Forum Post: How to take down Wall Street nonviolently, and without having to ask for permission
Posted 12 years ago on Oct. 19, 2011, 6:04 a.m. EST by InTheKnow
(73)
This content is user submitted and not an official statement
The only way to take down Wall Street is to use economic analysis in finding a solution. I am going to tell everyone here how to do it. This result relies on very basic economic theory of financial markets:
- Get a large number of the "average Joe," non-professional people currently trading to STOP trading (buying and selling stocks) in the financial markets (because they are almost certainly gambling their money away).
- Get a large number of Americans to take their retirement moneys OUT of "actively managed" financial funds (most mutual funds, etc.) and into market index funds (which are "passively managed" but perform better than 80% of all "actively managed" mutual funds). It is a well-known fact that most Americans would be making more money on their investments if they took their money out of actively managed mutual funds. Most Americans just don't know about how they're getting ripped off! See: http://articles.businessinsider.com/2011-08-14/news/30047425_1_index-funds-star-funds-mutual-fund; and http://finance.yahoo.com/blogs/daily-ticker/most-mutual-funds-ripping-off-says-ifa-mark-20110412-105137-183.html
- Get 5% of Americans to take their money OUT of the big banks and into community banks or, better yet, Credit Unions! Because banks hold such a low fraction of cash reserves for their obligations, this one step could virtually shut down all the big banks. To avoid a catastrophic collapse of the banking system, the transfer would take place GRADUALLY, which is by far the most likely thing to happen anyway. Update: It seems there's already a group doing this at: (http://moveyourmoneyproject.org/).
It's THAT simple!! Wall Street functions because everyone's money is sitting in the hands of financial funds that a) are managed by non-Wall-Street and Wall -Street managers (while also generating business for the big investment banks), and b) are managed by idiot fund managers that can't even beat an unmanaged buy-and-hold strategy (index fund), but whose poor management generates investment opportunities for the big Wall Street banks and associated institutions.
THE LOSS OF YOUR MONEY (EITHER TRADED INDIVIDUALLY OR TRADED THROUGH YOUR MUTUAL FUNDS) ENABLES WALL STREET TO GAIN IT. WE HAVE TO GET THE PEOPLE OF THIS COUNTRY TO LEAVE WALL STREET TO ITSELF BY ENDING ACTIVE PARTICIPATION IN THE MARKETS. WHEN WE LEAVE, WALL STREET WILL IMPLODE BECAUSE THE BIG INSTITUTIONS WILL START TO LOSE MONEY TO EACH OTHER INSTEAD OF HAVING US LOSE IT TO THEM.
This is based on the economic theory of financial markets. It is well-known to any academic economist specializing in this area that the loss of money by average investors allows "informed" investors (Wall Street) to make money. This is justified by saying that the "informed" investors make prices more efficient, and therefore help the economy.
It is very possible that, if people here actually sought to make these three their goals, this movement could completely change the financial industry. Helping people do steps (1) and (2) could be considered a charitable act of kindness. As for point (3), it's merely a form of boycotting--a nonviolent form of protest.
I am as convinced that this could happen just as much as I'm seeing evidence that hundreds of thousands or millions of people have taken to the streets in protest or have acted in support of the protesters. I don't see why it should be difficult to suppose that people would act in their best interest if brought to understand how they're being ripped off. Incidentally, helping people save their money would also have the consequence of shrinking down Wall Street.
Concerned that the "collapse" of the big banks could hurt everyone and the economy? Well, if the transfer of money is done gradually (over 1-2 years, for example), the banks would have time to wind down their operations. As other institutions grow in response to the movement of the money, they'd hire the displaced workers.
As for those people wondering about points (1) and (2), and whether they could work, they ALREADY have. Less of your money to trade with Wall Street --> lower trading revenues!
Goldman Sachs: http://www.reuters.com/article/2011/10/11/us-goldman-idUSTRE79A1ID20111011
Banks end up having to close down their operations: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/18/bloomberg_articlesLT9ZG31A1I4I.DTL
How about the movement contacted all of its supporters (the ones sending food and donations), and then funneled them into a nonprofit group that would help with making these transitions?
DID ANYONE READ TO THE END, HERE? I just gave you the SECRET to taking down Wall Street. I have an academic background in ECONOMICS, have worked in the industry for a little while in the past, and CAN'T reveal much else about myself.
Update: I'm glad to have gotten the discussion started on this topic. I will log in every day or two and check for comments. Please feel free to refer others to this thread! What I'm describing here would actually work if taken up and supported by this movement. It's up to you...
duct tape a hundred dollar bill to a greased squirrel and let him loose in the NY stock exchange. Those greedy bastards will chase him around all week.
That's animal abuse you sack of shit.
its a joke.
holy crap , that sounds like fun. now .... how do i catch the squirrel to duct tape the money to him.
Hilarious! Can I echo that. Dirt Bagger Party unite!
actually, seriously, what about a toy remote control car in front of the exchange when the workers are filing in in the morning. Tape a hundred to the toy car aerial, like a flag flapping off it.
bad idea , some ass hat would put something intended to harm others as the payload. and then ,. point back to you.
hahaha. Oh my god you made my day. That is funny. And there is no way I can think of that Goldman can hedge it, bet on it or against it, make a dime off that squirrel!
Looks like someone already thought to accomplish point 3:
http://moveyourmoneyproject.org/
The flaw to this plan is that the Federal Reserve will just print the money. Like they have for a hundred years.
You go after a target everyone can get behind:
http://occupywallst.org/forum/the-lord-of-the-dirty-fucks/
are we in a bubble, is the the way to get out of the bubble?
lets assume booshington gets his pickles for the rest of this post.
ok we will use boosington's pickle supply to sell at farmers markets so he can get some nickles too , then we can include his pickle money in the pot. do you stand by this booshington ?
bat shit crazy , i like it, now how do we test the math ? how many nickles can we rub together ? how will that effect "it" anyone have a CPA thats willing to stand by this.
Wow, way to go for the jugular! Posting this link might help get a lot of people up to speed with your theory: http://en.wikipedia.org/wiki/Fractional_reserve_banking. I remember as a young man the banks being able to loan out 2 1/2 times their float, and I believe it's like 28 times that now. So there is no question that 2% of the population moving their money in a coordinated effort would cause a run on the banks. Now to the harder issue. As someone has pointed out, this will cause a disruption with employers and ultimately come back to bite the people you're trying to help. Any thoughts here? Since you are InTheKnow (and I concede that) any thoughts about how much money shifted hands when Moodys downgraded the U.S. and people that were "InTheKnow" sold short? I can't help but think that the Big Banks (and Others) made a killing off of that little bit of info.
Every problem you're concerned about can be avoided entirely by a GRADUAL removal of money from the big banks (point 3). As other institutions grow in response to the movement of the money, they'd hire the displaced workers. A LOT of money shifted hands when the markets slid a few months ago. However, a lot of the big banks weren't making money on it! The volatility in the markets was partially a result of the fact that a lot of "average-Joe" Americans are no longer participating actively in the markets (through their individual brokerage accounts (point 1) or mutual funds (point 2)). Their money is no longer around to pad the market's movements (to put it in layman's terms).
See: http://www.businessweek.com/news/2011-10-20/wall-street-has-worst-quarter-since-crisis-in-banking-trading.html
Even Goldman may have lost money this last quarter: http://www.reuters.com/article/2011/10/11/us-goldman-idUSTRE79A1ID20111011
...and notice that the banks end up having to close down their operations: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/18/bloomberg_articlesLT9ZG31A1I4I.DTL
I don't want to take down wallstreet and I think a lot of other OWSers don't either. I simply want economic crimes such as the 2008 fiasco to be prosecuted and to get money out of politics.
Thanks for the advice about mutual funds though, I always thought the fees were way too high.
A general strike could be good as well. France has them.
save the money system
The point is not destruction. but creation of something better. The men who run wall street, and even the rich are your brothers. amongst them are smart and capable who need to be brought over to this side of the argument
I think we need a more drastic plan. Index funds? It's a ponzi sceem - start investing in the homestead and buy amercan made tools.
Ok look, dude: If you're just going to come online and utter nonsenses like "It's a ponzi sceem" to broadcast your ignorance, why don't you go to Youtube. There are plenty of loonies over there, and it's an entertainment site. Do you even know what an index fund is? What the hell are you talking about? "start investing in the homestead and buy amercan made tools"???????? How does that have anything to do with Wall Street?
O Lord. Why.
I am a CPA with 20 years of experience. The stock market is a ponzi sceem.
Well then I'm even more sorry to hear that you don't have an accurate understanding of what a "ponzi scheme" is.
Not Two Is Peace
http://www.globalcooperationproject.org
Global Cooperative Forum Beyond Tribalism Based on Prior Unity of Humanity Not two Is Peace
I agree 100% with your thesis. However, in order to get people to do this, we need to position it as getting people to HELP their community, rather than HURTING "capitalism" (because so many people are still under the delusion that the US is driven by capitalism rather than greed). We must get numbers to be successful, and to get numbers, you MUST have a positive message. For example, "Use your buying power to support your neighbors", or "how many jobs has YOUR local bank offshored? Support America". The majority of Americans (and people in all countries) feel as we do, but how we market the message will determine if we succeed or die (as the 1% expect us to).
You have to market the message as being the best for the recipient of the message. The facts are real. Most people shouldn't be actively participating in the markets. I have STUDIED this in one of my seminars. I would like to conduct research on this. My professor argues that it's OK for the average person to lose money because it helps the economy. That's the standard line. But I know that he's wrong, because there are limits to the amount of benefit.
In any case, all of us in the academic world know that only idiots trade in the markets unless they're doing it professionally. Why not just inform everyone that they've been duped for the benefit of mutual fund employees and the Wall Street titans that siphon away money from the incompetent mutual fund guys?
InTheKnow. If you are in academia and have experience in the industry, why don't you prepare some examples of how I would do if I invested actively in random stocks for the last 20 years, and how I would have done if I had just invested in indexes instead? A little 6-slide presentation that the rest of us could use to talk to our friends would be fantastic.
Well, investing in randomly selected stocks would yield about the same return as just buying an index fund (which buys all the stocks in the New York Stock Exchange index, for example, and holds it, while letting you buy and sell the shares of the fund itself). It's mutual funds that you have to buy into, but which then try to buy and sell, buy and sell, buy and sell many different stocks with the intent of trying to outdo random selection. But they CAN'T outdo random selection, because they buy and sell the wrong companies at all the wrong times. They think they're getting a deal, and they trade with more sophisticated Wall Street investors, who pocket the difference.
I could prepare a little six-slide presentation. But there are already many many articles and video resources out there. I'm still waiting for someone from this movement to contact me with an interest in doing this in an organized way.
InTheKnow, do you know what I think would be a REALLY interesting study? If someone looked at all the predictions made by the so-called independent stock analysts and see how accurate they actually are. For my company, the prediction of some analyst nearly always has more impact on the stock price than anything that we actually do, so these people are hugely powerful. And yet I have never seen a score sheet that says how close these guy's predictions are to what actually happened. I know that is a LOT of work, but possibly an interesting subject for a paper?
Average investors pay attention to analyst estimates because those estimates become the new expected reality, at least until your earnings actually come out. If there is disappointment, the stock price will drop down again. But notice that, on average, assuming that a company is growing, analysts will issue their buy recommendations, predict a projected earnings per share (EPS), and investors will buy shares (expecting that the company will soon be worth more). However, most every company will grow, and EPS estimates will therefore also grow. So it may seem like the analysts have a lot of power, but at the end of the day, it's really the performance of your company that drives its stock price. Analysts can come out and predict you'll lose money next year, but if the first quarter swings around and you guys come out with good earnings, your stock price will bounce up no matter what the analyst says. And big institutional investors will jump right in to buy shares if your stock price DOESN'T jump right back up. It may seem like an analyst has a lot of power, but his power only exists because of what he can say about how well your company will likely perform.
There are already many studies looking at the alleged performance of so called "stock experts." Almost all "experts" or "analysts" (especially the ones selling their research to individual investors) are completely incompetent. The firms and their analysts exist to get you to make trades, not to make money. Again, this is something that every economist (and other informed individuals) specializing in the area already knows. This is similar to the fact that a real estate agent probably won't get you the best price on your house (because of the way he/she gets compensated). But most people don't know anything about this. There are countless other examples; I could go on..
Hi InTheKnow. Sorry, I don't mean to burn up all your time, but if you happen to have the URLs for some such studies, maybe you could post them here? I am certainly interested in having a read. And I'm just a Joe Investor, not an expert like you, but I am probably pretty typical of most people outside the investment community. Thank you for your help and input.
Wow, so my information is inaccurate (or out of date, to be more precise). The older studies (which my professors generally rely on) report that analysts are pretty much incompetent (because of the effects of including the dot-com bust in the examined data). However, the newer research shows that certain top sell-side (working to sell services to investment groups) and research-selling analysts CAN outperform the market consistently. However, the research does indicate that majority of analysts selling research are selling garbage, especially because of certain unethical influences (notice how rare it is to see an analyst issue a "sell" recommendation, because most investors are unlikely to sell short, and it is in the interest of the firm to issue recommendations that will generate trades).
Here's a very recent paper:
Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=687491
Are Stars' Opinions Worth More? The Relation Between Analyst Reputation and Recommendation Values
Lily H. Fang
INSEAD - Finance
Ayako Yasuda
UC Davis - Graduate School of Management
November 18, 2010
Abstract:
Using 1994-2009 data, we examine the relation between analysts’ star status and their recommendation values. For investors with private, advance access to analyst recommendations (e.g., institutions), trading on All-American (AA) analysts’ buy and sell recommendations yields significantly better risk-adjusted returns than trading on non-AAs’ recommendations. For investors without such access (e.g., individuals), only top-rank AAs make significantly more profitable buy recommendations than others. AAs outperform non-AAs both before and after they are elected, and the performance differential does not reverse. Reg-FD, Rule 2711, and the Global Settlement did not significantly erode the performance differential between AAs and non-AAs. Furthermore, election to top-AA ranks predicts performance in buy recommendations even among analysts with high ex-ante election probabilities. Collectively, these results suggest that skill differences among analysts exist and AA election reflects institutional investors’ ability to evaluate and benefit from elected analysts’ superior skills. Public investors’ opportunity to profit from the stars’ opinions exists, but is limited due to their timing disadvantage.
InTheKnow - that's great, thank you! Some light reading there for me. I will work on compiling a list of sources like this and post them back here in case other people are interested.
Here's something you might find VERY interesting. This is a great summary of what I've been referring to:
Link: http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2005.00743.x/full
Trade Generation, Reputation, and Sell-Side Analysts
Article first published online: 2 MAR 2005
The Journal of Finance
Volume 60, Issue 2, pages 673–717, April 2005
This paper examines the trade-generation and reputation-building incentives facing sell-side analysts. Using a unique data set I demonstrate that optimistic analysts generate more trade for their brokerage firms, as do high reputation analysts. I also find that accurate analysts generate higher reputations. The analyst therefore faces a conflict between telling the truth to build her reputation versus misleading investors via optimistic forecasts to generate short-term increases in trading commissions. In equilibrium I show forecast optimism can exist, even when investment-banking affiliations are removed. The conclusions may have important policy implications given recent changes in the institutional structure of the brokerage industry.
Significant media, regulatory, and academic attention has recently been focused on the conflicts of interest generated by the relationship between sell-side analysts and investment-banking departments. One outcome of this controversy was a settlement between U.S. regulators and 10 top investment banks requiring “a clear separation of the research and investment-banking divisions at (brokerage) firms”.1 A key assumption underlying this settlement is that splitting analyst research and trading away from investment banking significantly reduces conflicts of interest affecting analyst research, leading presumably to unbiased earnings estimates and better outcomes for brokerage clients.
However, with the introduction of such an institutional structure, the incentive for sell-side analysts to generate investment-banking business is simply replaced by the incentive to generate trading commissions. Indeed, such an incentive has already long existed in the previous institutional structure, but has not been examined closely in the academic literature to date due to a lack of available data. This paper provides strong empirical evidence that optimistic analysts generate higher trading volumes for their firm, providing an incentive for analysts to upwardly bias their forecasts and recommendations.
This incentive is limited in reality by analysts' concerns about their reputations. Since analysts interact with investors repeatedly, opportunistic behavior may be curtailed by the threat of negative repercussions in the future. In this situation, the analyst must trade off the short-term incentive to lie and generate more trade against the long-term gains from building a good reputation. I present empirical evidence that analysts with better reputations generate significantly higher future trading volume for the brokers they work for. Thus, analysts have a strong economic incentive to develop their reputations. I also show empirically that the market updates analyst reputations in a consistent way, with more accurate forecasters attaining higher end-of-period reputations.
A second aspect of the debate concerning analysts' conflicts of interest is differing beliefs about the rationality of investors who receive analyst research. Several financial economists have questioned the appropriateness of significant regulatory intervention in analyst research production. For example, Kent Womack states that “Just as consumers know to be somewhat skeptical of the commercials they see on television, so do professional investors know how to de-bias information they receive from analysts.”2 For convenience throughout the paper I label this point of view as the neoclassical view.
An alternative view, which I label the Spitzer view,3 is that investors (especially smaller investors) are unable to correctly de-bias analyst research and as a result are systematically misled by optimistic forecasts. For example, the Wall Street Journal reports that brokers were “hyping stocks to win lucrative investment-banking work from corporate clients, and were misleading investors in the process” (Gasparino (2002)). This view asserts that investors are likely to be fooled by analyst hype and therefore need some form of regulatory protection.*
At first glance, my empirical finding that optimistic analysts generate more trade appears to provide strong support for the Spitzer position. Indeed, if analysts were fooling investors by issuing spurious buy recommendations and optimistic forecasts, this empirical result is exactly what we would expect to find (given the heavily right-skewed distribution of broker recommendations). However, my second and third empirical findings, that investors pay more attention to high-reputation analysts and update reputations based on past forecasting performance, are more consistent with the neoclassical position. ...
...continued:
To reconcile these apparently conflicting results, I develop a simple model describing the interaction between analysts and investors. Using this model, I show that my three empirical findings can be generated inside a fully rational framework after allowing for the presence of asymmetric information about an analyst's motivations. The model also generates two further comparative statics predictions, namely that consensus optimism is higher when short-sales constraints are higher and when dispersion is higher. These predictions are subsequently supported by the data.
Using this model, I am also able to impose a particular type of investor irrationality consistent with the Spitzer view, namely that a proportion of investors naively believe that analysts' forecasts and recommendations are always truthful. Using this modification, we can directly test the neoclassical versus Spitzer views. The empirical results, showing that cross-sectional optimism levels do not increase as the percentage of small investors increases, support the predictions of the neoclassical position, allowing us to distinguish somewhat between the two competing views.
This paper adds to the empirical literature on the trade-generation incentives facing sell-side analysts. Given the current settlement requiring brokerage firms to be split in two, these incentives are likely to become significantly more important going forward. In a policy sense, my empirical results suggest that optimistically biased forecasts are unlikely to disappear after the proposed changes. However, measures that enable investors to cheaply monitor past analyst forecasting performance4 may be an effective tool for ameliorating this effect. Such policies make the analyst's reputation more transparent and increase the implicit penalty for opportunistic behavior. Measures to reduce short-sales constraints facing investors would also decrease the extent of the problem.
In a broader sense, the paper adds to the economics literature on the empirical importance of reputation formation. I show empirically that reputation matters in the market for professional advice. I also add to the behavioral/rationalist debate by demonstrating how a simple model with rational investors and asymmetric information can be applied to generate apparently behavioral phenomenon. My empirical results do not support the conclusion that investors are stupid and need to be protected, but do suggest that moves to decrease the cost of acquiring information about analyst quality would be helpful.
The paper is structured as follows. Section I discusses some related literature. Section II describes the data sample and defines variables used in the empirical analysis. Section III contains the central empirical results of this study, examining the interaction between trade generation, reputation, and optimism. Section IV develops a simple model explaining how these results can be generated within a simple rational framework. Section V tests three supplementary predictions from the model. Section VI concludes.
No problem. I updated my own knowledge in the process. I've never generally and personally considered using analyst recommendations, so I just took the words of my professors on faith without verifying to see if things had changed.
That said, I'd still be very careful about it, and wouldn't recommend it without exhaustive research.
I should make sure to be complete about this: Not all analysts are completely incompetent. There are many very competent analysts --but they're not selling research--they're working on Wall Street in the investment process. I also took a closer look and it does seem that certain "good analysts" can continue to do well on average. But the majority of sell-side analyst recommendations (especially when produced at discount brokerage firms) are worthless.
I have institutional access through my university; let me know if you have trouble seeing these:
http://www.jstor.org/stable/4480469
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=410521
Pump and Dump: An Empirical Analysis of the Relation Between Corporate Financing Activities and Sell-side Analyst Research
2003
Abstract:
We analyze the relation between corporate financing activities and sell-side analysts' investment research. We document pervasive evidence of overoptimism in sell-side analysts' earnings forecasts, stock recommendations and target prices that is systematically related to corporate financing activities. Overoptimism is greatest for firms issuing equity and debt and least for firms repurchasing equity and debt. Our evidence is consistent with allegations that sell-side analysts routinely manipulate their investment advice in response to investment banking pressures in order to temporarily inflate stock prices around securities issuances.
Hi InTheKnow,
So far this is the most interesting and informative thread I've run into. As far as "waiting for someone from this movement to contact me with an interest in doing this in an organized way" I'm not sure I'd hold my breath. If they really are using consensus decision-making and it's a sizable group (and there is no reason to doubt either proposition), hell may well freeze over first. I've seen this before with the Greens. Loved 'em, poured heart and soul into 'em. But where are they now?
Thank you. I appreciate the kind remarks. I think I might eventually gather attention when the number of comments here reaches the higher hundreds. I don't see why it would be too difficult. In just the past seven or so hours, this thread has gone from two dozen to over a hundred comments.
How about ending or greatly restraining the Private central bank known as the Federal Reserve? They are the ones who control and bail out Wall Street (as well as banks overseas!). If you want to get rid of a problem, you must start at the source.
The Federal Reserve isn't bad, necessarily. The government needs to have control over its own money supply. It's the combination of the Fed + fractional reserve banking that leads to trouble. Contrary to factually erroneous and confused conspiracy theorists out there, the Fed actually does not create money and "loan" it to the government. And, Congress' budget deficits are responsible for inflation--the Fed only allows for Congress to spend as much as it wants (because the Fed acts as the printing press mechanism).
Good idea.
Good idea.
According to one site on Facebook:
"Together we can ensure that these banking institutions will ALWAYS remember the 5th of November!! If the 99% removes our funds from the major banking institutions to non-profit credit unions on or by this date, we will send a clear message to the 1% that conscious consumers won't support companies with unethical business practices.
• Research your local credit union options • Open an account with the one that best suits your needs • Cancel all automatic withdrawals & deposits • Transfer your funds to the new account • Follow your bank's procedures to close your account before 11/05
FIND A CREDIT UNION USA: http://www.findacreditunion.com/ CANADA: http://locator.cucentral.com/ UK: http://www.findyourcreditunion.co.uk/"
EXCELLENT. WE NEED TO GET THIS TO THE PEOPLE ANSWERING THE MAIL AT OCCUPY WALL STREET.
There needs to be some organized way to collect everyone involved in this movement and get them to make these changes. Unfortunately, no one is doing that at the moment. This movement needs leadership!
You and I will have to spread the word. There is one one else. Here is the link on Facebook:
http://www.facebook.com/Nov.Fifth
Spread the word!
I think it would be much easier to not forget the pickles.
There are already so many protesting, and so many showing support. Do you really think that it would be so difficult to get information to supporters?
Exactly my good man. Exactly.
This message i watched from anonymous goes with this http://www.youtube.com/watch?v=whYIC_XW_V0
Nov 5th Cash Back day.
Hilarious video. I wouldn't go so far as to say that all banks are evil. But the big ones need to be broken up.
Wiki Occupy Wall Street
http://www.wikioccupywallst.org
United We Stand ! Let's Build it Together ! Yes we are Us . . .
Just one comment from a person who went to business school and has his own business. You have an "academic background in economics"? I guess that proves the old saying "those that can DO those that can't Teach" I support OWS but not this kind of drivel. Investors to stop trading? Ha there is a huge and I mean huge secortor or workers and 99 percenters that rely on jobs in the financial sector. Pull out of managed funds and go for indexes like the schwab 1000. againg Puleeze, some people want more ROI and so they will invest in managed funds, also you seem to forget that most people try to time the markets which mean than the buy low sell high, of a person does not trade in the market they will be screwed in a bear market because they did not cash out during a bull market esp nowadays, the old long postion in investing is going the way of the dodo. Next community banks tend to fail if they have a few bad loans this is not the movie It's a wonderful life anymore. lastly, most of the big banks have paid back the bailout money I will watch BofA with concern and will short the stock if it tumbles.
Unfortunately, you don't seem to realize that the majority of Americans aren't financially savvy. They don't know how to pick managed funds that can outperform the market. It's a well-known fact that most managed funds underperform the market. These funds subsidize the ones that are overperforming the market. Unfortunately, it seems you spoke too soon. Economic theory explains this very well. It's called a zero-sum game. For most Americans, they'd be getting a higher "ROI" if they pulled their money out of managed funds, which, by the way, are prone to extreme performance attribution biases even if they did manage to outperform the market.
Furthermore, I know about "timing the market" and know a little bit about chart analysis. You should note that I wasn't advocating a multi-year holding period, necessarily. In fact, for most Americans wishing to protect themselves from losses, index ETFs are far superior to actively managed funds because of the greater liquidity and notable absence of lock-up penalties.
Finally, the big banks are actually an economic leech. The current financial system subsidizes larger banks at the expense of smaller ones, and subsidizes all banks to some extent. Nothing has been done about the very real brain-drain that has drawn a lot of very talented individuals into Wall Street firms where the benefits of their trading activities provide only marginal and decreasing returns to the overall economic system. Though the banks have paid back much of the money already, there have been plenty of subsidies that don't get mentioned, and these are inherent in the system. Finally, the big banks pose very large systemic risks to the overall system. The problems that existed before the crisis exist as yet, and even more so than they did before the crisis.
But don't let me burst your little bubble as someone who "went to business school and has his own business." If you went to business school and no one taught you about inefficiencies, regulatory capture, and political behavior, I'll fault the business school that educated you.
I'm not a professor, and don't plan to enter the academic world after finishing my graduate degree. You need to stop being so naive. As for your comment about jobs relying on the financial sector, you're neglecting to consider that other jobs (once replacing the current ones) would exist, and that in the future, those jobs "needing" the current financial ones could benefit from the newer ones. Are you really advocating the idea that no one should ever be fired because someone else might lose a job? You learned this in business school? I'm sorry to hear that.
One: the Zero Sum Game eh, uh huh yes Manhattan Today does look very simlar to the way it looked when it was called New Amsterdam. No, Businss built this city with investors actively investing, New York's growth did not mean Londons decline to Zero. I will agree with you that there could should be a breakup of the big banks al la the ma bell breakup. I believe your theory does not hold water because when things separate or are broken up or dismantled they eventually congeal again kind of like throwing a rock into a pond, the pond is still, then somebody throw a rock into it, it ripples out and then steadies back to still again, that professor is what would eventually happen with WALL street or the name that they will name after you after the revolution. I won't hold my breath.
You don't seem to have paid much attention to the part about "zero sum game" with respect to the average market return. People trade to make more than the market return. Since there are many people trading, some will make less, and others will make more. The ones that make more can do so because there are those that will make less. THESE ARE FACTS.
And I'm not a professor, so please don't insinuate as such.
In the short term, in the short term. it's is really naive to assume that people that invest in the long term will as a net end up winners and losers, that is what growth is all about. That is why the dow is at 11,000 not at 2000 or 200.
"With respect to the average market return"
Yes, you can end up a loser when compared to the index. You could receive a 5% return as the market went up 10% during that holding period. You were a net LOSER. Guess what? Someone else became a net WINNER because you were crappy at your trading. These are economic facts. I'm not pulling this out of my ass. When you buy at the wrong time, you give someone else the chance to sell at a higher price than would otherwise exist. When you sell at a low point, someone else gets a better deal. Multiply this out and you'll see how markets work.
They are a zero-sum game with respect to the average return, and,
Average return = index fund
Q: So why are people invested in mutual funds that do worse than an index fund?
A: They don't know any better.
Q: Doesn't the poor performance of most mutual funds end up making it so that Wall Street gets to make more money? A: Yes, that's exactly the point.
Just one comment from a person who went to business school and has his own business. You have an "academic background in economics" I guess that proves the old saying "those that can DO those that can't Teach" I support OWS but not this kind of drivel.
Just one comment from a person who went to business school and has his own business. You have an "academic background in economics" I guess that proves the old saying "those that can DO those that can't Teach" I support OWS but not this kind of drivel.
This is one of the most idiotic comments I've heard in a long time. To say that I have an academic background doesn't mean that I'm teaching. Why are you so opposed to ideas that might actually work? Or would you just rather prefer to make idiotic claims that don't make any sense or have any chance of entering the realm of reality?
to suggest that people are going to stop investing because you say so is the idiotic thing my friend.
This is hilarious. You don't seem to actually understand what I've written. I'm saying that people will choose to stop having their money actively traded around in the markets because doing so will result in a higher return.
Did you graduate high school? I'm afraid our educational system is turning out students that can't understand the written word. Try reading some more, my friend. You'll get it eventually.
In the know, I have read your original post, so I will try to keep this as non academic as possible: have yoiu ever heard the expression "when pigs fly"?
Hahaha yes well if you think it's impossible to ask people to get themselves into a position where they'd be able to make more money, then you need to take a better look at human nature.
People will make the switch once they get informed. Couple that with the lack of trust felt by most Americans, and you'll see that most would be willing to switch if some organized and rational body could help them.
...
I have already done this, and talked my father mother and several other family members into this. They have moved retirement funds out of the big banks closed accounts, and moved all of it to local credit unions. In the grand scheme of things not a huge amount, but still the collective 75k is a start. I did this years ago, but got the rest of them to do it this last Friday.
Admirably done!
good point. remove the blood supply from the vampires and they will only have each other to feed on.
Haha very good analogy. That basically sums it up. They make money on the average person's transactions. If Americans stop buying and selling (note: this does not mean that Americans can't be passively invested) either directly or through intermediaries (mutual funds), the Wall Street guys will have nothing to trade on.
Most of those guys lose money if they waste the time to pick up a twenty dollar bill
Heres a way to change Wall Street and a few other things...actually it involves working within the system and helping each other rich poor whats left of the middle class.....get the organizers to read this www.nationalday911.org P.S. not running for office, don't want donations, just a concerned citizen
So basically, you suggest investing in index funds instead of individual stocks? Is an ETF what you mean by index fund?
It doesn't sound like a bad strategy. I, myself, wouldn't want to get totally out of the stock market, because I lost a bit in our "crash".
And I totally agree on switching to community banks. It's really dumb that banks collect 60% interest while paying out 1%. They should share the wealth - why hasn't capitalism made this happen!?!
O and by the way, you should learn more about the importance of asset allocation. Basically, picking stocks is a fool's game unless you're doing it as a full-time job--and even then, it's probably not going to be profitable. Stock prices are highly correlated. If the market goes up, your stock will (almost certainly) also go up; if the market goes down, your stock will (almost certainly) go down. Just trade the index. There's no need to waste time trading any particular stock.
"Asset allocation" -- Look it up!
I would totally agree, you almost need inside knowledge to profit on individual stocks, or just really smart and work on it full time. Actually, don't individual stocks tend to go down, since companies tend to die out?
Thanks for the info!
Interesting question. I've never thought of that. I'd say it all gets factored in as the index reflects the loss of the company (the company will be part of the index value as it moves up and down), so it doesn't really matter, but the index gets you the benefit of diversification.
Diversification always helps to reduce risk. It doesn't help to make a bad investment just for the sake of diversification, but making 10 good investments is much more safe than making 1 investment where you park all of your money.
But isn't this precisely what mutual funds do?
Yes, mutual funds are stock-pickers or bond-pickers. But they don't allocate assets. That decision is at the level of the individual investor. It's sad, because almost all of the gains in the markets are derived from asset-level (stocks vs. bonds, etc.) price movements. Basically, stocks move up and down together. Mutual funds pick individual stocks, which is a waste of time.
But wouldn't the intention of a mutual fund be to minimize risk?
In other words, their main goal is pick stocks for you and then diversify to minimize risk. But research shows that they don't do a good job of picking stocks, and there's no way to diversify (and minimize risk) more than you could by buying an entire index of stocks (ALL the stocks traded on the NYSE, for example), so an INDEX fund (which just buys all of them) would be the best choice for most Americans. But no one knows this except for those in the industry!
http://articles.businessinsider.com/2011-08-14/news/30047425_1_index-funds-star-funds-mutual-fund
http://finance.yahoo.com/blogs/daily-ticker/most-mutual-funds-ripping-off-says-ifa-mark-20110412-105137-183.html
Yes, but with the intention of picking about two dozen specific stocks in an attempt at doing better than a random selection of 500 stocks. Guess what? The majority of mutual funds don't do better than a random selection of stocks (which is the index!)...
Hmm... but don't mutual funds also give the option of buying the index?
Aww NO! Haha not at all. The purpose of a mutual fund is to do the trading/investing for you. They won't give you the option of buying an index--that's an index fund! I think you may not know the vocabulary of the markets just yet. Nothing complicated; just spend a weekend and read a book on it. You'll learn quite a lot.
Anyway, I'm going to keep this in mind if I ever get the funds to get out of this damn tent.
Yes, yes, an index ETF. Look up the research. Most mutual funds DON'T beat the market. Most Americans would be better off in index ETFs, but SHHHH...don't tell them or all these fund managers would be out of business...
Where do you get the "60%" interest number? That's not supposed to happen as that would be usury.
Possibly overestimation/exaggeration - assuming 3% reserve, they lend out 30 times the input, charge 2% in interest on that 30, while paying out 1% on the 1. Perhaps I am wrong. It seems too wrong to be true, but I have heard others say the same.
Yes, it's a little bit of an exaggeration. You should grab a book on the economics of banking. Very interesting stuff. There's a degree of leverage involved, but it's not nearly like what you're describing, though you have a point regardless.
Points 2&3 are valid and solid. Point 1 is going to take a massive loss of capital by average investors...again.
No, that's not true. No loss of capital. I was talking about having everyone close their individual brokerage accounts or restrict the activity to the purchase of index funds ONLY. I'm saying to get everyone to stop buying and selling stock with the hope of becoming the next Warren Buffett. It won't happen! And the only ones benefitting are the Wall Street investors who pocket the money being transacted when they take the other side of your trade.
Then it really doesn't need its own bullet/number point. You should drop every American..it makes your proposal clearer, more concise, and seemingly more achievable.
Having individual investors "trading" their own money is different than having your retirement money "invested" in actively managed mutual funds. But yes, I could combine the two and say that we should get individual investors to change from having their money actively traded in the markets to having it inactively and passively invested in index funds (which generate higher returns than the average mutual fund and don't generate trading opportunities for Wall Street).
I think it would be better for it. Also it wouldn't hurt to emphasize more that for most people that it would be more lucrative for them to do it that way.
YES! Thank you! That's been my point all along. This movement needs to get some people together to open an arm aimed at getting this information to all these average uninformed Americans. Tell them to get their money out of mutual funds and put it into index ETFs. They'd be making more money!
And as someone who has worked shortly in the industry, I can tell you that everyone working in the industry knows a little secret--stock picking doesn't generate most of your returns--and most mutual funds can't even do it profitably anyway!!
It's a good idea. It's basically what Bogle, the founder of Vanguard promoted. Didn't he actually invent the ETF? Or maybe just publicized them. Anyway, smart way to go.
Re money out of these banks. Definitely a powerful thing and I am glad people are doing it. Apparently lots of people have been doing it this month. I am going to seek out numbers in a week or so to see if it has been significant. Especially money going to credit unions. Also small community banks
Right. I'm relying on you to make that point cogently and continuously.
Sorry for all the repetition. I might be wasting my time here, but my suggestions have real merit. They may be difficult ones to put into action, but they'd actually work.
No, I wasn't kidding that time. In fact I'll help you. But you can't just shout in the forums and expect it to go viral, the trolls will drown you. You have to engage and inform, educate and be educated. Do me a favor and make this point here: www.themultitude.org, no cut and paste, take a shot at a rewrite. You're much more likely to get constructive criticism and then take it back here and keep telling people.
Thanks for this. Though it doesn't really seem like anyone frequents that board. Is it something for more involved members of this movement?
Not so much. The board is new, they had nobody two days ago. It was created for precisely this (not by me). It is hard to do any in depth organizing here. You run out of replies, heavy trolling, no topic threads, etc..The people who do frequent care and think.
Very good. I'll take a hit at it and see what happens. On here, it seems like you can't find your thread again once it's no longer on the top. Don't they have a search feature?
You don't want to stop trading, you do want to become an activist shareholder. Call your pension or mutual fund and demand that they change their voting practices at company Annual General Meetings.
In the companies those funds have stock and shares:
--You demand they vote for lower CEO and executive pay.
-- You demand they institute policies to boost US domestic investment.
Outside of the AGM's you demand from the pension/mutual fund that they reduce costs so you pay lower fees and retain more of your money.
ICahn can't even buy enough of a company to get them to do that. I agree one must try but it is very difficult to have an impact.
The problem with the idea of becoming an activist shareholder is that most shareholders will be far too small to have any power. I'm saying to stop trading because Wall Street makes its money from individual investors who trade (buy and sell) at all the wrong times, thereby giving the Wall Street investors an opportunity to make money by taking the other side of the trading activity.
Unfortunately I cannot take my money out of Chase. Though I am newly employed I can't add more (in ATM fees) by taking cash out of a non credit Union back. And there are just not enough other ATM machines around other than from the big banks.
That is why this movement will not work. Good brainstorming though!!!
I agree the convenience of home ATMs is hard to beat, but actually, people are doing it a lot this month from OWS. I am going to check the numbers. I hope it is significant enough to register.
Just another note: "Wall Street" would take a severe blow even if only 5% of Americans did just the first two things listed above. Many Wall Street funds are already highly leveraged (and in debt). That 5% loss in capital flowing around would cripple a lot of funds that won't be making much money. Having those funds go bust would then have systemic effects on the rest of the industry.
It's not brainstorming. I knew this a long time ago because of my own study in the area, and thought to let you people know about it. Wall Street is not longer functioning as it was supposed to. A shrinkage in size would benefit the economy by moving people out of an industry that should be a lot smaller than it already is.
Cool, whether you thought the idea up just now or a few years back, it's still a good place to start thinking. I just meant brainstorming in that we can now use this to talk about and come up with better ideas.
Wawa has no surcharge but I think they're only in the mid-atlantic.
Ha ha ha . Good luck with that.
Thanks, great suggestion.
Thanks for your appreciation. This movement needs to take these points seriously and actually send out information to people with directions on how to make the change.
Good luck. I've been trying get some serious discussions started here regarding the political realities of non-violent protest and the electoral process without much success. Based on my admittedly limited knowledge of fractional banking and the financial system, your ideas appear very sound, and quick in comparison to a years long political battle. Financial and political attacks coupled together would prove devastating.
FWIW, you might try TheMultitude.org -- the signal to noise ratio is higher and there have been some similar discussions.
Naivety, both here and at TheMultitude.org, is very much in evidence. I don't think most of these folks understand the nature of what they've gotten themselves into, nor fully appreciate either how much work it will actually take to accomplish anything useful or the real opportunities they are creating.
You know, someone sent me that link just a little while ago. I'll definitely take a bat and see what happens there. But yes, I already know that my ideas would work (to some extent) because I attended a seminar on market microstructure as it's an area that I'd like to do a little research on. The financial markets are zero sum game (overall), and someone has to lose money for others to be able to generate above average returns. All academic economists in this area know that the ones losing money are the public. Wall Street, as you might expect, is the group that's raking in these large sums of money, at the detriment of society at large (though most economists won't likely admit this last point because some existence of Wall Street actually benefits society). However, I'm thinking of doing research on limits to efficiency gains as a result of too much transactional behavior. You don't need everyone to lose money for markets to be able to function. At some point, it just becomes a system for a certain elite to make money at the expense of the common person (and for little societal gain).
The people who made it here aren't that confused about this...It's more of a how do you accomplish number 1 when we can't even get them to do 2&3 type of thing. I would love suggestions for how to do that.
People aren't inclined to stop trading because they expect to make money. Most Americans won't take their money out of mutual funds because they don't want to lose on the opportunity of getting those returns.
But, people don't have to lose out on the opportunity to make money, because they'll make even more money by removing their money from mutual funds and placing their money into index funds. Index funds do NOT generate trading opportunities for the big banks, and the big banks make MOST of their money on trading in the markets.
The key is to get rid of trading opportunities on Wall Street. When money can't be made, the industry will shrink. To get rid of trading opportunities, participation (the average person's buying and selling) in the markets must be eliminated.
I'm going to search for sample links that you could read on this issue. Here are a few I dug up just now:
BofA's ‘Brutal' Drop in Trading Revenue Exceeds Citigroup's: http://news.businessweek.com/article.asp?documentKey=1376-LT9JFO6S972N01-078CEIET6A5C24LU64DNS944HM
Citigroup Closing Proprietary Unit After Equity Trading Rout: http://news.businessweek.com/article.asp?documentKey=1376-LT8DVW1A74EP01-6PPJ67CS8KAHMD9VPLSD06P806
Most Mutual Funds Are Ripping You Off, Says IFA’s Mark Hebner: http://finance.yahoo.com/blogs/daily-ticker/most-mutual-funds-ripping-off-says-ifa-mark-20110412-105137-183.html
If you just get these facts to the people, they'll listen. They'd be better off if they invested in index funds! and index funds DON'T generate business for Wall Street banks, and DON'T generate investment opportunities either--because index funds only buy-and-hold rather than buy&sell constantly (this generates profit opportunities for Wall Street.
This is the big secret. Wall Street needs the presence of everyday, actively managed funds in order for the better institutions (Wall Street banks and sophisticated investment groups) to be able to make money on all the transactions and trading opportunities.
If everyone move his/her money into index funds, we'd see everyone make more money, and Wall Street would eventually implode or at least shrink drastically!!
"we can't even" is very ambitious if related to "get every American to"...
Even the government can't get every American to do things.
How about 5% of all Americans. That would do a lot right there.
You know, we should really get some money (see: http://superunion.org ) and invest it into proper marketing of these ideas. About 20 million people voted in the season finale of "So You Think You Can Dance", and there's 700,000,000 people on facebook. The people are there. Yet, that global union umbrella organization (don't remember what's they are called) also has 20,000,000 people, but worldwide.
5%? With new media sounds possible.
It is very possible, if people here actually sought to make these three their goals, this movement could completely change the financial industry. How about the movement actually contacted all of its supporters (the ones sending food and donations), and then funneled them into some nonprofit group that would help with making these transitions? Especially with regards to banks, a 5% loss in demand deposits would most likely bankrupt an institution (banks are VERY leveraged--holding only a small fraction of their obligations in cash or equivalent reserves). Say goodbye to BofA, Citi, Chase, etc.
interesting, can we get some more opinions on this from financially savvy individuals?
Thanks for the bump. It's unfortunate that most people here don't take serious ideas seriously, and I doubt that there are many others who have the economic/financial background to discuss these ideas at all.