hedge funds manipulate stock in secret, page-61

hmmm.

going short secretly is "immoral"

However, going long secretly is "moral"?

(Almost all long decisions are made in secret, no matter what strategy is used to implement the decision. Unless the investments reach certain percentage threshholds in a company's stock register. Then they must be declared.)

Do I detect an inconsistency there?

Are the shorters' investment decisions made within the standard rules? If they are - then their actions are legitimate.

Whether they are moral or immoral is, of course, another matter.

If the hedge funds are merely taking an advantage of an unforeseen loophole in the regulations - is that immoral? Or is this Adam Smith's unseen hand at work? If the unforeseen loophole exists, and it is deemed unwise for that loophole to exist (as the result of the raising of many voices in the investment community) then that loophole will be closed.

(I would also point out - that in the current investment climate, many hedge funds are not doing well. For example, BT Partner International Shares Core 1 is now down 16.7% while BT Core Hedged Global Share Fund is down 16.5%. No significant difference there. Both have suffered in this environment. Hedging in and of itself - doesn't necessarily provide an edge.)

Until the regulations are changed - each investor is sensibly obliged to look after their own future within the rules as they exist now. Whether that means going short or long (secretly or otherwise) or staying out of the stock market completely and seeking other investment opportunities.

I have no particular brief for the hedge funds.

What concerns me is that much of the ire raised by the current situation is hip-pocket related. The financial hurt that people may be feeling could have been avoided with a little knowledge.

Many big super funds have various options available to their contributors - including a cash option. That option can't be significantly affected by shorting (whether secretive or not). Its the contributors' decision which option they choose. I suspect, however, that most people don't choose. They simply leave their money in the default option.

I believe it is every superannuation contributor's responsibility to become financially literate - given that they do have options regarding where their superannuation is invested. And to actively exercise the options available to them.

How many people actually attempt to become financially literate and control their own destiny? How many people actually take responsibility for their financial future? Unfortunately, I believe that the answer is very few.

Where, then, does culpability lie? With the hedge funds who are engaging in legitimate activities in their own best interests? Or is it at least shared by people who have chosen not to control their own financial destiny?

I'm reminded of people who lost large sums of money in mezzanine schemes. Some of these schemes were, apparently, criminal in nature. Some people put their total life savings (in many cases very large sums of money) into one single such scheme that went bust. Then complained vociferously. Well perhaps they were the victims of unscrupulous schemes - which the originators knew would inflict damage on others (immoral and criminal activities). Yet these investors violated one of the most basic of investment principles - don't put all your eggs in one basket - diversify. Why did they do that? Simple - they were seduced by dreams of big returns (another word for it is "greed"). Who was culpable? Certainly the criminal perpetrators of these schemes. But surely, the investor must also take some responsibilty for their actions which flew in the face of sound investment strategy.

It behoves every single investor to become financially literate and act according to their own perceived best interests (within the legitimate rules).

Wishing you wealth and happiness.

Cheers
Red