Madoff Fraud in the Markets
Headlines this week refer to a 50 billion dollar fraud perpetrated by Bernard L. Madoff. We’ve all been deadened somewhat to the meaning of a billion dollars ($1,000,000,000) because the numbers we’ve seen for bailouts, losses, etc., have been so staggeringly high.
I am left wondering whether those who once trusted their money to Hedge Funds (Bernard L. Madoff Investment Securities LLC was not a hedge fund, but several Hedge Funds have unwittingly invested in his ponzi scheme) will have second thoughts, and start investing in traditional investments such as ETFs, individual stocks and mutual funds. And, if that is the wave of the future, how will that impact the markets generally?
Back in April, I had my own funcamental crisis of confidence in the markets, based on nothing more than, “What do I really get for being a shareholder, and is it worth the risk that when the music stops, I will be holding shares that nobody is interested in buying?” Sadly, the recent events do not inspire any confidence. If Hedge Funds can be so easily defrauded, an other sophisticated investors so easily taken, what chance does the average Joe have to avoid being fleeced by the markets and those who participate in them?
Sure, the conventional wisdom says to invest in a diversified portfolio to minimize this risk, and had that conventional wisdom been followed here, many people would not have lost their shirts, pants and shoes. But these days there do not seem to be any safe havens, and a diversified portfolio on seems to get you a large selection of stucks losing half their value overnight. Hardly a ringing endorsement for trusting my hard earned money to the markets, even to diversified markets.
With all of that said, I remain heavily invested in stocks. I believe that there are many bad apples such as Mr Madoff, but more importantly, that there are many more letigimate comapnies out there making a legitimate profit, and that these profits will translate into higher share prices. Sure, there will be losses. But eventually the gains will come roaring back, because they really have to. There is just too much money out there, looking for a place to invest — though if I had $60 million, I am fairly certain that I’d stop the investing roulette game and simply live off the interest paid by Treasuries and municipalities. However, the institutional investors who are managing our money for retirement, etc., MUST invest somewhere, and as a result, it is my hope that they will continue to pay more for my shares, than I paid someone else for buying them, and in that way turn a nice profit.
This is one diver’s perspective….
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