide to achieve a “greater goal” of more home ownership, the folks who created the sub-prime instruments that allowed this to grow, the people who bid up the companies buying this paper who were following a “growth” pattern withouth understanding that the mortgages were speculative, and of course the folks who sold the unpayable adjustable loans to unsophisticated homebuyers who weren’t educated enough to know what an asset bubble was, just like the poor farmers of the 19th century didn’t understand futures contracts.</p>
<p>What we have here is the ugly side of what some call capitalism. I’ve been here trying to explain that capitalism is using assets to create more wealth, not redistribute the existing assets through speculation.</p>
<p>You may argue with the individual parts of my assertion, but you miss the forest for each tree that you examine.</p>
<p>Goaliedad…I like your post, but I think you are going a little too far. </p>
<p>Every equity position is a speculation, correct?</p>
<p>And the capital markets help companies raise money so the managers of the companies can use that money to grow or maintain their businesses, right?</p>
<br>
<br>
<p>Yes, speculation is required to build wealth. That should be obvious,
even to you.</p>
<p>I’m not a financial person. I’m an engineer.</p>
<br>
<br>
<p>Wrong.</p>
<p>The person is speculating with his capital and labor.</p>
<br>
<br>
<p>Perhaps. Or could just be covering a short position.</p>
<br>
<br>
<p>Maybe, maybe not. There may be counterparty risk. Risk of seizure by
eminent domain, flooding, etc.</p>
<br>
<br>
<p>I don’t know about that. If the farmer doesn’t have the assets to buy
the crops to fulfill the contract, then it seems to me that another
party loses due to counterparty risk.</p>
<br>
<br>
<p>We can view of wealth in different ways. Personal and societal. In
this case, there were three private parties. Yes, redistribution of
assets.</p>
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<p>Well, as I’ve said over and over and over again, a metals-backed
currency means that bubbles are less likely compared to fiat
currencies. But add in greed and people will come up with ways to
gamble that may not be in their own best interest.</p>
<br>
<br>
<p>Yes. Damage can be done. You can drive into the wrong lane of traffic.
You can buy a house in a flood plain. You can buy a house in an
earthquake zone. You can pay too much for a piece of pie. Life is risk
and speculation.</p>
<p>You can have active and passive speculators. Venture capitalists tend
to be intimately involve in operations - perhaps too involved. Those
with pension funds tend to be completely uninvolved depending on
pension fund managers to take care of that. Some pension fund managers
are becoming more vocal in corporate governance.</p>
<br>
<br>
<p>I speculated in my company many years ago. Stock price has quadrupled.
We have lots more employees. Our earnings are much higher. We benefit
the local communities. Speculation creates wealth.</p>
<br>
<br>
<p>Your use of language indicates otherwise.</p>
<br>
<br>
<p>I worked in writing financial applications and then later moved into
MIS. I managed a large data warehouse and had to create reports or
provide access to data for other employees into my data warehouse. I
wrote artificial intelligence programs to clean up the data as best as
I could as there were large classes of errors in the data warehouse.</p>
<p>I know a thing or two on the quality of data.</p>
<p>A good trader only seeks to be right more than half the time. If you
aren’t, then you’ll go out of business. Or have to earn enough in your
day job so that you can rebuild your stake. In many applications of
life, you can get by with 95% certainty. Or less than that. You may
have an engineering application that has to meet certain requirements
that fails in other cases and that’s okay. The customer can deal with
the failures or knows that they won’t run into them because of how they
use the application. Trading doesn’t require exactness - it’s frequently
quite fuzzy.</p>
<p>Where did you get the impression that traders have certitude? Have you
ever seen a discussion of Elliott Waves? It basically results in a
conditional logic situation. To the unfamiliar, it seems like complete
nonsense. Same with triangles. What does it mean to trade the break?
Most people want to know if it’s going to go up or down. Trade the
break on a triangle describes the psychology of trading. It isn’t
always right but it’s right most of the time and the psychology is
easily explained.</p>
<br>
<br>
<p>Yes, real life is very messy. Bubbles will come and go whether I
participate in them or not. Lotteries are bubbles and our culture
seems to embrace them. The housing bubble - likewise. I have railed
against the things that cause bubbles in the past. But ultimately
there’s nothing that I can do to stop them so I just play along.</p>
<br>
<br>
<p>You’ll have to do better than this. This is just a lot of hand-waving.
Connect the individual transactions to make a case. You seem to keep
forgetting that traders go long or short to provide balance in
valuations. This is a big problem with your argument. In the housing
market, there wasn’t a mechanism for shorting until that derivative
trading instrument came along where you could short housing markets.</p>
<br>
<br>
<p>And how do you connect that with trading common stocks?</p>
<br>
<br>
<p>That may be the theory but is frequently not what happens. I’ve owned
companies that have made money and then management does a secondary.
Ostensibly to pay themselves well. I’ve owned companies where it is
clear that management wasn’t interested in the shareholder. Politicians
want their piece of the corporate pie. That might mean hiring relatives
into well-paid jobs or outright payoffs. Bankers want inside information
to trade off of or to front run annoucements. It seems to me that this
is the way it has been for quite some time. Yes, it can be ugly but it
can be beautiful too.</p>
<p>The central bank dishes out money to the economy. The banks are close
to that and can charge tolls for the money. They also grease
capitalism and have acces to valuable information which they aren’t
supposed to use to their own gain. That’s the system we have. The best
and brightest get the best rewards in finance because that’s how the
system works. The rest of us work in productive jobs create services
and products and we get taxed on our labors that feeds the financial
industry.</p>
<br>
<br>
<p>There is no forest if the trees are all chopped down.</p>
<p>Capitalism and Democracy have their purposes but they are typically
very messy. You’ve put forth a lot of anecdotes to try to make your
point. Perhaps you could just state it clearly arguing from simple
principles.</p>
<p>You criticized me for not contributing to the knowledge wealth of the
country while refusing to state how you contribute to the knowledge
wealth of the country. I’d personally add exports to that too. You’re
clearly wrong there. I do walk your talk; it’s a bit unclear to me
if you walk your talk.</p>
<p>
</p>
<p>No, equity positions taken to be held for a signifcant duration (because they are productive in generating profits over this longer lenght of time) are not speculation but a an offer to share (that’s why the call them a share of stock) the risks of the business on a percentage basis for a proportional share of the reward (excess cash generated through value added activities). Equity positions taken for a period where the only reason there is a change in value is because everyone else is buying this stock (running up the price purely on the concept that someone else will pay more for it later - not because it will necessarily be more productive later) is speculation.</p>
<p>Yes, there is an expectation when you buy and hold that the enterprise will be able to generate better net income down the road and thus will be worth more, but once again that is based upon the expectation of the enterprise, not the expectation of the traders.</p>
<p>Capital markets (I take it that you are talking about venture capital here) are a mixed bag where enterprises that are not mature can get equity funding until they are ready to be openly traded. It is generally necessary capital to make the business develop, but the price paid in terms of disproportionate shares sold to VC groups and the fact that most of the profit generated in the deal is about getting the enterprise listed where knowledge of the firm actually creates the change in market price (not the profitability of the actual enterprise). Marketing a firm (getting it listed) is one of those gray areas as being publically traded forces a firm to a set of accounting standards that make it easier to compare, which does have value. However, much of the profit derived by VC groups is all about exploiting the lack of knowledge of the investing public. How much is marketing really worth? I can’t say that I can put a number on that. I do know that most VC groups get out of a company completely shortly after the IPO. They are not buy and hold a company because of its intrinsic long-term value.</p>
<p>I don’t have a problem with people making money by bringing information to a market but if the information is that good, why not hold onto some of it longer term? To some degree I see many VC groups playing the suckers in the market, doing quick flips on small private firms without staying through the actual company development. </p>
<p>Market capitalism is great when all the players have relatively equal knowledge of the game and how it is played. The hazards arise when people purporting to be creating wealth by bringing a clearly understood business to market actually are marketing it based upon what the buyers don’t know about the business. Wealth isn’t created exploiting someones’s ignorance, it is only shifted doing this.</p>
<p>Hope this makes my position clearer.</p>
<p>BC,</p>
<p>Your degree of moral relativism is truly amazing. And I do have a problem with the degree to which you seem to accept it as good for capitalism. Your idea of a hero is probably closer to Gordon Gecko than I want to think. In that regard you have proven my initial charge that you are part of the problem with capitalism - turning a blind eye and even playing on the problem is being part of the problem and not part of the solution.</p>
<p>While your day job in engineering may contribute to the betterment of capitalism, your acceptance of and exploitation of the flaws in the current system far outweigh your contribution, especially considering the naked way in which you justify your actions.</p>
<p>Your modern law of the jungle attitude has you very enthralled with your intellect but leaves you nothing in terms of holding the high ground.</p>
<br>
<br>
<p>\ In finance, speculation is a financial action that does not promise
\ safety of the initial investment along with the return on the
\ principal sum.[1] Speculation typically involves the lending of money
\ or the purchase of assets, equity or debt but in a manner that has not
\ been given thorough analysis or is deemed to have low margin of safety
\ or a significant risk of the loss of the principal investment. The
\ term, “speculation,” which is formally defined as above in Graham and
\ Dodd’s 1934 text, Security Analysis, contrasts with the term
\ “investment,” which is a financial operation that, upon thorough
\ analysis, promises safety of principal and a satisfactory return.[2]</p>
<p>– Wikipedia</p>
<p>Berkshire Hathaway, a company that mostly takes long-term stakes in
other companies or buys them outright paid a dividend once in
1967. Buffet states that it was done without his permission. This is
ostensibly a company which you like yet it has never paid a dividend
outside of ten cents over forty years ago. There are many similar
examples called growth stocks. Companies where they feel that they can
more effectively use their cash from earnings to grow their business
where this is preferable to returning the money to the shareholder.</p>
<p>There are positives and negatives to this for shareholders. Some
shareholders aren’t interested in current income and would like to
keep their income and taxes low. In the past, there have been tax
advantages to taking income in the form of capital gains over
dividend income.</p>
<p>Some people do want current income to live off of or to pay bills.</p>
<p>Your definition seems contorted with currently accepted definitions
and there are various problems with your position, notably growth
stocks. There are many current examples of growth stocks that are
reasonably valued based on expected future earnings growth.</p>
<br>
<br>
<p>It depends on the traders. Some traders look at the fundamentals. Some
don’t.</p>
<p>A case where a growth model benefits the company is in startups where
employees receive option grants. It encourages them to work harder as
the payouts can be huge. These companies typically do not pay
dividends.</p>
<br>
<br>
<p>I do know of a company funded by VCs where they provide acces to
outstanding industry talent to provide consulting to the company.</p>
<br>
<br>
<p>There’s nothing wrong with scaling in and scaling out. Holding some in
the short-term portfolio and the long-term portfolio. You may have
different accounts for different purposes.</p>
<br>
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<p>If you don’t already know that there are sharks in the water, then
you’ll learn about it in the next downturn unless you take the ostrich
approach to trading. There will always be unequal knowledge about the
markets. I have advantages in some industries because of my technical
training. I’m clueless in most other industries and I stay far away.</p>
<br>
<br>
<p>Good? Maybe. Maybe not. Necessary? Probably.</p>
<p>Gordon Gecko’s actions were criminal. My actions, to the best of my
knowledge, are not.</p>
<p>You still have not made your case for your view of capitalism. It is
a strange one to be sure and I’d guess that most would find it foreign.
I don’t think that what you ascribe as a problem is a problem. As I said,
start from small things, build up and make your case. You haven’t done
it so far.</p>
<br>
<br>
<p>What, in particular, is wrong with my actions. You make these moral
judgements that are fluff and air. Where is your proof? What is your
reasoning? It’s all air.</p>
<br>
<br>
<p>Definitions please.</p>
<p>What is the high ground?</p>
<p>How much do you contribute to exports?</p>
<p>How much time to do your donate?</p>
<p>Please make your case instead of waving your arms.</p>
<p>^^^ so full of yourself</p>
<br>
<br>
<p>Do you think that you’re doing a great job of holding the high ground
with comments like this?</p>
<p>Definitions please.</p>
<p>What is the high ground?</p>
<p>How much do you contribute to exports?</p>
<p>How much time to do your donate?</p>
<p>Please make your case instead of waving your arms and spouting insults.</p>
<p>
</p>
<p>Your lack of knowledge of fundamental economics amazes me.</p>
<p>The concept of exporting your way to prosperity has always amazed me. Let’s see, the Chinesse are so prosperous because they hold all of this paper of ours, which if they manage to destroy our economy will become worthless, while we’ve enjoyed the fruits of their labor (all those cheap things we like to buy). </p>
<p>Lots of talking head economists love to talk about the trade defeceits and exchange rates, which in the short run make speculators jump for joy at the opportuity to make a quick buck playing the herd mentality of other speculators. </p>
<p>In the longer run, all trade deficeits are solved either by re-valuation of currencies, default of notes, or war (or a combination of the above). This is a game the big players play which destroys economic systems that don’t control the means of production when the score is settled.</p>
<p>Whether what I produce is exported or consumed domestically is of little matter in the bigger scheme of things. If I have used my assets and contributed something that makes someone else more productive or happier without taking that value from someone else either now or later exchanging that in an above-board trade between equals, I have created value. To me, that is the essence of capitalism. </p>
<p>Too many people find it too profitable to fight and speculate over the real value created through work and the use of assets. This is a drain on capitalism.</p>
<p>I’m happy with that my actions in life create value to others and are exchaned openly and fairly. I do not seek to exploit someone else’s ignorance for my personal gain, nor do I condone that. That is my high ground.</p>
<p>I’m not waving my arms. Haven’t been the whole time.</p>
<p>Goaliedad…owning all stocks is a speculation. Nobody knows what the future is going to hold. Traders, investors are all speculating. You have no problem if an investor is speculating based on a company’s fundamentals. You don’t like traders speculating based on price movement, or volume, or a company’s short term prospects, right? That’s really your beef, right?</p>
<br>
<br>
<p>That’s the biggest strawman of this thread.</p>
<p>Jobs are important for the well-being of the person and of the
country. People need to feel useful and productive towards
society. Dumping them into the welfare rolls so that consumers can
enjoy cheap overseas products may feel good for those consumers with
jobs but eventually they realize that their jobs can be shipped
overseas too.</p>
<p>I’m a bit surprised that you hold such contempt for your fellow
citizens.</p>
<br>
<br>
<p>That’s the way I feel about trading stocks. Perhaps I’ve purchased an
employees employee stock shares or options proceeds that makes him a
little more productive. That’s all a part of capitalism.</p>
<br>
<br>
<p>That is their business. I don’t know whether it is a net drain or not
outside of leverage, structured finance and derivatives.</p>
<br>
<br>
<p>Oh come on. You’ve never used a coupon? You’ve never used a position of
knowledge to convince your kids of something to your advantage?</p>
<br>
<br>
<p>You’re all over the place, don’t answer my points, attack, attack, attack
and only defend when you have to. That’s waving arms to me.</p>
<br>
<br>
<p>Do you think that you’re doing a great job of holding the high ground
with comments like this?</p>
<p>Definitions please.</p>
<p>What is the high ground?</p>
<p>How much do you contribute to exports?</p>
<p>How much time to do your donate?</p>
<p>Please make your case instead of waving your arms and spouting insults.</p>
<p>Kajon -</p>
<p>It does seem that a 50% tax rate – and I don’t know exactly how close that is to reality for Mr. GE – is awfully high. But someone making that kind of money is paying a much smaller percent of his income for the basic necessity of life, like food, insurance, clothes, autos, etc., than the rest of us. So he isn’t, or shouldn’t be, suffering too much even while paying high taxes.</p>
<p>BC,</p>
<p>I’m giving up on having a real discussion with you.</p>
<p>Every time I try to explain my reason by using an analogy, you accuse me of using a straw person. </p>
<p>If I point out where you misquote yourself, you mumble excuses.</p>
<p>You ask the same question over and over while ignoring all answers.</p>
<p>And you treat every discussion as a debate where scores are kept in your mind.</p>
<p>I explain that I don’t measure my contribution as an export value and you accuse me of holding my countrymen in contempt. </p>
<p>I find this last item most disturbing, as you continue to accuse me of being on the attack. I take the last item very personally. I have never made this an issue of nationalism. You clearly have brought this out. Therefore, you clearly shown that you feel the need to get ugly and jingoistic with your debate. I don’t wish to be associated with people who feel the need to wrap themself in the flag as a defense.</p>
<p>You may score lots of points in your mind, but you have lost all credibility with people who don’t have your real agenda.</p>
<p>
You have a different definition of speculation than I do. I consider speculation buying/selling an asset (stock) without knowledge of the underlying way it generates value. This typically happens when people buy on a trend of the stock price or another piece of data unrelated to what the company in question does like the value of a broader measurement of the stock market. </p>
<p>Basically, someone who tries to feed off of the actions of other investors towards a company as opposed to the action of the company itself. This also includes activities such as buying based upon buying/selling by insiders.</p>
<p>None of this activity ever made a company more productive or profitable. It does not make the society wealthier and is more akin to gambling, as you are betting on the actions of others in the market as opposed to betting on the employees of the company.</p>
<p>The fact that thousands of people sit in front of a monitor watching stocks trade, trying to pick out a trend to trade on as a way to make a living bothers me. If they spent that time actually trying to learn about companies, their assets, products and markets, they would actually have a basis for buying (or selling) stocks that would have a basis in how capitlal should be allocated to successful operations (and away from unsuccessful operations). This makes an economy efficient in the use of its resources both financial and intellectual. If Bernie Madoff had listed his Ponzi Scheme, the trend followers (speculators) would have been sucked in by it because they don’t do their due dilligence. Bernie wouldn’t have even had to smooth talk them. They see a predictable trend and jump on it. And I think we can all agree that Bernie Madoff did not help the economy.</p>
<p>Buying for a short term expected movement based upon upcoming short term prospects (based upon actual research of the company’s operations) is not necessarily speculation, but probably not the best way to make money. For example, if you bought Apple stock recently based upon the the success of the iPad looking for the next quarter’s earnings, I think that everyone else is following this news and has already factored this information into the stock price. Now, if you think the iPad is going to revolutionize how we communicate both data and applications (the ultimate thin client with the best size display for the compromise between computer and PDA), and Apple will be able to gain longer term market share (and thus profitability) from this, you are an investor.</p>
<p>FWIW, I don’t think the iPAD will be that successful, as most people are not ready for the thin client (remote computing) and it won’t replace other devices. If I am sitting, I just assume have a full-function laptop. If I am on the go, give me a phone with a good display.</p>
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<p>That’s a lie. You wouldn’t have added the following:</p>
<br>
<br>
<p>Because that’s what you do.</p>
<br>
<br>
<p>Once.</p>
<p>You made what, a dozen errors that you just waved off.</p>
<br>
<br>
<p>Just hand-waving.</p>
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<p>You do the exact same thing.</p>
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<br>
<p>You conveniently leave out my chain of reasoning.</p>
<br>
<br>
<p>I’ve been using net forums for almost 30 years and seldom have I seen
someone so quick to insult out of the blue. Do you use the same
approach with your wife and kids? It seems that you have a veneer of
being reasonable with an incredibly quick temper just under the
surface.</p>
<br>
<br>
<p>I have sharp discussions with people frequently in the politics forum.
There, personal insults are fairly rare. I am surprised that you jumped
on me in this particular forum from out of the blue and are so easy to
toss around insults.</p>