The Dim-Post

May 1, 2013

Bizarreer and Bizarreer

Filed under: Uncategorized — danylmc @ 9:21 am

DPF takes issue with my graph of the NZX in wake of the Labour-Greens power policy announcement:

I’m amazed Danyl is trying to argue that as the overall sharemarket is up, then the destruction of value in some companies doesn’t matter.

To use an analogy, it is like someone going into your street and burning your house down, but then telling you not to complain about it because the value of the rest of the street has risen.

Yes the NZX is up.That is because global investors are buying shares in Xero like it is the next Google. Now that is great for Xero shareholders like myself. It isn’t much use however to the person who only has shares in Contact Energy.

So. My original post was about the claim that KiwiSaver accounts have been devastated by the policy announcement, which they haven’t because the market is up and no fund in the country is exclusively invested in Contact Energy shares. If you’re a kiwi mum and/or dad and you only have shares in Contact Energy then the last few weeks have been pretty shaky for you, financially – not that bad though. Contact Energy shares are still at a higher point than their average over the last year, and other events in the market (I have no idea what they were) have wiped out far more value than the Labour-Greens policy announcement.

And there’s an important lesson to learn there, one that I’ve bored everyone to death with ever since the Mixed Ownership Model was announced: ordinary people shouldn’t directly invest in the share market. They should buy index funds or put their money into a KiwiSaver account, and that graph of Contact Energy’s share performance is an object lesson in why: individual shares can lose huge amounts of their value very quickly. It’s the most basic rule of investing, and it’s very unethical for the government to spend millions of dollars on an advertising campaign trying to convince people to break that rule because the Finance Minister needs to drive up the sale value of these assets.

The other point to be made here is that Labour and the Greens argue that the share-value of these companies is over-inflated  because their profits are artificially high – because the current policy settings allow them to price-gouge. So changing the policy settings isn’t wealth destruction, but rather wealth-transfer from the shareholders to the customers.

To pick up DPF’s house price analogy, it’s a little like your neighbor claiming that your back yard is actually part of his property, which inflates the value of his house but at the expense of your own. If you claim it back and it knocks $100k off his RV have you just ‘destroyed’ that wealth? Pft.

About these ads

97 Comments »

  1. How is it that so many people are aghast that “wealth-transfer from the shareholders to the customers”, is going to be perceived by customers as a bad thing, when there are significantly more customers than there are shareholders?

    Comment by Ben — May 1, 2013 @ 9:53 am

  2. Ordinary people [with no knowledge of the mechanics of the sharemarkets or risk identification] shouldn’t directly invest in the share market.

    Otherwise you are saying “ordinary people” should never take risks. Which is dumb. And paternalist.

    Comment by Gregor W — May 1, 2013 @ 9:59 am

  3. So changing the policy settings isn’t wealth destruction, but rather wealth-transfer from the shareholders to the customers.

    Well for those who are about to loose rather than gain in this transfer it may look a little like destruction.

    And when it comes to MRP and other state owned power companies one of those shareholders will be the govt (still the majority owner with 51%) or more to the point us taxpayers.

    So with this new framing that these state assets are bad suddenly the govt exchanging shares for cash to invest is bad but the govt giving away wealth is good.

    Comment by NeilM — May 1, 2013 @ 10:10 am

  4. Look at the affect this announcement had. What do you think will happen if they get elected and then actually go ahead and implement it?? If an announcement can have this much damage then the implementation will be far worse. It is simply an attack on our economy for political gain.

    Comment by Cunningham — May 1, 2013 @ 10:14 am

  5. We’re still going to buy shares. We’ll use some money earned off-shore to invest in what I still think is a good investment for NZ – MRP has developed some very important geothermal resources.

    It’s always a gamble, labour and the greens have made it more risky. That that is being cheered on all if a sudden is bizarre.

    Comment by NeilM — May 1, 2013 @ 10:14 am

  6. So. My original post was about the claim that KiwiSaver accounts have been devastated by the policy announcement, which they haven’t because the market is up and no fund in the country is exclusively invested in Contact Energy shares.

    Something that would be obvious to a literate reader of DPF’s post, given that he actually quotes you pointing that out. However, judging by his comments threads, ‘literate’ is not a common feature among his readers.

    Comment by Psycho Milt — May 1, 2013 @ 10:26 am

  7. The whole point of the partial sale was that mot going to be a huge risk for small
    Invsetors who would not be risking large amounts of money.

    They would be investing a few thousand dollars in what were, until I labour and the greens decided otherwise, extremely good investments which benefitted NZ.

    Because, as both Labour and National have argued, we need more NZ investment in the or productive sector and we’ve seen what happened with the finance companies – a better investment alternative was needed.

    Maybe that was all just spin but it does make sense to me and we planned to make a small investment on that basis.

    Suddenly that’s very very bad.

    Comment by NeilM — May 1, 2013 @ 10:26 am

  8. saying that changing the regulatory framework of the electricity market is theft because it reduces the share price of power company shares is like saying that signing peace treaties is theft because it reduces the share price of weapons manufacturers.

    Comment by kahikatea — May 1, 2013 @ 10:45 am

  9. My father says people should only buy shares in companies that pay big dividends…and if they stop, you sell their shares and buy some others. It’s a simple strategy that has made him millions over the past 50 years as he re-invested the dividends in more shares. He never worried about the value of the shares….only whether or not they paid a dividend.

    None of which addresses the government pillaging power consumers to pile up profits to make the assets they want to sell more attractive.

    I’m amazed David Farrar thinks such behaviour is moral / ethical…..but I’ve had to suspend belief in his direction for a couple of decades now. He’s done very well out of toady to the Nats.

    Comment by Steve (@nza1) — May 1, 2013 @ 10:47 am

  10. NeilM, how will your “small investment” help the productive sector?

    Comment by RJL — May 1, 2013 @ 11:35 am

  11. RJL, “productive sector” has been code for “not housing”.

    Encourage NZers to invest some where other than the property market had been accepted wisdom for a while. The problem being the lack of good quality low risk options. Which is why property had been so attractive.

    And I still think that the state owned power companies are worthy of being called “productive” despite what Labour now says.

    Comment by NeilM — May 1, 2013 @ 11:45 am

  12. Gah!

    The other point about DPF’s rant is that it displays woeful (deliberate?) ignorance of how sharemarkets actually work. So, yes a bunch of people sold out of Contact/Trustpower/etc, thus realising a “loss” in terms of getting a slightly lower price for their share than it previously was paying (whilst no doubt still realising a profit ). But the vast bulk of them then will have put that money back into the share market, causing the value of the stocks they purchase to rise … like the Xero shares DPF pats himself on the back for owning. So this is really just market churn, rather than destruction of wealth.

    As Danyl says, the only people who got “hurt” by this little state of affairs is anyone silly enough to have large stakes of capital invested solely in electricity companies.

    Comment by Grassed Up — May 1, 2013 @ 11:53 am

  13. RJL, “productive sector” has been code for “not housing”.

    True, but it’s not accurate. The measure of contribution to the “productive sector” would presumably be, does any particular investment add to GNP as opposed to merely shuffling the deckchairs, which is what the powerco sell-off is.

    Otherwise any share trade between a buyer and a seller is magically adding to “the productive sector”.

    Comment by Gregor W — May 1, 2013 @ 11:54 am

  14. Fuck me you are boring, Neil. Pull your head out of John Keys arse for just one minute.

    These are large, well established companies. Your investment is not an injection of new capital they desperately need to expand. Your investment, therefore, is not actually doing anything productive. You might as well be purchasing Govt bonds. It’s what the Govt uses the cash for that may or may not be productive, but MRP certainly won’t be doing something they couldn’t otherwise have done, just because you threw $2k at them.

    Comment by Vanilla Eis — May 1, 2013 @ 11:54 am

  15. The problem being the lack of good quality low risk options. Which is why property had been so attractive.

    Also, beg to differ here.
    The big problem is that most people want something for nothing, which housing has conveniently offered in effective risk free capital gains combined with tax breaks.

    If you want “good quality low risk options” the bank has always been a good one – not so much when the OBR lands, obviously.
    Another is metals (assuming you actually get your hands on the physical stuff as opposed to some paper instrument).

    Comment by Gregor W — May 1, 2013 @ 12:01 pm

  16. Gregor W, true property could be made less attractive, although property speculation is currently taxed, but any CGT will also apply to shares and any other investment.

    So unless there are alternative investments to property then property will remain comparatively attractive. (And even if the banks tighten up on lending – which will hit the least well off the most – property will always enjoy the benefit of bring able to borrow from banks to buy an asset. That’s never going to happen with shares).

    It’s been an argument put forward by both a Labour and National for a while, productive vs non-productive investment. It still makes sense to me.

    Comment by NeilM — May 1, 2013 @ 12:17 pm

  17. Actually not any other investment, art, wine, antiques, the family home, won’t have CGT under Labours proposal. The number of exceptions makes me more inclined to some that like a financial transaction tax, which had its own difficulties.

    Comment by NeilM — May 1, 2013 @ 12:21 pm

  18. but MRP certainly won’t be doing something they couldn’t otherwise have done, just because you threw $2k at them.

    With relatively small amounts of money have to invest now and in the next few years we have basically three options.

    Keep it overseas, put it into a property investment or invest it in something such as the state owned power companies.

    For a number of years we’ve been stearnly lectured by successive govts that we need to invest for our retirement and we should invest in productive NZ industry.

    So one of those options should have fitted the bill.

    At present Labour and the Greens are doing a very good job of convincing me otherwise.

    Comment by NeilM — May 1, 2013 @ 1:03 pm

  19. So unless there are alternative investments to property then property will remain comparatively attractive.

    I’ve provided two pretty standard alternatives to housing investment, both fairly low risk in the long run. As are shares for that matter if you take a long run average.

    So several alternatives do exist – its just that people choose not to take them because, unlike housing, there is not generally windfall profits to be made with minimal effort – and these alternatives are not heavily advertised because banks make a fuckload out of selling long-term debt practically at no risk to fund property “investors”.

    People forget that this property bubble has only really been with us since 1999 – it’s 15 years of people knowing no different, therefore it takes on the trappings of financial orthodoxy.

    All this aside, it doesn’t mean that an investment in MRP or any other Powerco as opposed to housing even remotely resembles adding to the “productive” economy.

    Comment by Gregor W — May 1, 2013 @ 1:06 pm

  20. NeilM is the new pete george

    Comment by Chris Bull — May 1, 2013 @ 1:46 pm

  21. “unlike housing, there is not generally windfall profits to be made with minimal effort”

    Residential property investment is quite a lot of work. The people making the windfall profits are often people who just happened to buy into Grey Lynn at the right time,

    I’m not trying to deny that there are other options but the message from successive govts had been we need more investment in NZ business so as to lessen our reliance on overseas investment and to take the heat out of the property market.

    And small investors investing in the power companies was one way of doing that. It’s got a huge number of prople looking at productive investment for the first time. This will be the first time I’ve bought shares.

    Maybe the last. Keep theory overseas – like others do.

    Comment by NeilM — May 1, 2013 @ 2:11 pm

  22. Keep money overseas

    Comment by NeilM — May 1, 2013 @ 2:12 pm

  23. There really is so much bollocks on this blog about property and taxes.

    GW @ 15 “The big problem is that most people want something for nothing, which housing has conveniently offered in effective risk free capital gains combined with tax breaks.”

    Well, some of the tax breaks are gone (depreciation), and shares (and metals, and art) are ALSO not subject to capital gains taxes on profits. Gains (and losses) on property, shares, art & metals are only taxable if you are either a trader/speculator/developer or otherwise “bought with the intention of resale”. (The artist would be the “developer” of an artwork, lol.)
    In parallel, shares and property can both be free from taxes on value gains/losses, but both subject to tax on the income streams: dividends and rents. “But you can deduct interest expense from rents!” And you can deduct interest expense from dividends if you borrowed money to buy the shares.

    I think the main reason folk target property is that they can see and smell it. Oh, and with the Kiwi DIY spirit, they can maximise returns by doing a lot of maintenance work themselves. And those returns are taxable: if I pay a painter $10k to paint my rental, that’s $10k that is (usually) deductible from the rental income stream, if I paint it myself, I can only deduct the cost of the paint…

    Comment by Clunking Fist — May 1, 2013 @ 2:29 pm

  24. This will be the first time I’ve bought shares.

    Ha ha…that is a fantastic punchline to your joke financial advice!

    Comment by RJL — May 1, 2013 @ 2:29 pm

  25. And small investors investing in the power companies was one way of doing that. It’s got a huge number of prople looking at productive investment for the first time.

    They should probably start with KiwiSaver, where the government literally gives you free money to add to your investment.

    Comment by danylmc — May 1, 2013 @ 2:32 pm

  26. “ordinary people shouldn’t directly invest in the share market. They should buy index funds or put their money into a KiwiSaver account,”
    Where’s your disclaimer about giving investment advice, Danyl? Or are you a registered financial advisor?

    Comment by Clunking Fist — May 1, 2013 @ 2:33 pm

  27. “They should probably start with KiwiSaver, where the government LITERALLY GIVES YOU FREE MONEY to add to your investment.”

    A man once said “Sometimes I just want to strap the entire spectrum of left-wing politicians into dentists chairs and patiently explain to them – using chisels and barbed wire – that most of the state’s wealth comes from ordinary people working hard and then giving a huge chunk of their income to the government, so spending it is a sacred trust not an endless opportunity to squander it all on gimmicks and whims and political stunts.”

    And Kiwisaver bribes qualify as “gimmicks, whims and political stunts”.

    Comment by Clunking Fist — May 1, 2013 @ 2:37 pm

  28. (Having siad that, anyone on a decent wage you isn’t taking advantage of the KS rort of screwing your employer and other taxpayers by putting the minimum amounts in must have found a fecking good investment instead. Or are really really scared of a future govetment stealing our KS balances…)

    Comment by Clunking Fist — May 1, 2013 @ 2:41 pm

  29. @ CF 23.

    All true and the playing field has somewhat levelled due to recent changes.

    But as I was trying to point out, windfalls rarely occur for people holding stocks or metals, whereas every day people hear of (or are told of via TV’s Kiwibank/Mitre10 DIY Blahblah), that they can make their FORTUNE from property! Risk Free! Cheap Credit! Don’t miss the boat! Buy now!

    If we saw this kind of shit from brokers spruiking stocks they’d be laughed out of town.

    Comment by Gregor W — May 1, 2013 @ 2:48 pm

  30. If we saw this kind of shit from brokers spruiking stocks they’d be laughed out of town.

    What about from Governments running full-page adverts in the Newspapers?

    Comment by Flashing Light — May 1, 2013 @ 3:05 pm

  31. A man once said “Sometimes I just want to strap the entire spectrum of left-wing politicians into dentists chairs… etc

    Well, just “politicians” would do – unless we’re now classing National as “left-wing.” In any case, none of that alters the fact that, with Kiwisaver, “the government literally gives you free money to add to your investment.”

    Comment by Psycho Milt — May 1, 2013 @ 3:07 pm

  32. “All true and the TAX playing field has somewhat levelled due to recent changes.”

    I think property has a lot more tilting the field towards it due to the physical aspect. Sure, you have to worry about shitty tenants. But with shares you have to worry about the company’s managers, competitors AND customers, as well as daft anti-capitalist policy amnnouncements from LabGreens.

    Comment by Clunking Fist — May 1, 2013 @ 3:08 pm

  33. If you can make property work for you then it makes a lot of sense. If the rent you get from your tenants covers all your costs (or even if you have to slightly subsidise it it may still be good value), then you get the bank to fund you for a big fat capital appreciating asset which is essentially paying for itself. As Danyl’s said many times before, compare that to the joke that is share investing in NZ. My friend said Vanguard are going to start operating here shortly (maybe they do already?) to me that is more transformative for people to get into the market than MRP. That and companies like Xero reaching maturity.

    (Disclaimer: I haven’t done this, but from where I’m sitting the math doesn’t seem that absurd)

    Comment by Chris Bull — May 1, 2013 @ 3:11 pm

  34. ^ just to clarify, I don’t think Xero have reached maturity, just that if they don’t get acquired and do continue basing themselves in NZ they’ll be very good for the NZX.

    Comment by Chris Bull — May 1, 2013 @ 3:12 pm

  35. “ordinary people shouldn’t directly invest in the share market… It’s the most basic rule of investing”

    I thought the most basic rule of investing was ‘diversify, diversify?’

    Comment by Hugh — May 1, 2013 @ 3:25 pm

  36. @CF “And Kiwisaver bribes qualify as “gimmicks, whims and political stunts”.”

    Or they qualify as financial/ incentives to shift investment from laptops and Xboxes into retirement savings. The taxpayer gains a benefit from that “bribe” (apart from the direct benefit of the money itself in their kiwisaver accounts. It means the government vill have an easier time meeting retirement demands as our workforce shrinks in proportion to retirees.

    I am resentful of the free education handed out to the generation before me as I contemplate my student loan, but I can see how the taxpayers of New Zealand gained from all that free money given out in educating bright young leaders like John Key so they could become wealthy and pay taxes and lead us into the future and stuff…

    If spending money (or foregoing tax) in order to incentivise certain behaviour is removed from the political toolkit then all that’s left is asking nicely… by the way which political party is it that’s promising not to spend anything on anything so as not to “bribe” people? what do you think politics is?

    Comment by nommopilot — May 1, 2013 @ 3:30 pm

  37. What about from Governments running full-page adverts in the Newspapers?

    Oh but you can trust the government to inform the people about potential risks, FL.
    I mean otherwise, what would the point of them, right? RIGHT??

    Comment by Gregor W — May 1, 2013 @ 3:31 pm

  38. nommo:
    “Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all. We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain.”
    Frédéric Bastiat

    “by the way which political party is it that’s promising not to spend anything on anything so as not to “bribe” people? what do you think politics is?”
    If politics is bribing, then tax really is theft. You can probably understand why I dislike politicians as a species. A curse on all their houses. None of them in recent years has wanted to do unpopular but “right” things. Instead, we are told how GST helps broaden the tax base, as if taking money off people trying to feed their family is a good thing.

    Comment by Clunking Fist — May 1, 2013 @ 3:46 pm

  39. PS on KiwiSaver: the incentive is really only available, like the insulation subsidies, like 20 hours free- ECE, available to those which spare money. So it is more middle class welfare, for those who have probably already developed plans to fund their retirement lifestyle. So the middle classes (and the wealthy) got a tax cut AND a boost to their entitlements. Nommo, could you please state why you don’t like the idea of a scheme like Gareth (Cat-shit Crazy) Morgan’s Big Kahuna? His stated aim is wealth distribution, but I also see a great way to reduce welfare dependency brought about by high effective marginal rates of tax.

    Comment by Clunking Fist — May 1, 2013 @ 3:53 pm

  40. every day people hear of (or are told of via TV’s Kiwibank/Mitre10 DIY Blahblah), that they can make their FORTUNE from property! Risk Free! Cheap Credit! Don’t miss the boat! Buy now!

    To be fair, a lot of developers went to the wall when the bottom fell out of the commercial property sector at the start of the recession.
    Residential property, like all other assets, can go up and down in value. What people tend to forget is that just because the nominal price of property isn’t falling, it doesn’t automatically mean you’re making a profit. Opportunity cost is really REALLY important.

    Comment by Phil — May 1, 2013 @ 4:02 pm

  41. “None of them in recent years has wanted to do unpopular but “right” things”

    yes, no politicians are trying to do what’s “right”. I am sure you’re the only person out there who is doing what they believe is “right”.
    “If politics is bribing, then tax really is theft.”

    without government there is no such thing as theft. property rights do not exist except through a social contract, such as that embodied by the state. if you’re unhappy with the current governance arrangements you’re welcome to get of the grid and go live in the wilds and not participate in society or propose and advocate for your alternative political panacea (I mean, your ideas are really awesome so it should be pretty easy to start a political party and get 5%, right? the Greens have, like 13% with all their wrong-headed DOC-hugging, power-price-reducing nonsense). but if you don’t pay for a government then you have no way to protect or legitimise all the wealth that you’re entitled to by virtue of your god-king-fountainhead-genius status (unless you can raise a good mercenary army with all that wealth you’re generating).

    You’re a part of society CF, you must be at least a small part socialist…

    Comment by nommopilot — May 1, 2013 @ 4:12 pm

  42. They should probably start with KiwiSaver, where the government literally gives you free money to add to your investment.

    You’re just try to play on my nostalgia for Cullen.

    But seriously, look at how many people got interested in the share market and NZ investment who never were before.

    That’s an achievement in its own right.

    Is that and its flow on for the economy worth more than $6 a week? I’m not sure, but none if the talk of super profits convinces me one way or the other.

    But it has just about convinced me not to invest in anything a political party can so easily spike for its own interest. Novice investor that I am.

    Comment by NeilM — May 1, 2013 @ 4:19 pm

  43. thought the most basic rule of investing was ‘diversify, diversify?’

    A long time ago, I took on board some advice from a wise old investor who basically said that “some companies are just always going to be around”. His example was Coca Cola (NYSE: KO). If you think about it, you would have to envisage a situation where management actively tried to destroy the company before you started taking heavy losses in the stock price relative to the rest of the market. If you only had one stock in your portfolio, it’s a pretty safe one to start with and build from.

    I don’t think there are any NZ stocks I would include in that definition, but if you’re happy to take on some exchange rate risk (and hell, now’s as good a time as any!) I’d be ‘picking’ global giants in their fields like Toyota, Coca Cola and Nestle as almost certain bets to outperform the market over the next 20 years.

    Comment by Phil — May 1, 2013 @ 4:22 pm

  44. ” Nommo, could you please state why you don’t like the idea of a scheme like Gareth (Cat-shit Crazy) Morgan’s Big Kahuna?”

    I love that scheme. If a party would adopt it (including the UBI) they would certainly get my vote. I’m not anti-capitalist but I don’t think a free market could ever exist since there will never ever be a level playing field of opportunity, family, wealth, education or any of the other complex human things and so unregulated economies will tend to lead to increased inequality which I believe makes for an increasingly divided, unhappy society, similar to the one we are in now. I hate living in a country where (and yes, please tell me how much worse it is in _whatever country_) despite our collective wealth, a lot of people are doing it very hard, while a tiny few are doing it very easily with the help of a very friendly government. $200k job? sure, I’ll get you one. tax cut? don’t mind if I do…

    I think that strong government is necessary and that it should set laws, taxes and economic rules to encourage certain types of behaviour (based on social, loss of commons, and economic costs ie. such as the health costs of smoking). Those things should be a political negotiation, but I think the government’s primary ethical responsibility should be ensuring that every single person in the country have their basic (food, shelter, health and education at least) needs met, as a right. There is no reason that a country like ours couldn’t achieve that and the benefits in terms of crime reduction, health improvements and educational outcomes would be immense. Only the government has broad enough interests that subsidising or taxing one economic area (ie. Kiwisaver, anti-smoking campaign, education) provides greater economic benefits in an unrelated sector.

    I want to see innovation and good market activity but with economic settings that encourage activity that benefits us all collectively. There should be money to be made in beginning to reforest our country with natives, in switching our vehicle fleet to electric, in tons of other ways. I think the government should be doing social engineering: they should find out what sort of a society we want our kids to grow up in and engineer it through infrastructure and law. Rather than some foggy, never-arrived-at-aspirational brighter future where there are 23 lanes to the bach.

    Comment by nommopilot — May 1, 2013 @ 4:57 pm

  45. Hi nommo, you wasted a lot of time there writing that comment: where did I say I didn’t want govt?
    Where did I write that I didn’t want to pay for govt? I am angry about paying for RWC2011, even though I love rugby. I am not angry about paying for public hospitals, even though I have medical insurance. And I AM a small part socialist: no part of me wants to live in a society that has no safety net. I actually LIKE people. And I like DOC, too. “Conservation” is not something that markets can provide (although they can be invited to undertake some of the tasks required via tenders).

    But quite why you think the govt has to interfere in power generation, in a way they don’t interfere in the far more important field of food production, I don’t know. And all because some poor people struggle to afford power. (They struggle to afford food even more.) Well, we have a welfare system, why not use that to help the poor, rather than engage in theft of shareholder property rights? There’s Labour and the Greens tearing up the “social contract”. It is really ironic that folk who complain about excessive consumption, who support the introduction of the ETS, are not satisfied when the market delivers higher prices as designed.

    “I mean, your ideas are really awesome so it should be pretty easy to start a political party and get 5%” Actually, I am far more productive in the private sector. I pay in excess of $54k in income tax each year (I hate to think how much GST I pay). Part of my job, I feel, as a citizen, is to be informed about many issues, to watch politicians, to avoid being tribal and biased. I think it’s important to remind people in power (who are supposed to be our servants) that hypocrisy is not okay, that bribery is not okay. That attacking, blaming, minorities is not okay. And that formulating policy on weak data is not okay.

    Comment by Clunking Fist — May 1, 2013 @ 5:16 pm

  46. But it has just about convinced me not to invest in anything a political party can so easily spike for its own interest. Novice investor that I am.

    Better not ever invest in anything then, NeilM.

    Comment by Gregor W — May 1, 2013 @ 5:25 pm

  47. “…so unregulated economies will tend to lead to increased inequality which I believe makes for an increasingly divided, unhappy society, similar to the one we are in now.” You’d rather be like France, which its strong form of government, strong socialist ideals… and race riots? And I laugh at your “unregulated economy” comment. How are we in any sense “unregulated”?

    “I want to see innovation and good market activity but with economic settings that encourage activity that benefits us all collectively.”
    Where are you cutting and pasting this stuff from?

    Comment by Clunking Fist — May 1, 2013 @ 5:46 pm

  48. Ain’t it grand listening to the Greeny Lefties doling out investment advice it’s a bit like Nazi’s preaching on tolerance.

    Comment by Wimmmmmy — May 1, 2013 @ 6:26 pm

  49. “Actually, I am far more productive in the private sector. I pay in excess of $54k in income tax each year”

    Really? what do you produce? blog comments?

    no seriously, your medal is over there…

    “Where did I write that I didn’t want to pay for govt? “

    Oh I just inferred it from your blather that “Tax is theft” and government spending = bribery, and so on.

    “But quite why you think the govt has to interfere in power generation”

    Because the profit motive is to restrict supply to keep prices high and because I think energy infrastructure planning and delivery should be managed by government in the interests of society, not by private enterprise in the interests of making money. The wholesale market is not working and it affects the entire economy.

    “Where are you cutting and pasting this stuff from?”

    teh intehnetwebz

    Comment by nommopilot — May 1, 2013 @ 6:57 pm

  50. >>This will be the first time I’ve bought shares.

    >Ha ha…that is a fantastic punchline to your joke financial advice!

    No, the punchline will be in a few months when he comes back and says it was also the last time he will buy shares.

    Comment by Ben Wilson — May 1, 2013 @ 7:09 pm

  51. >If we saw this kind of shit from brokers spruiking stocks they’d be laughed out of town.

    Nah, that already happened. Many times. I worked in a stockbroker during the dotcom bubble (I was in IT, though), and they were always telling us taking out margin loans to get in on the fact that all the rules had changed (LOL) was a great idea. I never did, personally. There were some pretty sad faces in 1999 amongst all my colleagues who ate it up an thought they were all investment geniuses for a few years. My only investment was to pay down debt and let the Australian govt put aside 5% of my pre-tax income for when I retire. It’s the biggest pot of gold I’ve got anywhere, apart from, of course, my house. However much I distrust property as an investment, the numbers stack up for property ownership, because I’d have to pay the same rent anyway and live in a shithole, and until the day property actually crashes out, all the capital growth I get is magnified by the debt proportion. This is the giant Ponzi scheme that no government has yet had the balls to break. In fact, it’s bigger than any government anyway, since it’s a global phenomenon. When it’s this big, you really have to be in it. I’ve made hundreds of thousands of dollars over the last 10 years by doing nothing at all. It’s not cash though. I’d rather have a cash producing asset making these kinds of after-tax returns. But there isn’t one I can safely trust, and I don’t want to live in a shithole.

    Comment by Ben Wilson — May 1, 2013 @ 7:28 pm

  52. @Phil: True. I think in the USA they call those ‘blue chip’ stocks. But I think, even putting currency issues aside, there are usually very high barriers to entry for private investment into those companies. So ‘invest in Coca Cola’ isn’t really good advice for the sorts of people Danyl is offering investment advice to.

    Comment by Hugh — May 1, 2013 @ 7:58 pm

  53. I am not angry about paying for public hospitals, even though I have medical insurance.

    But quite why you think the govt has to interfere in power generation, in a way they don’t interfere in the far more important field of food production, I don’t know.

    But surely food production is one of the few areas more important than health care. Yet you don’t mind the government interfering in the health sector in a way they don’t in food production.

    Comment by steve — May 1, 2013 @ 8:03 pm

  54. > But quite why you think the govt has to interfere in power generation…I don’t know

    Why do you think the govt has to interfere by being the central buyer of pharmaceuticals? No doubt you and John Key are outraged at such interference? Actually, Key isn’t outraged at all. This is what he says about Pharmac:

    “We think Pharmac has been hugely successful. We think it makes money for New Zealand. It is the most cost efficient way of purchasing pharmaceuticals for New Zealanders and we’d take a fair bit of convincing that that wasn’t the right model.”

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10727575

    Comment by Ross — May 1, 2013 @ 8:41 pm

  55. > you don’t mind the government interfering in the health sector in a way they don’t in food production.

    To be fair, there is actually quite a bit of regulation around food standards and food safety. There goes the government interfering again. Where will it end!

    http://www.foodsafety.govt.nz/policy-law/food-regulation/nz-food-legislation/

    Comment by Ross — May 1, 2013 @ 8:48 pm

  56. > Well, we have a welfare system, why not use that to help the poor, rather than engage in theft of shareholder property rights?

    1. You seem to be advocating for the poor to be given more money to compensate for paying exhorbitant power prices.
    2. How much are you prepared to give to the poor?
    3. Could paying the poor merely encourage power companies to raise their already exhorbitant prices and thus increase their supernormal profits?

    Comment by Ross — May 1, 2013 @ 8:55 pm

  57. To be fair, there is actually quite a bit of regulation around food standards and food safety. There goes the government interfering again. Where will it end!

    Every time the government interferes in the economy, baby Jesus cries.

    Comment by steve — May 1, 2013 @ 10:51 pm

  58. >@Phil: True. I think in the USA they call those ‘blue chip’ stocks.

    I’m pretty sure that historically small cap stocks have outperformed ‘blue chip’ as an aggregate group. There’s only so much more a big company can grow. The world only wants so much Coca Cola. But if you have a new idea, the sky is the limit (and the ground). Who had even heard of Google 17 years ago? Ten years before that, Microsoft would not have been considered blue chip, and IBM would have looked like a sure bet.

    Comment by Ben Wilson — May 1, 2013 @ 10:53 pm

  59. > Well, we have a welfare system, why not use that to help the poor, rather than engage in theft of shareholder property rights?

    1. You seem to be advocating for the poor to be given more money to compensate for paying exhorbitant power prices.

    Yeah, and also the poor being given more of my money (my tax payer dollars!) surely impinges on those precious “property rights”. I’m sick of lefties like Clunking Fist playing fast and loose with my property.

    Comment by steve — May 1, 2013 @ 10:54 pm

  60. @Ben: Definitely. The appeal of Blue Chips isn’t that they give the highest returns, it’s that they give steady, reliable returns that are higher than the market average (let alone higher than just having your money sit in a savings account). The downside is that the demand for Coca Cola is unlikely to explode. But most investors aren’t really expecting to find the next Google – you can make perfectly ridiculous amounts of money without investing in a Google-type stock.

    Comment by Hugh — May 1, 2013 @ 11:16 pm

  61. @Ben # 50.

    Sure. But falling for a spruik working at a brokerage is merely drinking the company Kool-aid.
    What I’m getting at is if you had weekly shows on TV about ‘ordinary kiwis’ trading points on currency or buying small caps and making millions, liberally interspersed with ads from you bank telling you to take out a loan for stocks or derivatives, you’d be suspicious.

    Not so with property it seems.

    Comment by Gregor W — May 1, 2013 @ 11:43 pm

  62. Owen Glenn manages to protect his property rights from sunny Monaco no problems. Funny how Helen Clark was so eager to rub shoulders with him rather than most of the losers on here. Guess some people really are more equal than others.

    Owen sums it up best below: Because you’re no ….

    Comment by OECD rank 22 kiwi — May 2, 2013 @ 1:38 am

  63. Come on. Who taught the right wing troll how to imbed a video? Come on, who was it?

    Comment by Sanctuary — May 2, 2013 @ 8:16 am

  64. Owen Glenn manages to protect his property rights from sunny Monaco no problems.

    You’re a tool OECD rank 22 kiwi.

    Glenn can protect his wealth because he’s a super-rich, tax dodging parasite with lawyers and wealth managers to burn.
    He’s an arrogant c*nt to boot who wants shit named after him (built mostly with other people tax dollars) to secure his tenuous legacy as he waddles closer to the grave.

    Comment by Gregor W — May 2, 2013 @ 11:39 am

  65. Speaking of Owenn Glenn, it seems he has a few financial issues to sort out before he puts an end to child abuse in this country.

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10862977

    Comment by Ross — May 2, 2013 @ 11:59 am

  66. Funny how Helen Clark was so eager to rub shoulders with him…

    Tomorrow’s headlines: “Money able to buy political influence shock!”

    Comment by Psycho Milt — May 2, 2013 @ 1:03 pm

  67. Ross @ 54 “Why do you think the govt has to interfere by being the central buyer of pharmaceuticals?” But I don’t think they have to do this, so it’s not a helpful comparison.
    So Key is relaxed about it, because the voters seem to like it (please note: I don’t like National).

    Ross @ 55. “To be fair, there is actually quite a bit of regulation around food standards and food safety. There goes the government interfering again. Where will it end!”
    Wilful ignorance: the lefties have it!. This conversation has been had many times: regulation and standard setting are not the same as being a producer. Building roads that happen to also help farmers get their produce to customers is not food production. At the moment, the govt PRODUCES* our electricity. The govt does not produce* our food. *Small quantities excepted.

    Comment by Clunking Fist — May 2, 2013 @ 1:05 pm

  68. “Funny how Helen Clark was so eager to rub shoulders with him…”

    Actually, there’s a photo somewhere (maybe even on this blog) where she is doing her best to avoid even making eye contact with him.

    All politicians are hypocrites to a greater or lesser extent

    Comment by Clunking Fist — May 2, 2013 @ 1:08 pm

  69. All HUMANS are hypocrites to a greater or lesser extent.

    Oops, slip of the brain there.

    Comment by Clunking Fist — May 2, 2013 @ 1:15 pm

  70. “she is doing her best to avoid even making eye contact with him”

    That was in 2008 in the last days of her regime. Back in 2003 when the America’s Cup was on it was all “Champagne Wishes and Caviar Dreams”.

    Comment by OECD rank 22 kiwi — May 2, 2013 @ 1:18 pm

  71. > But I don’t think they have to do this, so it’s not a helpful comparison.

    Yeah nobody is holding a gun to the govt’s head, but I’m not sure what point you’re making. Pharmac is generally considered to be a good model, better than any alternative. Sometimes interventon is good.

    “Pharmac is so trustworthy and efficient the government could realistically set a higher budget for Pharmac and know money will be effectively spent.”

    http://www.stuff.co.nz/sunday-star-times/business/5003171/Pharmac-under-fire-ahead-of-US-free-trade-talks

    Comment by Ross — May 2, 2013 @ 1:24 pm

  72. Pharmac is a good model for an industry where the product is made overseas snd the makes, completely foreign owned and an overseas industry the govt has no control over.

    When we import our electricity maybe NZPower will be a good idea.

    Objecting to what the Greens and Labour are proposing spent imply being against govt intervention. Thsts about as useful as all these unsubstantiated claims of super profits.

    Comment by NeilM — May 2, 2013 @ 2:44 pm

  73. Neil M wrote: “Pharmac is a good model for an industry where the product is made overseas snd the makes, completely foreign owned and an overseas industry the govt has no control over.”

    This doesn’t mean that pharmac has no effect on the pharmaceutical company profits, so if you consider that NZ Power is a theft of shareholder value, why do you not consider that pharmac is a theft of shareholder value?

    Is it because New Zealand is such a small part of the world market that it only reduces their profits a little bit, meaning it’s only a wee theft of shareholder value? or because they’re foreign-owned, so it’s only a theft of foreign shareholder value?

    I tell you it’s a theft of shareholder value no less than the banning of landmines is a theft of landmine company shareholder value!

    Comment by kahikatea — May 2, 2013 @ 3:04 pm

  74. “ordinary people shouldn’t directly invest in the share market”

    Sanctimonious advice like this is the Green’s problem.

    Clint should realise this before Green really does become the new stupid.

    Comment by Grant — May 2, 2013 @ 3:09 pm

  75. I haven’t used the word “theft”, its a wealth transfer/internal subsidy that for me doesn’t make a lot of sense.

    What I was saying was that Pharmac works because of the nature pharmaceuticals industry, and Fonteta works because of the nature of the dairy industry, to argue that the electricity generating industry is the same as either of those is a pretty weak argument..

    But it certainly will decrease shareholder value and as the govt will remain the majority shareholder that means we all lose. Whether that loss to us all is made up for by the transfer of $6 a week to all households no matter their income I’m not convinced.

    Comment by NeilM — May 2, 2013 @ 3:22 pm

  76. Pharmac is a good model for an industry where the product is made overseas snd the makes, completely foreign owned and an overseas industry the govt has no control over.

    Fonterra is also an effective monopsony though in a co-op form. Seems to work pretty well in a NZ context.

    Comment by Gregor W — May 2, 2013 @ 4:05 pm

  77. Pharmac is a good model for an industry where the product is made overseas snd the makes, completely foreign owned and an overseas industry the govt has no control over.

    I think you’ll find that Pharmac will also fund pharmaceuticals manufactured by NZ companies.

    Pharmac is a good model because affordable/accessible supply of medicine is of more benefit to the country than the profit of pharmaceutical companies. It’s not bad for pharmaceutical companies to make a profit, but it is bad for corporate profit making to compromise the health of our population.

    Similarly, is affordable/accessible electricity supply more or less important than the profit of electricity companies?

    Comment by RJL — May 2, 2013 @ 4:28 pm

  78. Yes Fonteta works well by keeping prices up. Not everyone is happy with that though.

    There’s no argument that Labour and the Greens can control prices its a matter of to what overall benefit.

    At present we have one party proposing the govt forego state asset value and income inorder to distribute that to business and households.

    Another party is proposing to forego state asset value and income to fund schools and hospitals.

    I’d be interested to see a comparative cost benefit analysis.

    Comment by NeilM — May 2, 2013 @ 4:28 pm

  79. The primary role of Pharmac is to negotiate with overseas manufacturers in a setting where there is often a primium being demanded by those who hold patents and where there is often cheaper generic alternatives.

    It’s quite different from the energy market.

    Comment by NeilM — May 2, 2013 @ 4:36 pm

  80. Yes Fonterra works well by keeping prices up. Not everyone is happy with that though.</I.

    Actually, it turns out that it's the supermarkets that do that – strangely, another price gouging business model!

    Comment by Gregor W — May 2, 2013 @ 5:21 pm

  81. “Pharmac is a good model because affordable/accessible supply of medicine is of more benefit to the country than the profit of pharmaceutical companies. It’s not bad for pharmaceutical companies to make a profit, but it is bad for corporate profit making to compromise the health of our population.”
    We are lucky to get away with this. Just imagine if every country in the world used the pharmac model.

    Comment by Clunking Fist — May 2, 2013 @ 5:54 pm

  82. “We are lucky to get away with this. Just imagine if every country in the world used the pharmac model.”

    Then we would be exceptionally stupid not to use it as well.

    If every country in the world used the pharmac model, then drug companies wouldn’t make superprofits, and would probably spend less on marketing. And they might spend a bit less on research, but most of what they do spend on research is on copycat drugs anyway. Most of the really new drug research is state funded in universities and research institutes, and commercialised by drug companies, rather than being funded from scratch. See various things from the research oeuvre of this guy: http://www.yorku.ca/health/people/index.php?dept=H&mid=9198

    But Danyl probably knows more about this than I do, since he actually works in biology stuff.

    Comment by Dr Foster — May 2, 2013 @ 6:18 pm

  83. “Most of the really new drug research is state funded in universities and research institutes, ”

    Really? Do you not mean: universities carry out some tests on rats, pigs, mice or monkeys that identify areas for extra exploration, then the drug companies spend the big money refining the chemicals, designing the trials, obtain FDA approvals, conduct clinical trials, obtain final approvals, conduct marketing & physician education, ongoing monitoring, etc, and then stand behind their creation?

    Comment by Clunking Fist — May 2, 2013 @ 7:43 pm

  84. Perhaps this double or nothing move from Labour and the Greens hasn’t had time to get traction yet but at the moment it’s not looking much like double.

    Still, they could always look at talking down the value of other state assets.

    Compared to KiwiBank’s profit of $79m and AirNZ’s half year profit of $100m, MRP’s superprofit of $58m looks rather people friendly.

    Comment by NeilM — May 2, 2013 @ 9:16 pm

  85. People do realise that Pharmac has no ability to force drug companies to supply them with produce. It’s a rationing agency for poor people. They make an offer and the Pharmaceutical companies either take it or leave. Just like for example Herceptin where the Pharmaceutical companies left it. Then people moan, apply pressure to their local MPs and hey presto, magic money becomes available “on a limited basis” to pay for said drug.

    Comment by OECD rank 22 kiwi — May 2, 2013 @ 10:10 pm

  86. People do realise that Pharmac has no ability to force drug companies to supply them with produce. It’s a rationing agency for poor people.

    By “poor people” you mean the taxpayer, right?
    Or do you pay cash on the barrelhead for your neuroleptics there, OECD?

    Comment by Gregor W — May 2, 2013 @ 10:18 pm

  87. I’m all for more investment in the sharemarket. Trouble is, it’s already top-heavy with ex-state-owned infrastructure monopolies turned privatised cartels, with too few of the “garage inventors who’ve made it” like Trademe and Xero. For all his opposition to NZ Power, Brian Gaynor did actually point out the top-heaviness:

    “The NZX is dominated by former government-owned companies with little or no offshore activities. Telecom, which has regained the top position from Fletcher Building, has almost no offshore activities nor does Contact Energy.
    Fletcher Building has the largest overseas presence, SkyCity operates casinos in Adelaide and Darwin and Auckland International Airport has a shareholding in two Queensland airports.
    However the big drawback of the NZX is that IT, financials and healthcare are underrepresented in the benchmark NZX 50 Gross Index.”

    CF: “But quite why you think the govt has to interfere in power generation, in a way they don’t interfere in the far more important field of food production, I don’t know.”

    The keywords are, “barriers to entry“. Getting into the food biz only needs very modest capex. Getting into the electricity sector, on the other hand, needs so much capex that not even Bill Gates would dare touch it. It’s the same reason why Telecom was in no danger of losing its dominance to the likes of Vodafone and TelstraClear, until David Cunliffe threw the book at it. Same goes for Ma Bell in the early 1980s – who here is old enough to remember the phrase, “Ma Bell has you by the calls”? And even before he turned market apostate, Bernard Hickey was basically calling for Helen to buy back the local loop.

    Rent-seeking is all too often mistaken for a property right. The GFC has merely exposed it for what it really is.

    Comment by deepred — May 3, 2013 @ 1:58 am

  88. He’s a right-wing troll – when he’s in character, “poor people” includes a minimum 95% of the country.

    Comment by Psycho Milt — May 3, 2013 @ 6:35 am

  89. Broke is Finaicial situation. Poor is a state of mind.
    New Zealand is poor.

    Comment by OECD rank 22 kiwi — May 3, 2013 @ 8:51 am

  90. “It’s [Pharmac] a rationing agency for poor people.”
    “Poor is a state of mind.”

    So if poor is a state of mind, why would the state be rationing drugs in relation to it?
    Do you believe poverty is some form of mental illness? Can it be alleviated more effectively by paying market price for drugs from Bayer?
    Or are you just making up these insightful pearls of wisdom as you go along?

    Comment by Gregor W — May 3, 2013 @ 9:24 am

  91. “Really? Do you not mean: universities carry out some tests…”

    No, I don’t mean that, because they do a great deal more. And drug companies spend more money on marketing than they invest in research. Plus, they spend enormous amounts of money lobbying government. The health sector spends more on lobbying US legislators than the defence sector does (can’t remember the reference off the top of my head, it was but an article in the NY Review of Books about 2 years ago). Hence the egregious medicare part D, in which health insurers aren’t allowed to negotiate with pharma companies on price.

    Drug companies aren’t enormous manifestations of evil the whole time (as some people would like to think), but they often invest much less in useful stuff than they claim they do, and should be open to scrutiny and challenge on that basis, and paid for their products accordingly. Pharmac is one of the few drug purchasing agencies anywhere which does that in a clear and open fashion.

    Comment by Dr Foster — May 3, 2013 @ 3:43 pm

  92. You don’t have to be sophisticated to do well on the stock market apparently, just a pretty polly: http://www.koreatimes.co.kr/www/news/biz/2009/08/123_49536.html

    Comment by Linz — May 3, 2013 @ 8:27 pm

  93. Well the parrot did have a head start – someone else picked the blue-chip shares it could pick between.

    While the avian investor has bought shares only seven times, most of the human investors have made over 160 transactions so far. One has traded shares over 1,200 times during the five-week period.

    “On top of making short-term transactions, the investors usually bet on small- and medium-sized shares that fluctuate hugely,” Chung said. He added that many of the investors were shocked to perform worse than the parrot. “They know in theory that one should make long-term investments and choose blue chips. But few people do that in reality.”

    “usually bet” – but no doubt none of those investors saw themselves as gambling, they would have all had complex rationals for their choices.

    Every gambler has a system.

    Comment by NeilM — May 4, 2013 @ 1:33 pm

  94. As humourous as a stock-picking parrot might be, it’s worth keeping a couple of things in mind about those kinds of experiments;
    1) the ‘game’ lasted only two weeks – there’s a natural human incentive/desire to win the game, so most investors will rationalise taking higher risks than they otherwise normally would. The parrot is just being a parrot – it doesn’t know it’s in a game.
    2) contestants were using fictional money. There’s plenty of studies that show people will behave differently with ‘tokens’ rather than physical cash or their own savings – that’s why casino’s exist.

    Comment by Phil — May 6, 2013 @ 9:46 am

  95. They still got their arses kicked by a *parrot*, Phil. It’s worth bearing in mind that a parrot is a dumb animal, incapable of anything but the most primitive reasoning, and completely unaware of anything to do with the stockmarket. If you can find any other intellectual exercise out there, which requires years of training before you’re trusted with the handling of it, in which a parrot outperforms humans, then tell me about it. Between the lines of this obvious, obvious example is that stockmarket investing is possibly something in which the difference between a highly trained expert and a rank amateur is negligible*. It’s soothsaying, and the real skill of the soothsayer is in telling the story to scam intelligent people, rather than their actual ability to predict the future.

    *In fact, it might actually be *worse* than that. Highly trained experts performing worse than randomness (and this is an old result, has been repeated many times) might mean that they are in general actually worse than useless. They actively waste investor money by taking their cut, and possibly getting suckered by market sentiment, and performing too many trades, each of which costs.

    Comment by Ben Wilson — May 9, 2013 @ 10:49 am

  96. But they weren’t actually acting as ‘investors’. They were acting as game players with a specific end-point objective: In two weeks time; beat that guy. The incentives are so wildly different to real-world investment that they’re a meaningless comparison.

    What you’re saying is akin to: “a monkey is a better cricket wicket-keeper than me, because he caught three peanuts with his foot and I didn’t catch any”

    Comment by Phil — May 9, 2013 @ 1:37 pm

  97. >But they weren’t actually acting as ‘investors’. They were acting as game players with a specific end-point objective: In two weeks time; beat that guy. The incentives are so wildly different to real-world investment that they’re a meaningless comparison.

    Right. But even just as a game, they got their arses kicked by a parrot. However you spin that, the point is that they don’t really know how to win the game. Not knowing how to win over two weeks over a dumb animal doesn’t give me that much confidence that the result is going to be different over any other time-cycle, frankly. And as I said, this experiment has been repeated many times, using whatever proxy for “totally dumb” that you prefer. A parrot doing something. A monkey throwing darts at a board. Flipping a coin on each stock. Buying equal value of every stock.

    It’s the very reason that the most standard investment advice is buy and hold – or at least it’s one demonstration of this wisdom. It’s also a kind of vindication of market efficiency theory, since the differences are negligible between a lot of training and information and not even using information about the stocks in the trading process at all. If this is true, then there is little value in trading, which is itself a cost.

    >What you’re saying is akin to: “a monkey is a better cricket wicket-keeper than me, because he caught three peanuts with his foot and I didn’t catch any”

    No, it’s nothing like that. Cricket is a game of skill. There is a clear and massive difference between even people who know how to play cricket in the quality of wicketkeeping, let alone between them and animals who, being different physically, can do different things to us (and can’t do others), and can’t even conceptualize the game, even if they could be motivated to play. The parrot was not given any power denied to the human traders, analogous to being able to catch with its foot. Quite the opposite was the case, the parrot didn’t sit around reading the papers, following the deltas on some trading screen, watching the stock tickers, looking for the trigger to their secret trading rule, or anything like it. It picked random balls. Using a parrot at all was pretty much for show, a humourous redirection. They could have used a random number generator. The problem is that some people might be tempted to call that a “smart algorithm”, so you make it clear just how dumb randomness is by adding something known to be dumb as the random generator. The net result is the actual smart choice – to behave randomly, and infrequently.

    If you think this is not a significant demonstration of market efficiency theory, then you don’t really get that theory, or the point of the experiment. That makes you prey to the investors who will tell you how wonderful their active investment strategy is, especially if it is highly complex (and thus plausible if you are impressed by things of high complexity). By all means continue to be prey to them, they need you for their very existence. They certainly don’t want you to start thinking that its in your best interests if you want to invest in things to just do it by simple rules, infrequently, and cutting out the middle man. Fortunately for them, as with casinos, there are always going to be mugs.

    Comment by Ben Wilson — May 11, 2013 @ 1:32 pm


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

The Rubric Theme. Blog at WordPress.com.

Follow

Get every new post delivered to your Inbox.

Join 351 other followers

%d bloggers like this: