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Paul B. Farrell
June 1, 2010, 3:11 a.m. EDT · Recommend (7) · Post:
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Crash is dead ahead. Sell. Get liquid. Now
First Take "º
Big energy crawls back on shore
By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Yes, I am mad as hell again. Wall Street's soulless, immoral, greedy bankers really believe that the vast majority of America's 95 million investors are not only "predictably irrational" but "stupid," as J.P. Morgan Chase's chief investment officer put it in Forbes a while back.
Worse, Main Street investors are losers for continuing to trust Wall Street after they lost 20% of our retirement money the last decade. Now, worst of all, Wall Street's traders have profiled Main Street investors in their algorithms: Yes, investors are "predictably stupid losers," what Vegas croupiers call a mark, a dumb gambler that can be easily conned out of his money.
Investors and financial advisers always need to watch out for companies engaging in fraud and deceit. Howard Schilit, founder and CEO at Financial Shenanigans Detection Group, describes some of the early warnings signs of accounting tricks and gimmicks companies use to manipulate their financial statements. Steven Russolillo has the interview from the CFA Institute conference.
Why so blunt? Listen: Recently I explained why the Wall Street banks must kill financial reform, to preserve their multibillion dollar bonus pool. One reader commented: "I worked at the Bear Sterns ... every word written here is true. Fact is, bankers regard themselves as wolves and the public as prey, and speak about it openly, among themselves." Then he added a sucker punch: "What is extraordinary to me is how willingly the sheep submit to this."
Yes, folks, Wall Street is certain that America's 95 million investors are clueless sheep headed for the slaughterhouse.
But wait, that's not news. Twenty years ago former bond trader Michael Lewis' "Liar's Poker" described the insanity of our addiction to gambling in a few memorable lines: "Men on the trading floor may not have been to school but they have Ph.D.s in man's ignorance." They know that "in any market, as in any poker game, there is a fool. The astute investor Warren Buffett is fond of saying that any player unaware of the fool in the market probably is the fool in the market."
And as we now know, in the stock market the vast majority of America's 95 million investors are fools -- predictably stupid losers.
Lewis says traders instinctively know that "the larger the number of people" chasing a trend, "the easier it was for them to delude themselves that what they were doing must be smart. The first thing you learn on the trading floor is that when large numbers of people are after the same commodity, be it a stock, a bond, or a job, the commodity quickly becomes overvalued," making it easy for traders to generate hundred-million-dollar-profit days.
Are we too harsh, folks? Sorry for lumping you readers in with the rest of Main Street's 95 million predictably stupid losers. But what else could a rational person conclude?
So you ask: What triggered this rant? Simple: A new book, "The Upside of Irrationality: The Unexpected Benefits of Defining Logic at Work and at Home," by Dan Ariely, the brilliant Duke University behavioral economist who earlier wrote the one book whose title alone tells you all you'll ever need to know about behavioral economics. Answer: You are "Predictably Irrational." Period.
I feel sorry for all books on behavioral economics. Why? Because most are written by brilliant academicians and top journalists, not callous, greedy Wall Street traders who'd never divulge their secrets. But that's no excuse: These books are all filled with misleading pop-psychology nonsense based on a simple premise: That if you just buy these books and apply their advice, you can change the way you think, become less irrational and be a better investor, even beat Wall Street. Wrong.
Here's a partial list of popular behavioral economics books you should never waste time reading. They're also based on that same misleading assumption that you can make your brain less irrational and win at Wall Street's casino. Never happen in a million years. Never.
Wall Street's already programmed your psychological profile into their trading algorithms. They're light-years ahead of you, misleading you into their slaughterhouses and casinos. Here's the list of the popular books no investor should ever read:
"Animal Spirits: How Human Psychology Drives the Markets and Why It Matters for Global Capitalism"
"Beyond Greed and Fear: Understanding Behavioral Finance & the Psychology of Investing"
"Blind Spots: Why Smart People Do Dumb Things"
Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The Millionaire Code," "The Winning Portfolio," "The Lazy Person's Guide to Investing." Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology.
SAN FRANCISCO (MarketWatch) -- While Washington frets over what can be learned from BP's Gulf of Mexico blowout, some very big oil companies are already taking the lesson to heart. They're moving back on shore.
2:46 p.m. May 28, 2010 | Comments: 37
- mikeshep | 11:57 p.m. May 31, 2010
"American investors: predictably stupid losers http://on.mktw.net/bFle4F" 11:37 p.m. EDT, May 31, 2010 from MKTWFarrell
"Crash is dead ahead. Sell. Get liquid. Now http://on.mktw.net/949KT9" 11:49 p.m. EDT, May 24, 2010 from MKTWFarrell
"12 ways to cash in on the 'collapse of Eaarth' http://on.mktw.net/9pLdEs" 11:15 p.m. EDT, May 17, 2010 from MKTWFarrell
"Buffett defends Goldman, joins greed Conspiracy http://on.mktw.net/cz7uf0" 11:37 p.m. EDT, May 10, 2010 from MKTWFarrell
"Goldman Conspiracy must kill bank reform http://on.mktw.net/9JZPjl" 12:45 a.m. EDT, May 4, 2010 from MKTWFarrell
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