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An Insider’s Perspective on Insider Trading: “Everyone Doesn’t Belong on Wall Street”

Posted by Larry Doyle on November 26, 2010 8:16 AM |

The Man in the Arena, written by Teddy Roosevelt in 1910, is certainly one of my favorite passages from history.

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

I thought of this passage in light of a communication I received from a regular reader of Sense on Cents. This reader wrote to me in response to my recent commentaries and appearance on CNBC discussing the ongoing insider trading investigation. This individual had a long and distinguished career on Wall Street.

He embodies real character and unbridled integrity. He is exceptionally wise in the ways of ‘the street’ and the world at large. As such, he provides a unique perspective on the industry and the recent insider trading probe and writes,


My bottom line is that I think it folly to have the public think that they are players in the game.  Government steps in and the average guy feels entitled to the kind of positive results that markets ignore It’s just not in the equation. Lost is the fact that pros  always have the advantage and caveat emptor often gets lost in a warm but deadly feeling of government guarantees and implied responsibility.  See Fannie and Freddie. No amount of investigations and prosecution will change the nature of investment which is that the informed will always have the advantage and markets will move in the direction of their actions. [the natural effects of greed and overreach self corrects that informed status on an ongoing basis, so even at the highest level there is a constant turnover of who is and who is not ‘advantaged’]

Everyone doesn’t belong on Wall Street . In the 50’s and 60’s Merrill Lynch and other wire houses expanded rapidly by selling the country on equity ownership and the false notion that everyone could participate in the game .  At certain levels they can, but each participant has to find their own level and the government ought to never imply that they stand behind the outcomes that investors believe they are entitled to. Individuals bear the responsibility of judging their own capabilities, not the government. If one starts there, then the rules governing inside information can be rationally formulated. Instead we have politically charged motivations behind much of the governance designed to protect the small investor. Wrong emphasis. Faulty focus. Not possible. I’d just as soon see as little regulation as possible and as much open information as the market can digest.

Can’t help but share this one aside. I started in the business and was part of the democratization movement that felt every American should be part of the market. But I quickly gravitated to mutual funds. First and foremost there was the 8 percent commission. Funny how that works. But there was also the thought that getting folks not to try and trade the market, but instead place their savings in some part in professionally managed pools was advisable and historically sound. So I lead the office in Boston in mutual fund sales. I don’t regret it. 8% today sounds wicked, but people were better served over the longer term and I think I helped people do the right thing.

But no loads changed the game. “Do it yourself” again came into  fashion and people felt that they were protected by the government in some form or other when they were exposing themselves to risk that many couldn’t afford. Ergo the long bear market of 1966 to 1980.  Those mountain charts in the prospectus didn’t look as good in the 70’s as they did in the 60’s. (but a balanced portfolio of bond funds and stock funds that Ihad sold to a number of clients certainly looked a lot better) I moved to the institutional side mostly because I didn’t believe helping retail guys ‘trade’ was a way I wanted to make my living and that is what the wire houses defined as success. Playing the game with guys who understood risks was what I thought I’d be doing, but it turned out that most institutional types were just retail folks with a lot of other people’s money to play with.

The writer hits upon a lot of very interesting points. As I read and reread his commentary, I find myself agreeing with him pretty much across the board. Has the American public truly become nothing more than pawns in the hands of the inside elite on Wall Street? Have the government and the financial industry jointly propagated a system and a market in which retail investors truly do not belong? Is the industry as a whole nothing more than one large ‘insider trading ring’ in which the primary manipulator is none other than Uncle Sam himself? Hmmmmm…..

Great questions and real wisdom provided by this longstanding industry insider. I thank him.

Navigate accordingly.

Larry Doyle

Comments, color, questions, constructive criticism encouraged and appreciated.

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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