The Real Vampire Squid On The Face Of Humanity
Matt Taibbi’s article on Goldman Sachs has now achieved legendary status for the term he coined in this sentence:
“The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
The entertaining article was a little short on facts, but who cares, after all, in an age where blogging dominates, no one cares about accuracy anymore. What really matters is shock value, and no one should be surprised that this article appeared in a mainstream media publication, as they are desperate to find a way out of its slow death.
I digress, though, as I am not writing this post to argue against the points that the author made. What I am writing about is to tell everyone that the real “vampire squid wrapped around the face of humanity” is not Goldman Sachs but in reality is the “momentum” investor.
When I worked on a trading desk at Morgan Stanley, we had a more colorful name for them. We called them “fast money scum,” and we meant it.
The ethos of the momentum investor is simple in concept. Buy what’s going up. If it keeps going up, buy more. When momentum breaks, get out. Everyone knows who these investors are. When a stock you own is down 20% after it misses earnings by a millionth of a cent – that’s them.
The momentum investor has enabled all three bubbles in the last ten years – Technology/Internet, Real Estate/Homebuilding and Commodities. They do this by pushing stocks up far above what they should be trading for on a fundamental basis.
It wouldn’t be so bad if these investors were honest about what they do, but they are not. They usually manufacture or hide behind some fundamental story about whatever sector is bubbling up, usually in league with sell side enablers, who are enamored of the trading commissions they generate.
Even worse, the financial media – CNBC and Bloomberg TV – orient programming toward this group, by amplifying short term trends, rather than discouraging it.
This infects the entire market as institutional investors, most of whom are trained as fundamental investors, are forced to jump on the bandwagon, lest they be left behind in the relative performance game.
Momentum investors have cost ordinary investors trillions in wealth over the last decade, as many small investors buy into these fundamental stories and then don’t realize when momentum breaks and the plug is pulled.
Any new regulatory initiatives out of the Obama Administration should be oriented toward controlling or destroying these investors.
Short URL: http://man-over-board.com/?p=475
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on Jul 27 2009 Filed under 
