Monday, November 7, 2011

Cautionary Tale

Anyone who reads this blog knows that I don't believe that anyone can consistently outguess financial markets in a profitable way.  Now we have another example of apparently very smart people making bets on which way markets will go and failing miserably.

Last week, MF Global declared bankruptcy and quite possibly broke the law.  I have to admit that until the story hit the news a few weeks ago, I knew very little about MF Global.  Here's a bit about the company from their web site:  

MF Global’s well-regarded research and analysis franchise produces a wide range of actionable insights—from equity research and policy-focused analysis of U.S. legislative and regulatory topics, to commentary on macroeconomic trends and issues driving markets.

Sounds pretty impressive, particularly when considering that the firm's CEO was Jon Corzine, ex-CEO of Goldman Sachs, ex-US Senator, ex-Governor of New Jersey.

How can a company like that end of bankrupt?  The simple answer is that they made a big bet on European sovereign debt that went wrong.  Here's a more detailed explanation.

It doesn't matter how smart or experienced you are, placing bets on future market movements is a losers game.