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Comment by bokonist | Hacker News Reader

Ten years ago, if you invested with a balanced portfolio ( 40% CD's, 40% index funds, and 20% real estate trusts) you not only would have failed to make money, you would have actually lost money in real terms. Meanwhile, the financial sector comprised 50% of all corporate profits. The bonuses were not rewarding managers for investing prudently, the entire sector was making money off of legalized theft.

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Would have? It's did in my case. But you're picking the ten year period that supports your argument. What matters is whether you're right for most ten year stretches, and I'm pretty sure you're not.

It's not that uncommon for a particular asset class to lose money for a decade. But a basket comprising the safest investments from the major asset classes should never lose money over a 10 year period. Nor should CD's lose money over a 10 year period. If they do, it's a sign the financial system has serious problems. And if the average investor is losing money, while those running the show ( Wall St., the Ivy League endowments, Robert Rubin, Rahm Emmanuel ) are making more than ever, it's a sign the financial system is not only fubarred, but down right corrupt.

The underlying issue is the dilution rate of the dollar. From 1998 to 2008 the money supply was diluting at ~10% a year. With the money supply growing that fast, and CD's are paying only ~3% a year, holding anything other than dollars seems like a good idea. So people speculate in stocks, gold, oil, real estate - anything that dilutes at a lower rate than dollars. But most people aren't good at speculating, so they lose money.

No government running a sound money system should be diluting at 10% a year. It's simply inexcusable.

We're discussing the conduct of money managers over the last few years, not the stock market in general. What matters for that purpose is not whether he's right for most ten-year stretches; it's whether he would be right for most stretches in which money managers played martingale games as widely as they have in the last few. (If you limit it to ten-year stretches, you can game the metric by adjusting the frequency of the negative outcome to once per century.)

Since the expectation (integral of probability density times outcome) of such games can be net-negative, he might be. It depends on how prevalent those games are.

There's another angle, too. What matters for the economy as a whole is not one player's expected outcome, but the sum of the expected outcomes over all the players.

It would be hard to find a 10-year stretch post Great Depression with less regulation on banks. Here's a video that was on CSPAN of the former CEO of Wells Fargo, with a detailed breakdown of every regulation that was lifted since he started (with Citigroup, if I remember from when I saw this on TV) in the 70's:

http://fora.tv/2008/10/21/Richard_Kovacevich_Evolution_of_th...

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