Thanks JL,
As someone who has been trading for 12 years, I never know what to say when someone asks me what good I'm doing society. Now I have an answer! I always enjoy and sometimes benefit from your newsletter, but this one may help me more than any other.
A long time subscriber and reader. May all your trades be profitable.
Gary S.
You're welcome Gary – glad to be of service. It hadn't occurred to me until recently what a bad rap honest traders are getting these days. I'm glad to have countered that somewhat.
Dear Justice,
I would add one more service to your list, that traders provide: Capital gains tax. Think about all that tax revenue the government would miss out on, if we were all long term investors.
Jim
That's a good point, Jim. Great traders have the ability to make large, even obscene, amounts of profit – especially relative to their starting capital base. A trader who earns a 60-80% annual return on $100,000 in base capital will enrich Uncle Sam (via taxes) far more than a conservative long-term investor, who might be content to see a 15% return on the same block of funds.
Your comment further reminds me of a morality tale, which goes as follows:
Two friends graduate from college, both with hopes of making the world a better place.
In an effort to "make a difference," the first immediately volunteers himself to all manner of charitable causes. He then takes a job that doesn't pay very much, but has a high "feel good factor," sacrificing his earnings power for the sake of humanity at large. After 20 years, he does not have much to show for his efforts, but he feels morally justified (and perhaps a little self righteous) in the obvious sacrifices he has made.
The second friend winds up going the more materialistic route. He becomes an entrepreneur, deeply involved in building a business. His efforts consume all his time and energy, leaving little or no time to "give back" in the near to medium term. But at the end of a 20-year span, the second friend has a powerful cache of economic resources at his disposal. He can proceed to "give back" on a scale a hundred times or even a thousand times larger than his more idealistic friend.
Which route is better? Which is more moral in terms of "giving back"? Can we really say? Bill Gates spent zero time on charity for most of his career. He spent decades building the most profitable software company in the world instead – a company whose products I am using (Microsoft Office and Windows 7) even as I write to you. Now Gates is using his unparalleled fortune, in concert with his friend Warren Buffett, to try and eradicate disease in the third world.
So, would the world have been a better place if Gates had joined the Peace Corps? A man's use of resources is not for us to judge.
Before I read your article I had a poor image of "traders." After all Enron were energy traders. I thought that all traders did was buy things, hold them and artificially jack up the prices.
After reading your article, maybe they are not totally bad after all.
T.D.
Glad to hear it. Truth be told, there are as many different types of traders as there are fish in the sea – or at least it seems that way.
Trading instruments are wide and varied – from top stocks for 2011 and bonds, to commodities and currencies, to a whole host of other more exotic things. What's more, trader holding periods can vary from fractions of a second to months or even years. (Some trend-following traders stay with positions longer than investors do!)
With all this diversity, it's very hard to define "trader" with just one label or image. And the trader lineage goes back not just decades, but centuries.
Some believe, as I do, that the greatest trader of all time was Jesse Livermore, who was at the top of his game roughly a century ago. Still others would argue the greatest trader is Munehisa Homma, a Japanese rice merchant who wrote the first widely acknowledged book on market psychology in the mid-1700s.
Still others could credibly point to Joseph – the biblical Joseph – as the greatest trader of all time, given his fantastic market call on "seven years of plenty, seven years of lean." When Joseph ordered the granaries filled so that Egypt would not starve, that was a gigantic trade.
I agree with your article 100%. I would also say that successful traders add a moral value to society in that they are generally highly disciplined and have a good grasp on the events and forces that move markets. A free market society is just better off with good traders in my opinion.
Richard
Thanks, Richard. I agree with you – and so does Ayn Rand.
Love her or hate her, Ayn Rand's philosophy of objectivism has a lot to say about the state of the world today. In her book Atlas Shrugged, Rand expresses through her main character, John Galt, a positive view of the trader:
The symbol of all relationships among such men, the moral symbol of respect for human beings, is the trader. We, who live by values, not by loot are traders, both in manner and spirit. A trader is a man who earns what he gets and does not give or take the undeserved. A trader does not ask to be paid for his failures, nor does he ask to be loved for his flaws.
– Atlas Shrugged, "This is John Galt Speaking" (Chapter VII)
For Ayn Rand, the noble thing about traders is their willingness to live by their wits – to feast or famine on merit alone, rather than relying on handouts or sympathies or coercion.
In this, top traders and top athletes have something in common. There is a certain competitiveness, a willingness to rise or fall on results alone, that speaks to the human spirit.
One idea that has occurred to me which would help stabilize the market would be a minimum holding time for shares. i.e. You cannot sell within a month of the purchase date. This would help curb a lot of speculation and market manipulation.
Mike S.
Why only a month? Why not make the holding period six months, or even a year? If longer is better, why not two years? This is sarcasm, of course. The problem with restricting freedom of movement is that you often do more harm than good, and infringe on basic liberties to boot.
Were such restrictions to be placed on holding periods, the markets would become far less liquid. This would make the market more volatile, not less. Such "lock-ups" would make investing a far more risky proposition. And they probably wouldn't help curb corruption or manipulation either. The cheaters are going to find ways to cheat no matter what you do. How does that anti-gun control saying go: "If guns are criminalized, only criminals will have guns."
Traders who deliberately manipulate the markets or companies so that they can realize returns far above the usual levels are stealing from the system even if they are not violating any laws.
Often, the manipulators leave behind a wreck. The value of a business or company to which the majority of investors entrusted their money is gone. Theft is theft.
"Traders" get by because they are sliding through the cracks of the greater parts and values of society. So did the riverboat gamblers of another era. Most of the population knows that what was done was wrong and that it either was kept under the table or was orchestrated to not put the perpetrators at odds with the letter of the law. It is still morally and ethically a long way on the wrong side of the line.
It is not, of course, a line. It is a gray area between purity and evil. Some traders are so much into the almost white that they do harm to themselves, others are pretending to not be really black.
I think almost all of the text of your article only obfuscated the issue. Trying to force all participants to wear one title, be it "parasite" or "enabler of business and commerce" is wrong. More obfuscation.
Dusty
Well, Dusty, here is the thing. You are not actually talking about trading in your critique. You are talking about stealing. And you deeply confuse the two.
"Traders who deliberately manipulate the markets," as you put it, are like Olympic athletes who take performance-enhancing drugs. They are a disgrace to their profession and their calling. To paint all traders with the same ugly brush is little different than suggesting all Olympic athletes are cheats.
There is nothing morally wrong with buying and selling in pursuit of a profit, as long as such activity is engaged in legally, on a fair playing field. Trading, in and of itself, is not an immoral activity, any more than competitive athletics could be considered an immoral activity.
The problem, of course, is that the bad apples tend to get most of the press. We don't read glaring newspaper headlines about Major League Baseball players who perform naturally. We read headlines about the cheaters, the steroid users, the ones who bring down the sport stocks in 2011.
It's the same with rogue traders. The cheats, the inside traders, the manipulators, grab all the headlines. The traders who perform honestly and well, making millions of dollars through legitimate means, year in and year out, almost never show up in the financial press. (And they are by and large very happy about this.)
The "bad apple" problem is one reason Taipan Daily has spilled a lot of ink in the past on the moral outrage of cheaters in the system. We must remember that there is a vast gulf of difference between free market capitalism and crony capitalism… between legitimate business activities and dirty dealing. Certain investment banking houses did deliberately "cheat" in their so-called "trading" activities… these shady players manipulated the system, taking advantage of political connections to bilk taxpayers for billions of ill-gotten gains.
Again, that is not trading. It is stealing. There is a world of difference.
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