36 ms·

I always compare Wall St to Las Vegas, as both offer a very similar financial service, ie. gambling, except Wall St has two distinctions: 1. Wall St pretends i

by snorkel 14y ago

I always compare Wall St to Las Vegas, as both offer a very similar financial service, ie. gambling, except Wall St has two distinctions: 1. Wall St pretends it is not gambling when in fact it is. Actual return on investment for any stock or fund is completely non-deterministic, and therfore it is gambling. 2. Las Vegas casinos are more carefully regulated than Wall St banks. In Las Vegas the rules and the odds are clearly known, and standards are carefully enforced. Indeed casinos don't even need to cheat to be profitable, because the math of the already works in their favor. So Wall St and Las vegas are the same, except Las Vegas is honest.

eliasmacpherson 14y ago
I would add a third, being scale, when Wall St. panics the US government steps in.
- saraid216 14y ago
  It's not just scale, if I understand things correctly. One problem is that a lot of state and city treasurers think that it's smart to take some of their tax revenue and hand it over to banks for investment, making them as vulnerable as normal citizens. In theory, this is a good idea because that money gets loaned out to startups and homebuyers. In practice, well... crises and stuff. This is largely what I've gathered from my brief foray into understanding why a state bank is a good idea.
deleted 14y ago
[deleted]
- snorkel 14y ago
  Wall St brokerages pretend they are not in the gambling business by presenting their offerings as something every resposible adult should be pruchasing to secure their financial future, and then only making passing obligatory mention of the risks in way down the fine print. In fact the general public has bought into the whole notion that not giving your entire retirement savings over to Wall St to manage for you is irrepsonsible on your part, and letting money sit in the bank and do nothing is irresponsible.
  - rthomas6 14y ago
    Yes, I agree, Wall St. is predatory and misleading. To think an investment does not have some associated risk is ignorant. But there are different levels of risk. I'm still going to argue that there are fairly secure ways to be involved in "Wall Street" investments, as long as one is diversified, attentive, and cautious. Giving your entire retirement savings over to Wall Street is definitely too much of a gamble for most people, but giving over some fraction of it is usually a good idea. We participate in this economy every day. Why not invest in it, as long as we are prudent and cautious? It grows over the long term, and has done so for the last several decades, or even centuries. Now, that does not mean that the economy will continue to grow, and that is where the risk is involved. But I choose to believe that, over the long term, on average, the world economy will continue to increase in value. I also believe that personally owning very small portions of it will increase my own net worth.
rthomas6 14y ago
>Actual return on investment for any stock or fund is completely non-deterministic, and therfore it is gambling. I could not disagree more. That is not a definition of gambling. Does that mean that investing in a large-cap index fund for a period of 40 years is gambling? What about putting your money in the trust of a bank? Even the bank's returns are non-deterministic. The government could collapse. Even keeping money in your house under the mattress includes risk (what if your house catches fire?). What method of saving or investing wealth would you say is deterministic? A better measure of whether or not something is gambling is how much risk is associated with it. If I bought a US government bond, nobody would call that a gamble, because it's very unlikely that the the government will collapse. Similarly, if I bought a mutual fund comprised of a mixture of large, stable companies and various bonds, it is unlikely that it will go down in value over the long term. "Over the long term" is the key here. If the US economy has an overall downward trend for the next 40 years, then think about what that would mean. That government bond isn't looking too great, either, in that circumstance.
- snorkel 14y ago
  Anywhere you choose to put your money where the outcome is uncertain is gambling. Wall St's investment offerings have so many degrees of uncertainty the no one can assess their actual risk. Stocks like Enron and MCI Worldcom were sold as safe low risk investments for conservative go-long investors, and the astute analysts had no reason to suspect otherwise. At least in Las Vegas you walk up to a blackjack table knowing exactly the odds are the same no matter where you sit.
  - rthomas6 14y ago
    >Anywhere you choose to put your money where the outcome is uncertain is gambling. That would be everywhere.
jeffem 14y ago
1) What actors and activities are you referring to exactly when you say "Wall St"? There are lots of players, and they have different roles. The performance of a given stock/fund is irrelevant to many players (exchanges, market makers, etc.) But yes, there are players that hold positions. You can call that gambling if you want, they definitely have risk, but all investments carry risk (even "risk-free" investments like government bonds). What exactly do you have a problem with? Vegas-style gambling is typically a zero sum game, with most of the money going to the house. Long term stock market investing generally yields a positive return. 2) The financial industry is also heavily regulated. I'm not sure why you're comparing Vegas and Wall St in this respect. You say that in Vegas "odds are clearly known", but this is not true in some common cases and it’s not clear what you’re getting at. What do you propose for Wall St in that respect? Odds can be published for games whose probabilities are known in advance (slots, roulette, etc.) But this is not true for things like sports betting and games of skill (poker, blackjack, etc.) No one knows what the “true” probability is that the Yankees will beat the Giants. What the casino will tell you is how much you need to wager to win a certain amount of money. You can infer an implied probability from that, but the same is true for prices in financial markets. If you look at prices of stocks, options, bonds, interest rates, etc. you can infer all sorts of information such as expected default rates, expected volatility of the price of a commodity, expected profitability of a company, etc. When you say "casinos don't even need to cheat to be profitable" you seem to be implying that Wall St does. Exchanges charge transaction fees. Market makers earn a spread on their buys/sells. Brokers earn commissions. Banks earn the difference between the interest rates they charge vs. pay out. Can you explain why you think Wall St needs to cheat to be profitable?
starpilot 14y ago
> Actual return on investment for any stock or fund is completely non-deterministic, and therfore it is gambling. Investors like Warren Buffett, Joel Greenblatt, and David Swensen have achieved well-above-market returns for decades using investment methodology they both practice and preach publicly. Are they just very lucky coinflippers? Paul Graham has no guaranteed return from his VC investments; is YC just a game to swindle pg, and startup investments no different from Vegas? Even when web startups and publicly traded companies can be analyzed similarly?
ruggeri 14y ago
I think there's a big difference when Wall Street pays you to take on variance, and you pay Vegas for variance.

by snorkel 14y ago

eliasmacpherson 14y ago

I would add a third, being scale, when Wall St. panics the US government steps in.

saraid216 14y ago
It's not just scale, if I understand things correctly. One problem is that a lot of state and city treasurers think that it's smart to take some of their tax revenue and hand it over to banks for investment, making them as vulnerable as normal citizens. In theory, this is a good idea because that money gets loaned out to startups and homebuyers. In practice, well... crises and stuff. This is largely what I've gathered from my brief foray into understanding why a state bank is a good idea.

deleted 14y ago

[deleted]

snorkel 14y ago
Wall St brokerages pretend they are not in the gambling business by presenting their offerings as something every resposible adult should be pruchasing to secure their financial future, and then only making passing obligatory mention of the risks in way down the fine print. In fact the general public has bought into the whole notion that not giving your entire retirement savings over to Wall St to manage for you is irrepsonsible on your part, and letting money sit in the bank and do nothing is irresponsible.
- rthomas6 14y ago
  Yes, I agree, Wall St. is predatory and misleading. To think an investment does not have some associated risk is ignorant. But there are different levels of risk. I'm still going to argue that there are fairly secure ways to be involved in "Wall Street" investments, as long as one is diversified, attentive, and cautious. Giving your entire retirement savings over to Wall Street is definitely too much of a gamble for most people, but giving over some fraction of it is usually a good idea. We participate in this economy every day. Why not invest in it, as long as we are prudent and cautious? It grows over the long term, and has done so for the last several decades, or even centuries. Now, that does not mean that the economy will continue to grow, and that is where the risk is involved. But I choose to believe that, over the long term, on average, the world economy will continue to increase in value. I also believe that personally owning very small portions of it will increase my own net worth.

rthomas6 14y ago

>Actual return on investment for any stock or fund is completely non-deterministic, and therfore it is gambling. I could not disagree more. That is not a definition of gambling. Does that mean that investing in a large-cap index fund for a period of 40 years is gambling? What about putting your money in the trust of a bank? Even the bank's returns are non-deterministic. The government could collapse. Even keeping money in your house under the mattress includes risk (what if your house catches fire?). What method of saving or investing wealth would you say is deterministic? A better measure of whether or not something is gambling is how much risk is associated with it. If I bought a US government bond, nobody would call that a gamble, because it's very unlikely that the the government will collapse. Similarly, if I bought a mutual fund comprised of a mixture of large, stable companies and various bonds, it is unlikely that it will go down in value over the long term. "Over the long term" is the key here. If the US economy has an overall downward trend for the next 40 years, then think about what that would mean. That government bond isn't looking too great, either, in that circumstance.

snorkel 14y ago
Anywhere you choose to put your money where the outcome is uncertain is gambling. Wall St's investment offerings have so many degrees of uncertainty the no one can assess their actual risk. Stocks like Enron and MCI Worldcom were sold as safe low risk investments for conservative go-long investors, and the astute analysts had no reason to suspect otherwise. At least in Las Vegas you walk up to a blackjack table knowing exactly the odds are the same no matter where you sit.
- rthomas6 14y ago
  >Anywhere you choose to put your money where the outcome is uncertain is gambling. That would be everywhere.

jeffem 14y ago

1) What actors and activities are you referring to exactly when you say "Wall St"? There are lots of players, and they have different roles. The performance of a given stock/fund is irrelevant to many players (exchanges, market makers, etc.) But yes, there are players that hold positions. You can call that gambling if you want, they definitely have risk, but all investments carry risk (even "risk-free" investments like government bonds). What exactly do you have a problem with? Vegas-style gambling is typically a zero sum game, with most of the money going to the house. Long term stock market investing generally yields a positive return. 2) The financial industry is also heavily regulated. I'm not sure why you're comparing Vegas and Wall St in this respect. You say that in Vegas "odds are clearly known", but this is not true in some common cases and it’s not clear what you’re getting at. What do you propose for Wall St in that respect? Odds can be published for games whose probabilities are known in advance (slots, roulette, etc.) But this is not true for things like sports betting and games of skill (poker, blackjack, etc.) No one knows what the “true” probability is that the Yankees will beat the Giants. What the casino will tell you is how much you need to wager to win a certain amount of money. You can infer an implied probability from that, but the same is true for prices in financial markets. If you look at prices of stocks, options, bonds, interest rates, etc. you can infer all sorts of information such as expected default rates, expected volatility of the price of a commodity, expected profitability of a company, etc. When you say "casinos don't even need to cheat to be profitable" you seem to be implying that Wall St does. Exchanges charge transaction fees. Market makers earn a spread on their buys/sells. Brokers earn commissions. Banks earn the difference between the interest rates they charge vs. pay out. Can you explain why you think Wall St needs to cheat to be profitable?

starpilot 14y ago

> Actual return on investment for any stock or fund is completely non-deterministic, and therfore it is gambling. Investors like Warren Buffett, Joel Greenblatt, and David Swensen have achieved well-above-market returns for decades using investment methodology they both practice and preach publicly. Are they just very lucky coinflippers? Paul Graham has no guaranteed return from his VC investments; is YC just a game to swindle pg, and startup investments no different from Vegas? Even when web startups and publicly traded companies can be analyzed similarly?

ruggeri 14y ago

I think there's a big difference when Wall Street pays you to take on variance, and you pay Vegas for variance.