14 April 2012

Stopping Wall Street Money Machine

More recently, there have been lots of talks about conflicting interests, biased “free” sell-side analyses and Wall Street bankers in one or another way “ripping their clients off”.* These problems seem so massive and blindingly obvious that the absurd situation is being generally accepted as something that we have to live with. That’s strange, because stopping “Wall Street Money Machine” should not be that difficult.

Here is the Quick Start Guide:

Step 1: “Unlearn” financial myths

One big myth in finance is that more complex means more advanced means better. The other related myth is that only a handful of sophisticated finance professionals are able to manage our money. Come on, it cannot be that difficult that only people like Madoff know what to do with your money.

Then there are illusions like a forecasted number that has two decimal places, is an accurate forecast; texts that include many acronyms are written by smart people to the other smart people etc.

Step 2: Let go of old habits

For example, turn off the “investment television” which at best is an entertainment and marketing channel, and at worst a way to manipulate masses. Instead, use this time for Step 3.

Step 3: Understand the Big Picture & get background research done

Data and pieces of information are worth little without knowing broader context. My experience has taught me this: if you don’t understand something what you really want to understand, then it sooner or later turns out to be some sort of scam.

For example, when considering investing into a company, the first thing is to understand its business and its business environment. The background research itself of course can be done by someone else who doesn’t have conflicting interests.**

Step 4: Take action

Learn and try out different alternatives to the Wall Street. If you find something good then share it. First, I’d like to invite you to the Financial Research Exchange: FRXmarket.com. It’s new, but we aim it to become the true market for the independent professional financial knowledge.

If stopping “Wall Street Money Machine” is that simple then why little has happened this far? The trick is that many need to take action within a rather short time-span.


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* I have discussed this and made some further references in my earlier article “(In)Efficiency of Financial Knowledge Market” (Logic Of Finance blog, 1 April 2012). You might also read the FT’s columnist Tony Jackson: “Whoever pays research piper calls the tune” (Financial Times, 8 April 2012).
** All independent analysts are invited to and can be found via FRXmarket.com.

2 comments:

  1. Good post. I ceartinly agree on the first two points. Uncomplicate things and learn new better habits and one is on a good way...

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  2. Thank you, Spartacus, for this comment!

    ReplyDelete