Slate's Bizbox
the breakfast table: An e-mail conversation about the news of the day.

David D. Kirkpatrick and Jamie Heller

the breakfast table
entries
123456789101112131415161718
from: David Kirkpatrick

Destroying Tokyo Joe To Save Motley Fool

Posted Monday, May 22, 2000, at 3:04 PM ET

Jamie--

We're getting into semantics. Naturally, when we're talking about investing, "wise" means "lucrative." So when I asked if you thought buying whatever is going up was "wise," I meant, do you think that is a sound way to try to make money? As for those who manage to do so without any information edge, I'm with you--hats off. Good luck keeping it up.

I know I sound sanctimonious, but making money doesn't seem to need any cheerleading from us. My point is that there are two distinct questions here. You seem interested in the question, What is a good way to make money? I like money as much as the next guy, and if you have any good advice, I'm all ears. But the question I meant to bring up is: Are the markets well organized and regulated to operate efficiently and fairly? The latter question comes up when you talk about what causes so much volatility in the markets. And it is particularly relevant when Congress and the SEC are debating ways to restructure the markets.

I tried to get us started on the slightly counterintuitive suggestion that the 1996 market reforms have actually lead to a more volatile market. Less coordinating by market makers. More fragmentation among market makers paying for orders, brokers internalizing, and alternative trading systems. But I am beginning to suspect that dog won't hunt here.

That New York Post story you mentioned reminded me of Tokyo Joe, the famous online stock picker who recently found himself in trouble with the SEC. His racket was pumping and dumping: touting stocks to his followers and then selling out to them as their buying pushed up the price, enriching himself at his investors' expense.

We both suspect that mutual funds and the big securities firms want to discourage competition from operations like the Motley Fool via the Internet. But I bet they would say that it is the Tokyo Joes they want to stamp out, and they have a point. Tokyo Joe's defense is part First Amendment, part caveat emptor. He never made any secret that he trades in and out of the stocks that he touts. But, as it turns out, he also inflated his performance on the background page of his Web site, misleading investors about his success.

We might think knuckleheads who freely choose to follow blindly the advice of Tokyo Joe deserve what they get. But selling securities has been a regulated industry for decades, so the law takes a negative view.

Should the Internet be considered different? I don't think so. If people come to think of online investment advice as a Wild West where would-be stock gurus can abuse other investors without consequence, it can only have a chilling effect on the efforts of legitimate, well-intentioned stock-market discussion sites.

I guess I am up first tomorrow, too, huh?

David

P.S.: My New York magazine colleague Bob Kolker adds: James Cramer went to TheStreet.com from New York magazine, and we, too, are very proud of our offspring.

the breakfast table
entries
123456789101112131415161718
from: David Kirkpatrick

Destroying Tokyo Joe To Save Motley Fool

Posted Monday, May 22, 2000, at 3:04 PM ET
Print This ArticlePRINTDiscuss this in The FrayDISCUSSEmail to a FriendE-MAIL
Share on FacebookPost to MySpace!Share with MixxDigg ThisShare with RedditShare with del.icio.usShare with FurlShare with Ma.gnolia.comShare with SphereShare with Stumble Upon
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.
Join the Fray: our reader discussion forum
What did you think of this article?
POST A MESSAGE | READ MESSAGES

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
The Washington Post
OPINIONS
Unsung Statesman
Marc Thiessen | By the time he left office, Jesse Helms had become a mainstream conservative.
David Broder: Unabashed Racist