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David D. Kirkpatrick and Jamie Heller

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from: Jamie Heller

Wise, Schmise--Make Money!

Posted Monday, May 22, 2000, at 1:37 PM ET

David,

Call it a fad. Call it immoral. If you have a hunch about it before the herd, and you can buy before they do, then you can make money.

Some people close to the proverbial situation appreciated that B2B was going to be hot before most of us had even heard of B2B e-commerce. They took advantage of that information inefficiency. And as an aside, it wasn't Wall Street analysts beating that drum. With most of these "new economy" trends, the push comes from the people.

As for the "wise" way to invest--it's not the adjective that matters most. Lucrative is. People who are value investors don't follow that path because it's wiser. They do it because they think they'll make more money. Momentum investors find that their way works for them. IMHO, whichever way makes you the most for the risk you can tolerate is the wise way.

Re Vanguard and costs: good point.

Jamie

the breakfast table
entries
123456789101112131415161718
from: Jamie Heller

Wise, Schmise--Make Money!

Posted Monday, May 22, 2000, at 1:37 PM ET
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David D. Kirkpatrick is a contributing editor at New York magazine who writes frequently about business and finance. Jamie Heller is editor for strategic ventures at TheStreet.com, where she's worked since its 1996 founding.
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Reader Response from The Fray--to be read after the most recent entry:


I still don't understand how the stock market can be efficient in the long term and not the short run. And I'm not relying merely on Keynes' famous sentiments about the long run; my point is even simpler: when is the long run? Was Microsoft's long run value from 1990 to early 2000 or to today? Short run volatility must have consequences for people who claim long run efficiency. To my mind, and for many other reasons, believing in efficient markets is like believing in Santa Claus--there are correlations between expected results and reality, but people really ought to grow up and accept that no-one on Wall Street knows anything.

--Jeff

(To reply, click here.)

(5/22)

To Jeff: Various natural processes are long-term efficient without being short-term efficient, for example the downhill flow of water or the process of natural selection (aka evolution). Complex human processes seem to have similar behavior. Perhaps efficient is being confused with "optimal". The problem with most strategies that attempt to be optimal is that they often have truly horrendous failure cases, which wipe out all their interim or theoretical gains. Democracy has been called "the worst form of government, except for all the rest." It is hardly optimal, and in many cases very inefficient. A dictator could get the graffiti cleaned up and the trains running on time; democracy seems to have a hard time doing such things. But what about the failure case of a less-than-benign dictator or a dictator whose benign intentions diverge from many or most of the desires of the population? An example of short-term efficiency vs. long-term, in terms of human happiness.

That's not to say short-term efficiency is bad, or that we can't improve on raw systems. But it is possible for a strategy to be the best long-term one without exhibiting short-term efficiency.

--Paul Canniff

(To reply, click here.)

(5/23)

Washington Post