wall street

The Wall Street Shuffle

Timeless Wall Street Wisdom: The Wall Street Shuffle

Wall Street Shuffle
The Wall Street mentality is the art of the possible, where optimism rules the day. While bears may be intellectually correct, they are rarely proven so, and they are never invited to parties.

Wall Street is made up of creative people who can find ways to turn a little money into a lot of money: mathematicians, rocket scientists, astrophysicists, and people who can sell ice cubes to Eskimos.

Youth, ego and arrogance quickly turns wealth into wisdom and experience. Wisdom and experience is transmuted back into gold, cash, and reputation… if you can wait long enough.

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My Uncle Samuel’s Solution to the Moral Hazard Problem

What is moral hazard?

moral hazard definitionLet’s say that you have a gambling problem. You like to bet on football, baseball, basketball, and hockey. Professional, college, or high school — it doesn’t matter. You visit your local casino to bet on cards. You bet on the coin flip at the start of a football game. You will bet on anything.

Now generally people like this will end up in trouble at some point or another if they cannot control their vice. I have seen friends of mine get into this sort of trouble. It isn’t pretty. At some point they hit a losing streak and end up owing a “bookie”, more than they have. At some point after this happens, their debts get called. If the debt is called and you don’t have the money, “something bad” will happen.

However, lucky for you your Uncle Samuel is wealthy. When you get into trouble, you call Uncle Samuel to “bail” you out of this mess. Being a loving uncle, he gives you money to keep you from being the victim of “something bad”. Now maybe this scares you straight and you give up your gambling vice and you never gamble again. More likely than not, this “bail out” will only fuel your appetite for gambling (risk taking). Since you didn’t have to experience the pain of “something bad”, you will feel free to engage in the same destructive behavior as before. This time you might take greater risks with your bets. Why not? Your wealthy Uncle Samuel can come to your aid, and he has a lot more money than you do. So the pattern continues.

As your behavior continues, the pattern repeats itself. As you keep getting bailed out and your appetite for risk increases. This is an example of moral hazard. Moral hazard is a lack of incentive to protect against risks because someone else is bearing the risk for you. The best example of moral hazard is the treatment of large financial institutions in 2008 by the US government and related government entities.

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Timeless Wall Street Wisdom

By: Kirk Chisholm

Wall Street Wisdom

Timeless Wall Street Wisdom

Wall Street is steeped with wisdom by learning from another’s folly. While no one wants to be held out as an example of what not to do, it is inevitable that someone makes the mistake. Human psychology is interesting in that what should be a valuable lesson to the rest of us, is squandered away by attempting to do the same thing over and over again. Fortunately many investors have come to the table before you and me and have left a valuable trail of lessons to learn from.

I am writing a category of blog posts with valuable Timeless Wall Street Wisdom. Anyone who cares to read it will be able to learn something new. These are lessons which I have learned over the years either through my own folly or by observing others… mostly through observing others. There is one certainty on Wall Street: if you think you are the first to make this mistake, you are not. There are no new investing paradigms, there are no new ideas, and when you hear the words, “but this time its different”… you should know that it never is. I hope you enjoy my Wall Street Wisdom…

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