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Inflation and Idiots

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Oct 29, 2009 2:38 pm

[quote=Gaddock]The idea that people deserved to loose their life saving because they should have known Madoff was a crook when not even the smartest people in the world for the most part didn’t get it is just plain RETARDED!!!

  If they were only making 5% would they be less deserving of being financially destroyed for a lifetime of work and saving? The very thought IMHO makes your credibility in question.   At what point do you feel it becomes OK for a person to be financially destroyed? Can you actually delineate this? Is there a hierarchy or just a broad brush stroke?    [/quote] I realize my above post does not answer the questions you posed so I'll answer them in this one.   Most of the 'smartest' people in the world did know that Madoff was scamming, they just didn't know exactly how. They knew that it was too good to be true. The same way that you know intuitively if someone tries to sell you something that works too well, or doesn't cost enough for what they say it will do. Your intuition tells you that something's wrong so you don't buy it.   If they had been promised 5% and everything seemed in order and MADE SENSE based on historical returns, then yes they would be entitled to more recourse. Again, it's about what seems resonable. Promises of great wealth with little risk raises a giant red flag screaming 'IT IS TOO GOOD TO BE TRUE, PASS IT UP' to just about everyone.
As for the point at which it's ok for a person to be financially destroyed, can I deliniate this. Sure. When someone is trying to significantly outpace the overall returns of the market (defining market is a bit more murky. I would define it broadly as the returns of the S&P but that is simplistic also). If someone is trying to get around the fundamental concept of Risk V. Reward and fails to do so; it is perfectly ok for them to be destroyed financially. Conversely, it is perfectly acceptable for someone to take on an inordinate amount of risk and achieve the reward (I actually applaud that concept). Bottom line is with high yield potential you have to accept the risk of financial ruin or else you can't have a true fair market economy. Harry Markowitz has been publishing information on Efficient Frontiers for Risk V. Reward returns on Modern Portfolio Theory since 1959 (earlier some in 1952 but comprehensively since 59). Now, it's not widely known by lay persons that he's done this, but what IS widely known is the concept of Risk V. Reward. Just as if you may not understand the math behind how to compute Gravity as Isaac Newton did, you can understand the concept of gravity because it is REASONABLE.   "People want capitalism on the way up, and socialism on the way down." I love the poignancy of that quote.
Oct 30, 2009 10:46 am

Yeah, Inflation has made a great impact on people. But I’ve read of all the traders here who mention trading has changed their life, they are independent, free and have found their way. Before that though they lived a certain lifestyle and now they live a new one. How do you people deal with the change?