5 ms·

My dad always wanted me to be a finance geek, "he who manages the money, makes the money" as he would say. In my eyes, it's a self-serving statement and a prime

by pxlpshr 18y ago

My dad always wanted me to be a finance geek, "he who manages the money, makes the money" as he would say. In my eyes, it's a self-serving statement and a prime example of the economy taking a left turn into the deep end. When 'managing' is valued higher than creation, we have problems. Big problems.

swombat 18y ago
This argument is terribly fallacious. "Managing" is extremely important to value creation. A fundamental principle of capitalism is that you can use existing wealth ("capital") to invest in ways to create more wealth. Capitalism relies on people's self-interest to ensure that each investor will invest in the opportunity that has the most value-creation potential with the lowest risk. Investors, people "managing money", aren't just sitting on the sidelines cashing in on everyone else's good ideas. Their essential purpose is to move available capital to wherever it will produce the highest returns - i.e. wherever it will produce the most wealth. The total wealth of a nation impacts the wealth of everyone in that nation. I don't like the way republicans use the idea of "trickle-down economics", but the fact is, if you create lots of value (by putting money in the right place at the right time), that value inevitably spreads to many other people in the economy. Managing money is not "taking a left turn into the deep end". Creation will happen in hundreds of different forms. Picking the one that works best and giving it life is extremely valuable.
- nazgulnarsil 18y ago
  I wish we didn't seem to have a spcies wide blind spot when it comes to adopting risk. when people rail against successful money managers they are never looking at all the failed ones, thus ignoring the amount of personal risk involved. sure there are a few winners, but why do you want to penalize them for their success?
- pxlpshr 18y ago
  Good argument and I agree with you, but by my point is more focused on recent actions in regard to the socialization of risk and privatization of reward. My comment aside, I definitely appreciate the value of honest financial gurus. To your point re: the principles of capitalism, US is still very young and most institutional investments funds are not top performers longer than a few years. They are NOT the best for picking long-term winners, ultimately their criteria is governed by a 5-10 year exit. Let's not carelessly forget where capitalism can get it wrong — self-interest has done plenty of harm in man's time. What concerns me is that many of these "managers" are now on the 'creation' end of the "solution".
Eliezer 18y ago
The real problem is a systematic inability to tell good managers from bad managers - the people who are leveraging up bull runs, or betting on 30 numbers on the roulette wheel, versus those actually generating excess returns. So really, most of the smart people in finance, especially quants, are just there to signal intelligence rather than having testable skills. This is the waste. Otherwise we would need much fewer money managers.
- gaius 18y ago
  most of the smart people in finance, especially quants, are just there to signal intelligence This is exactly it. Hedge funds want to tell their wealthy but not terribly smart clients (e.g. heirs, etc) "we have PhDs managing your money". That it is quite literally not rocket science, they never know. The danger came because the fund managers started to believe they were 10x rather than 10% smarter than average.
cturner 18y ago
My dad always wanted me to be a finance geek Funny - my family had similar ideas. I went off and did computing instead, landed in finance by ridiculous accident and only realised years later that I'd wound up doing something quite close to those plans. When 'managing' is valued higher than creation, we have problems. Big problems. Managing is creation. If you find a creative way to do a neat hedge that solves risk problems for a bunch of customers who have farms and manufacturing plants and workforces distributed over different currencies you've created value because they can spend their time doing what they're good at instead of stressing about how they're going to meet pay in the Swiss division because the Euro has strengthened. This aids open trade which itself supports specialisation. Financial flexibility is ridiculously important. A case in point: when I moved to London I needed to pay a deposit on a flat. Unfortunately I had no bank account set up, and no pounds to my name. When my father had the same issue forty years ago he had to go to great inconvenience and cost arranging an unsecured short-term loan to cover himself. He was aided because of family links between the people he borrowed from and friends in his own country. Whereas I just put the transaction on my credit card and the problem went away. Less management fee, no credit checks (on that part of the transaction), zero hassle. When I was contracting over here years ago I didn't even bother getting local currency, I just lived off the card. Internationally recognised short term credit isn't even a status symbol these days - it's a commodity item. There is a popular idea that unless something is physical and produced with sweaty work it doesn't have value. Manufacturing is considered to be inherently better than office work. Farming is the holiest pursuit of all. It's all a fallacy. See Galbraith, _The Age of Uncertainty_ for a more thorough treatment.
- pxlpshr 18y ago
  If you find a creative way to do a neat hedge that solves risk problems for a bunch of customers... I definitely understand where you're coming from but "creative financial instruments" sounds awfully familiar. And hedge funds closed doors at record rates in Dec. 08. Computer models will only get you so far when COMPLEX (read: disguised) financial instruments rely on past history, not future performance. The idea that one can CREATE LASTING VALUE through exploits, arbitrage, and 'creativity' in bloodlines as important as the financial markets seems reckless. There is a popular idea that unless something is physical and produced with sweaty work it doesn't have value. That's not the argument I was making, and I agree with your counter-point.
ojbyrne 18y ago
My Ph.D. advisor wanted the same thing for me. This was the mid-90s. Perhaps I should have listened.

by pxlpshr 18y ago

swombat 18y ago

This argument is terribly fallacious. "Managing" is extremely important to value creation. A fundamental principle of capitalism is that you can use existing wealth ("capital") to invest in ways to create more wealth. Capitalism relies on people's self-interest to ensure that each investor will invest in the opportunity that has the most value-creation potential with the lowest risk. Investors, people "managing money", aren't just sitting on the sidelines cashing in on everyone else's good ideas. Their essential purpose is to move available capital to wherever it will produce the highest returns - i.e. wherever it will produce the most wealth. The total wealth of a nation impacts the wealth of everyone in that nation. I don't like the way republicans use the idea of "trickle-down economics", but the fact is, if you create lots of value (by putting money in the right place at the right time), that value inevitably spreads to many other people in the economy. Managing money is not "taking a left turn into the deep end". Creation will happen in hundreds of different forms. Picking the one that works best and giving it life is extremely valuable.

nazgulnarsil 18y ago
I wish we didn't seem to have a spcies wide blind spot when it comes to adopting risk. when people rail against successful money managers they are never looking at all the failed ones, thus ignoring the amount of personal risk involved. sure there are a few winners, but why do you want to penalize them for their success?
pxlpshr 18y ago
Good argument and I agree with you, but by my point is more focused on recent actions in regard to the socialization of risk and privatization of reward. My comment aside, I definitely appreciate the value of honest financial gurus. To your point re: the principles of capitalism, US is still very young and most institutional investments funds are not top performers longer than a few years. They are NOT the best for picking long-term winners, ultimately their criteria is governed by a 5-10 year exit. Let's not carelessly forget where capitalism can get it wrong — self-interest has done plenty of harm in man's time. What concerns me is that many of these "managers" are now on the 'creation' end of the "solution".

Eliezer 18y ago

The real problem is a systematic inability to tell good managers from bad managers - the people who are leveraging up bull runs, or betting on 30 numbers on the roulette wheel, versus those actually generating excess returns. So really, most of the smart people in finance, especially quants, are just there to signal intelligence rather than having testable skills. This is the waste. Otherwise we would need much fewer money managers.

gaius 18y ago
most of the smart people in finance, especially quants, are just there to signal intelligence This is exactly it. Hedge funds want to tell their wealthy but not terribly smart clients (e.g. heirs, etc) "we have PhDs managing your money". That it is quite literally not rocket science, they never know. The danger came because the fund managers started to believe they were 10x rather than 10% smarter than average.

cturner 18y ago

My dad always wanted me to be a finance geek Funny - my family had similar ideas. I went off and did computing instead, landed in finance by ridiculous accident and only realised years later that I'd wound up doing something quite close to those plans. When 'managing' is valued higher than creation, we have problems. Big problems. Managing is creation. If you find a creative way to do a neat hedge that solves risk problems for a bunch of customers who have farms and manufacturing plants and workforces distributed over different currencies you've created value because they can spend their time doing what they're good at instead of stressing about how they're going to meet pay in the Swiss division because the Euro has strengthened. This aids open trade which itself supports specialisation. Financial flexibility is ridiculously important. A case in point: when I moved to London I needed to pay a deposit on a flat. Unfortunately I had no bank account set up, and no pounds to my name. When my father had the same issue forty years ago he had to go to great inconvenience and cost arranging an unsecured short-term loan to cover himself. He was aided because of family links between the people he borrowed from and friends in his own country. Whereas I just put the transaction on my credit card and the problem went away. Less management fee, no credit checks (on that part of the transaction), zero hassle. When I was contracting over here years ago I didn't even bother getting local currency, I just lived off the card. Internationally recognised short term credit isn't even a status symbol these days - it's a commodity item. There is a popular idea that unless something is physical and produced with sweaty work it doesn't have value. Manufacturing is considered to be inherently better than office work. Farming is the holiest pursuit of all. It's all a fallacy. See Galbraith, _The Age of Uncertainty_ for a more thorough treatment.

pxlpshr 18y ago
If you find a creative way to do a neat hedge that solves risk problems for a bunch of customers... I definitely understand where you're coming from but "creative financial instruments" sounds awfully familiar. And hedge funds closed doors at record rates in Dec. 08. Computer models will only get you so far when COMPLEX (read: disguised) financial instruments rely on past history, not future performance. The idea that one can CREATE LASTING VALUE through exploits, arbitrage, and 'creativity' in bloodlines as important as the financial markets seems reckless. There is a popular idea that unless something is physical and produced with sweaty work it doesn't have value. That's not the argument I was making, and I agree with your counter-point.

ojbyrne 18y ago

My Ph.D. advisor wanted the same thing for me. This was the mid-90s. Perhaps I should have listened.