Entries Tagged 'Investing' ↓

The “Madoff twist”

How do Wall Street insiders, smart brokers, and big investors get caught by Ponzi schemes like Bernard Madoff’s?

According to John Kay in the Financial Times columnist, “the fraudster hints at impropriety, but implies that the target will be the beneficiary rather than the victim.” Kay calls this the “Madoff twist.” (FT 3/18/09 p. 9)

I doubt Madoff invented this twist. This kind of trap is set by a lot of unscrupulous people, whether or not they are actual “con men.” The idea is to sell the victim the idea: “we’re smarter than that poor dope.” This works by creating a sense of belonging, superiority, and being privileged to have inside information.

The “having inside information twist”

Continue reading →

Wall Street has coined the name for retail investors: ‘dumb money‘. And, as headlines like “Investors resist the siren call of equities” suggest, Wall Street is now surprised that retail investors are fleeing the market in droves? Who’s dumb?

Retail investors have lost confidence. They feel manipulated by brokers and betrayed by the market. Clearly the government hopes that more regulation will help. It won’t.

Regulation doesn’t build confidence; regulation prevents confidence from slipping away. It’s a bit late for that! What builds investor confidence is success. Success cements an “I can do it!” attitude.

What pari-mutuel betting means for investor confidence

Continue reading →

There is cheating in all kinds of gambling. But cheating in pari-mutual betting is different than cheating in gambling games of chance. Investing is pari-mutual betting. Investing is based on skill not luck. Investment scams work differently.

Market manipulation, insider trading, front-running, and banging the close. Why are all these things illegal in investing? We’ll see shortly. Continue reading →