Is Capitalism Broken?

I don't know what you are talking about.

You are not being clear. There may be problems in an industry but what does that have to do with due diligence? I don't care how many problems there may or may not be in an industry - I need to do what needs to be done to protect my interests and that means doing my homework up front. Are you disagreeing? Are you saying problems in an industry is a reason not to do due diligence? I would think the opposite, if there are more problems in an industry I would do more work up front. For example when buying a used car I will do what seems to me to be 10x more work up front compared to buying a new one - because of the nature of the used car industry, the problems and the risks of being taken for a ride (pardon the pun).
--- merged: Mar 6, 2013 at 5:41 PM ---

I write for my own enjoyment. and I enjoy what I write and how I do it. I have no problem.

I agree and have agreed with this. Capitalism has weaknesses as a system - those weaknesses we see today are the same weaknesses we saw 100/200/300 years ago - with or without modern technology.

 

Can you be specific? Comments like the one above have no value. Similarly when you comment on a book I referenced as outdated and that there are current publications that are more relevant - but then fail to give an example - the comment has no value. It is like children on the playground where one says, you are wrong and the other says no, you are wrong over and over and over - that is why I eloborate on my points, give reasons for my views, give examples, make analogies and use real world experiences.

No, I did not. I have since looked it up and I still don't understand what you are trying to say. Are you using the term in a particular vernacular, perhaps one I am not familiar with?

I am going to beat this horse (a folk vernacular for continuing when no further valid purpose is being served) some-more. That is just the kinda guy I am. The message will get lost because of a dislike of the messenger - but in this thread it is important that this be on record - even if it is on an oh, so simplified basis.

I am going to channel my favorite economist, Milton Friedman. I can picture how he would present this.

If the comparative values of used cars was out of line with the values of new cars, we have to ask ourselves how would a free capitalist market respond?

Informed buyers would enter the used care market and start to bid up the price of used cars.
Informed used car sellers would recognize the discrepancy and attempt to increase supply and raise prices in order to maximize profit.
Informed individuals recognizing easy profit opportunity will enter the market increasing competition and bidding up wholesale prices.
Informed new car sellers would recognize the discrepancy and lower prices on new cars to increase sales volumes and maximize profits.
As prices of used cars are being bid up, more used cars will be put up for sale, but eventually the increased supply will dry up, again putting pressure on price increases.
The relative price discrepancy between new and used cars goes away and potentially swings in favor of new cars. The cycle then may repeat in the other direction.

Uninformed buyers and sellers simply go along for the ride (pardon the pun) totally unaware - fixate on their "rules of thumb" that work until the masses pick up on the rule and then it stops working and they wonder what happened - assuming they actually think about it. Perhaps any failings is not the system, but those passive uninformed people within the system.

 

/start used car mechanic voice

Well there's your problem right there. I can fix that for ya, but it's gonna cost ya.

/end used car mechanic voice

 

(Bold font added by me)

Backtrack and read post #39. As a victim of your accusations of not reading what is posted...

Also, Baraka never even hinted that "due diligence" was unnecessary. All of the due diligence on earth is inadequate when the game is rigged or significant information is deliberately held out on consumers. Even an economic dullard like me understood that from his post.

 

True, I read up to the point of "out of date" and stopped. Using that as an example was wrong.

 

If you have read the Intelligent Investor then you know a central tenant of Graham's view is that most that the important factor of success in the financial market place is being a critical thinker while maintaining a disciplined approach including doing one's homework. His views are based on being an active market participant - that the market will swing from unbalanced optimism to unbalanced pessimism and that the intelligent investor sells when there market unbalanced optimism and buys when there is market unbalanced pessimism. Again, the market is not the factor to be managed but it is the individual. Consistent with what I have been writing.
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Too many comments like this and too, many vague comments about me being wrong, too many comments with an initial premise that is totally unreasonable - if you want serious exchanges there are a few things you may want to consider modifying. If I am wrong or make a mistake I will admit it.

 

If Warren Buffet lost $25 billion, depending on his objective (occasionally people will take calculated risks with a probability of failure), there are some lessons to be learned. It could easily be true that he failed in some aspect of "doing his homework". Perhaps the next time, again depending on his objective, if he learns from what he did wrong or what he missed he will be better prepared.

The above is my honest response, to what I am not sure is an honest question. My initial impression of your question is that you are trying to question the importance of a person doing their home work or due diligence. It gives me the impression that you disagree with the basic premise I have outlined, a premise that is held by many people much smarter than I - like Benjamin Graham. In fact my edition (4th) of The Intelligent Investor has a Preface written by Warren Buffet. I assume Buffet would be the first to say that a $25 billion loss was due to his failings and not the market.

Some things are predictable. I have said this before. Whenever a response to a post is directed at me personally rather than the point in the post, what follows will not be productive. I don't care who does or does not like me or my style. Telling me I am wrong or personal comments simply causes me to respond in kind. I have a reactionary personality in that regard, I know it is childish and I also know when and I why I do it. If you think when an exchange goes into the gutter that it is all my fault - perhaps it is best to ignore my posts.

I feel like Madmartigan right now, and I've just stepped in it.[/quote]

 

This question is assumes a short-term focus - many investors, including Buffet do not have the time frame focus the question implies. From a broader perspective there are some investors who have laid a foundation within the period of 2007 and 2008 that will allow them to do exceptionally well in time. There are also those who anticipated the sell off in 2007 and 2008 and changed their investment focus or simply got out of the market.

Again, the question suggests a problem with the market when many would not agree.

Is this necessary? If it is look at your post 62 as an example. I even asked for clarification - how can I not know what I am saying? What the hell does that mean? What was your point? what was it that you were responding to? Again, if I am the sole problem, it is an easy fix and move on. If we want to stick to the points and elevate the discourse, I can do that.

You don't need to tell me I am wrong, you need to show me how I am wrong. There is a difference between opinion based posts and fact based posts. When I say an important investment lesson I learned was to invest in what you know - that can not be wrong. For me it can not be out of date. You can not put yourself in my shoes in that regard. However, if you disagree with the importance of investing in what you know that is a debatable issue.

 

The question was did I know a lot of people who made a killing in 2007 and 2008. The 2007 and 2008 time period is not important to some investors. For example Warren Buffet has held Coke since 1988. Benjamin Graham emphasized not having a focus on market price volatility but a focus on underlying enterprise value - so as market prices may have been going up and or down in the time period in question, real enterprise value may have moved independently of market prices. Therefore for those investors the 2007 and 2008 decline in market prices was of little to no importance. A rule of thumb is that price matter two times, when you buy and when you sell - those who did not sell at the wrong time were not impacted by the time period in question.

Markets will have periods when some items being bought and sold are over-valued and times when the opposite is true. One cause can be related to inefficiency in the market. So, even given informed market participants they may over or under pay. This is a weakness in free capitalist markets, however the free capitalist markets have corrective mechanisms.

Graham's entire approach was focused on helping investors minimize their exposures to these market inefficiencies. The book has been written, it is available to all to read - the principles can be followed. But, Graham does not suggest that the risk of market losses can be totally avoided. He discussed the difference between market speculation v. market investment. An market investor as opposed to a speculator has a focus on "thorough analysis (his words - doing one's homework, my words) promises safety of principle and adequate return."

I am not clear on what underlying principle is disagreeable to you, what is it?

A transaction is a transaction. If I buy an ownership interest in a company today or if my grandfather bought an ownership interest in that company 100 years ago our ownership interests are the same - the mean of acquiring the ownership interest is trivial - the tools I use to do research relative to the tools he used are of little importance if it leads us to the same conclusion. I do not understand your objection.

I do not accept your premise - we will have to disagree. Complexity as I interpret the context you describe, to me would suggest a focus on new and more variables - in investing in businesses what matters is what the underlying value of the business is. Sure some will sell some super secrete complex proprietary technique that only they know, but if you give them your money they will make you rich, etc, etc. to that I say buyer beware.

I do not believe people should invest in financial vehicles that they do not understand.

I am not an anarchist, I do believe there are roles for government in the areas of consumer protection. For example - water. I doubt the average person today would be able to properly test the purity and safety of drinking water. Government needs to be involved in this market to protect the consumer.

I don't care.
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What your video says to me that the problem described was a government problem not a free market problem. If government/regulators will show favoritism in the market, certainly that is a problem - but it is a government problem that can lead to inefficiencies in a market. If market participants can buy government/regulatory influenced they will - that is why I argue for less and more neutral government - to minimize this risk in the market.

 

You mean like buying a used Porsche and selling it for a profit after hitting it with a wet rag and shaking out the floor mats?

I feel like that's all I've learned in this thread.​