Rogue traders have always fascinated me. I knew one about 25 years ago, but he only blew 80 million…..a drop in the bucket. I’ve noticed rogue traders have all have something in common…a sociopathic denial of risk. Kerviel was long about 225,000 DAX contracts (The average volume has been ~300,000). The position was a naked position that wasn’t hedged at all. Everybody in the market knew that the bank was long….except the bank, which didn’t have a clue. A couple of my trader buddies over at Daily Speculations ran some numbers, and they estimate the bank’s real losses at around 9 billion Euros. Whatever…….the bank is a quasi-government agency, and the taxpayers will ultimately eat it. Even though it took 3 days for the bank to unwind their position (at the lows), the markets still worked efficiently. It’s always interesting that rogue traders get caught during the big moves, and their trades always end up on the losing side. Still, rogue traders have been around since the time of Rothschild, and probably before that. I don’t think they appreciate the gravity of the situation,and since they aren’t trading their own account, they don’t care, or are in a state of denial. Rogue traders are also very immature, and lose sight of what money really is. This can happen to all traders….it has happened to me on many occasions. If one is a medium sized trader, trading 20-100 contracts of whatever, at a whack, daily swings of $20,000-$50,000 aren’t uncommon. It’s easy to lose sight of the value of money when you can sleep like a baby after losing $20,000 in a day….and that kind of loss happens to me at least 5 times a month. I’m a medium sized trader(large for an independent), and consider swings of $20,000 to just be noise. That’s not meant to be seen as hubris, but is just a reality in the world of speculation. A friend of mine, Victor Niederhoffer is a really big trader. In 1997, he blew over $200 million in one trade on the Thai Stock Market. Everyone thought he was down for the count, but he has nine lives, and is back stronger than ever. His site, Daily Speculations, is one of the best “philosophy of trading” sites on the internet. His list of authors is a veritable who’s who in trading. I’m honored that they allow me to post a few articles over there once in awhile. In fact, that site is very similar in vibe to S&R, without the politics or anger.

Getting back to Kerviel…..he will do a little time, write a book, sell the movie rights, and end up living in a villa in Provence.

Jeff

Indexed funds would be OK for the general public as the indices have historically given about a 9% return per year. However, there have been bear markets that have lasted for 30 years, the last big bear market was from 1969 to 1982, when one would have had to wait 13 years to just break even, and that’s excluding the inflation factor and the cost of carry. In reality, if you bought at the top of the market in 1969, it would have taken until 1993 to recoup your value (purchasing power). If I were to advise a young person to invest, I’d probably recommend 50% in index funds, 30% in bonds, and 20% in extremely high risk speculations. I would also recommend that they put a specified amount of money per month into their investment account. I would also recommend thrift as far as their lifestyle was concerned, and to save money in the bank, and as soon as they accumulated $5,000, put it into CD’s…and start all over accumulating more money. On a personal note, we managed to live for 17 years off my lovely wife’s income, and completely banked mine. It was a sacrifice, but well worth it. Thrift is what it’s really all about. If one is really into saving money, even $50/week, that will be enough to retire on after 40 years.

The main reason I think the general public has no business in the market is that the professionals, who are some of the smartest people on the planet, spend 50-90 hours a week studying and developing trading strategies. To think that a novice, doing it part-time is going to beat the professionals is pure folly. Most people want tips on the market so they don’t have to think for themselves. That’s why guys like Jim Cramer are so popular. I have quantified Jim’s trading recommendations, and found that if you short his stocks the day after his recommendations come out, and buy them back 3 days later, you will earn a very nice return on your money. People spend more money making a decision on a new car than they do regarding the purchase of a stock, which doesn’t bode well for them. There’s an old axiom within the professional trading community that the general public is always net wrong. While it’s anecdotal, I’m inclined to believe it.

My trading style, while viewed as very risky by most, is actually very conservative. I’m always hedged on my trades, delta neutral, so to speak. I prefer to work the spreads than have a total at-risk position…spreads are risky, but managable. I can say with 100% confidence that the preson investing $80,000 in starting a new business has his money at far greater risk than I . As for what Anonymous said about a thread on the topic of common investors, I’d love for one of y’all to write a post about investing and the risks of markets, etc. I could provide some insight that’s very different from what the media has drilled into the collective minds of the public.

Jeff

I’ve earlier said, that the general public has no business even being in the market, as the public as a whole is ill suited to be at risk.

This is getting well off the topic, but your statement fascinates me, because if you’re right, it means that wealth is pretty much out of reach for everyone but those who are already wealthy. If one is ill-suited to take on the risks of the stock market, how much more ill-suited would one be to take on the risks of starting up a business?

Personally, I would recommend most investors put at least some of their money in indexed mutual funds and, if they’re young, I’d recommend they put a substantial amount of savings there. That way, they spread the risk and have a long-enough investment horizon to ride out market downturns.

Would you disagree?

They are now just as illegal and criminal as Bush, Cheney and his administraion and should be impeached by the people of this country. They have refused to preform their duties to uphold our constitution , bill of rights and laws, which they took an oathe to when elected to office.

Bush and Cheney should be impeached , now so should the senators and house of representatives which has “illegally” passed a bill to give him and the telecom immunity.

I do not believe they have the right to give Bush , Cheney and the telecom immunity the same as the Germany could not receive immunity after they committed their war crimes.

Why has our country spent so much time , money and efford to track down those whch we called criminals of Germany to prosecute them , if we think we can just pass laws to forgive the criminal acts from this administration.

they took when taken office , so just as Bush & Cheney should be immpeached , they are not just as guilty and we should demand they to leave their office,.

tens of millions of us, lots of rope. A whole lot of remedy for UNPRECEDENTED CRIMINALITY AND CORRUPTION and DICTATORSHIP!

we’ll win in the end. and they’ll be worm food. IT’S TIME TO MOUNT UP, PEOPLE!

Jeff

Sounds like you’re a technical investor. The fundamentalists might disagre with you.

Nevertheless, I stand by my original contention that buyers cannot be expected to be accountable for decisions made based on fraudulent information. That accountability, in my book, lies with the defrauders.

Lock ‘em up and throw away the key!

If you look at the chart of Enron, it was apparent that the stock was going to go down, and go down big…..fraud or no fraud. The tape never lies. One misconception is that money is lost when markets go down but in reality, money is transferred. One’s perceived wealth might go down when the price of their stocks goes down, but it ain’t a profit until the stock is sold and converted to cash. Meanwhile, whatever market move happens, the government is extending it’s hand to get it’s cut.

Jeff

BUSH BROKE THE LAW! HE FIGURED THAT NO ONE WOULD EVER FIND OUT ABOUT HIS ILLEGAL SPYING, BUT HE GOT CAUGHT! NOW HE, AND OTHERS IN HIS CRIMINAL ADMINISTRATION HAVE ALL LAWYERED UP, AND ARE TRYING TO STAY OUT OF PRISON! THIS CRIME IS ONLY ONE OF MANY THAT THE BUSH GANG HAS COMMITTED, BUT IS A CRIME NEVER THE LESS!

THEY ARE USING THE TELECOM IMMUNITY ISSUE AS A GET OUT OF JAIL FREE CARD FOR THEMSELVES AND THEIR TELECOM BUDDIES! THEY ALL BELONG IN PRISON FOR THE CRIMES THEY COMMITTED!

WHENEVER CRIMINAL ACTIVITY IS TAKING PLACE IN PLAIN VIEW, IT IS INCUMBENT UPON CONGRESS TO BEGIN AN IMPEACHMENT INVESTIGATION TO HOLD THE CRIMINAL PARTIES TO ACCOUNT! SO FAR, THE BOUGHT AND PAID FOR SPEAKER OF THE HOUSE REFUSES TO HONOR HER OATH, BY KEEPING IMPEACHMENT OFF THE TABLE! SHE IS VIOLATING HER OATH OF OFFICE AND SHOULD BE REMOVED AND PROSCUTED!

ANY CONGRESS PERSONS WHO VOTE IN FAVOR OF IMMUNITY ARE AIDING AND ABETTING CRIMINAL ACTIVITY! BY DOING SO THEY ARE IN VIOLATION OF THEIR OATH TO PROTECT AND UPHOLD THE CONSTITUTION AND RULE OF LAW! VIOLATING THE OATH OF OFFICE IS A FEDERAL CRIME! LET THE INVESTIGATIONS BEGIN!

As was mentioned earlier, this started BEFORE 9/11 and since we know from previous accounts that the Bush Administration could give a rat about terrorism prior to 9/11 that should make us all wonder what their real intent for the surveilance was.

Enron: Shareholders cannot make rational investment decisions when the numbers they’re being fed are wrong. I do pity shareholders who are the victims of outright fraud. Caveat emptor cannot apply when the information used to make the buying decision is rigged.

Telco immunity: We cannot let citizens disobey the law just because someone “in authority” said to do so, and I don’t care whether that’s telco execs or Oliver North. I believe soldiers are taught about when an order is illegal (at least, they used to be) and can be punished for obeying an illegal order. I think the same should apply to US citizens.

Jail time? I’m a BIG proponent of jail time for white-collar crime, and I don’t think it matters if it’s Enron or telcos.

BTW, I think that this is worse than the Enron scandal. I never pity shareholders that get hurt, nor do I expect pity when I make a bad market decision. However, I do have a problem with Constitutional assult……whoever is doing the assult. Unfortunately, both sides of the aisle play this game.

Jeff