New York University said it lost $US24 million in funds managed by Madoff, according to a lawsuit against fund manager J. Ezra Merkin. The university alleges Mr Merkin invested its money without telling investors or performing proper due diligence.
Why should stock exchange members deal with Bernie Madoff instead of with each other? Simple. It’s often cheaper to execute the customer’s order through Madoff than on the floor of an exchange.
Americans are understandably shaken by the turn of events. Many are afraid to look at their statements until they learn from osmosis that things have gotten better. Or, they’re tempted to put everything in cash and ride out the storm. While it can be traumatic to see your 401(k) plummet, this isn’t the time to hide your head in the sand. This is the time to actively position your 401(k) for the future.
If it weren’t for the shadow cast by Madoff’s gigantic con, the story of Marc Dreier’s chutzpah would be provoking the sort of dumbstruck amazement that Madoff’s tale now elicits.
The arrest of Bernard Madoff, the financier who allegedly ran a $50 billion Ponzi scheme, could mark the end of the hedge fund industry as investors know it.
The Madoff brothers were boys from the Outer Boroughs who made the big time. I liked their street smarts and their charm. Bernie was the elder statesman and Peter was the young visionary. They were generous with their time, whether it was explaining the intricacies of market structure to a fledgling reporter or striving to improve the competitiveness of the NASDAQ Stock Market.
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Chapter 1 The Purpose and Structure of Financial Markets
1.1 OVERVIEW
Financial markets play a major role in allocating wealth and excess savings to productive ventures in the global economy. This extremely desirable process takes on various forms. Commercial banks solicit depositors’ funds in order to lend them out to businesses that invest in manufacturing and services or to home buyers who finance new construction or redevelopment. Investment banks bring to market offerings of equity and debt from newly formed or expanding corporations. Governments issue short- and long-term bonds to finance construction of new roads, schools, and transportation networks. Investors-bank depositors and securities buyers-supply their funds in order to shift their consumption into the future by earning interest, dividends, and capital gains.
Introduction
You’ve seen the headlines in the financial press. You’ve heard the rumors about mythical investment funds that make money no matter what happens in the market. And you want a part of that action.
I have to be upfront: Hedge funds aren’t newfangled mutual funds, and they aren’t for everyone. They’re private partnerships that pursue high finance. If you don’t mind a little risk, you can net some high returns for your portfolio. However, you have to meet strict limits put in place by the Securities and Exchange Commission - namely that you have a net worth of at least $1 million or an annual income of $200,000 ($300,000 with a spouse). Most hedge-fund investors are institutions, like pensions, foundations, and endowments; if you work for an institution, you definitely need to know about hedge funds. I also have to let you in on a little secret: Not all hedge fund mangers are performing financial alchemy. Many of the techniques they use are available to any investor who wants to increase return relative to the amount of risk taken.
Chapter 1 Does Warren Buffett Trade?
My favorite holding period is forever. - Warren Buffett
First, I have to apologize in advance. This book barely mentions Coca-Cola or the Washington Post. I also don’t really talk about the many fine companies that Berkshire Hathaway has bought over the past three decades (See’s Candies, the Pampered Chef, Dairy Queen, National Furniture Mart, and others). There are many excellent books that cover these topics. And while Warren Buffett has made billions of dollars from these investments, I don’t think I can add to the already great dialogue that has taken place on these topics.
Nor is this book really about value investing. There are many definitions of value investing and many treatises on value versus growth. But even Buffett has stated that on the whole, the distinctions between value and growth are nonsense. This book is about the various ways that Buffett has applied the concept of “margin of safety” outside of his buy-and-hold strategies. He has had a longer and more diverse investment career than just about anybody. There are several people in the world (fewer than ten, actually) who have had more years’ experience than Buffett at picking stocks, but I can think of no one who has traded and invested with a more diverse group of strategies over the past fifty years. It is these strategies that I write about. Many of them are normally thought of as “trading” strategies instead of the buy-and-hold investing for which Buffett is famous.