LESSONS: THINGS DON’T GO STRAIGHT UP.

December 12, 2008 at 6:26 PM · Economics

LESSONS: THINGS DON’T GO STRAIGHT UP. Kids, as Annalisa noted some time ago, stock prices and profits and other financial variables don’t usually go straight up. They move randomly and are affected by the ups and downs of the economy. If you were to find an investment in the stock market that paid a steady positive return every month of about one per cent, no matter what happened in the market, even in time of financial crisis, you should be skeptical. This article reports that some of the investors in Bernie Madoff’s mutual funds were suspicious: “Specifically, we’re hearing that the smart money KNEW Bernie had to be cheating, because the returns he was generating were impossibly good. Many Wall Streeters suspected the wrong rigged game, though: They thought it was insider trading, not a Ponzi scheme. And here’s the best part: That’s why they invested with him.” The title of the article is: “I Knew Bernie Madoff Was Cheating, That’s Why I Invested with Him.” It may have been the largest Ponzi scheme ever.

4 comments

Nick December 13, 2008 at 1:46 AM

Wouldn’t you have been more inclined to bet on the Patriots if you knew they were cheating?

Annalisa December 13, 2008 at 6:54 PM

Your comment that one should be suspicious of a steady positive return really resonates with me. I understand that what you’re speaking of here is insider trading and general shady dealings, but it makes me think of people’s hysteria over the current financial situation. Of course it’s scary to have all these layoffs and problems with mortgage lenders, banks, and credit card companies. But when people were just complaining about the stock market, I was pretty annoyed because isn’t there a good deal of fluctuation in the stock market in general? Obviously it’s gotten pretty drastic lately, but at first, people were acting shocked that it was going down at all.

Dad, what do you think of this theory: the more we (newscasters, bloggers, regular folks) belabor the point of how bad the economy is, the worse it’s going to get. Because really, not only are markets somewhat random, but they also appear to me very emotionally driven as well!

Nick December 14, 2008 at 10:52 PM

Annalisa – That’s something that I have been thinking of ever since I started seeing all of those “WHAT WITH THE ECONOMY THE WAY IT IS THESE DAYS” commercials. You articulated it better than I have been able to in conversation.

Thoughts, Dad?

Lee December 16, 2008 at 1:42 AM

Nick: The folksy familiarity of some of those ads is hilarious.