Risk - zero sum game?

"The risks that banks would have taken on under the old system, when banks made loans and profited only as they were paid back, had been transferred through a bewildering wilderness of options, swaps, swaptions, specialized investment vehicles, collateralized debt obligations, variable interest entities and who-knows-how-many other instruments.

And when the whole daisy chain was through, a lot of the risk seems to have ended just where it used to end. The banks had it." - IHT, 25/10/07


Investors should never touch derivatives and exotics if they do not understand what they are doing; similiar to the way Warren Buffet steers away from tech stocks. What you do not understand will hurt you. If a bank is transferring their risk to another party and locking in their returns , the other party must make a loss. And if the bank system, as a whole, are riding out a storm and are not making that much losses, the losses are then on investors. USD$7 trillion had been wiped out so far people. How much of the losses are contributed by you?

Tech stocks boom are back; backed by senseless and frantic bidding for internet companies. It is crazy to see young faces suddenly enriched by their technology startups so soon again. Microsoft just bought a 1.6% stake in Facebook for USD$240m. That's a valuation of USD$15b on Facebook; something that generates US$150m in revenue last year. Firstly, that's revenue for you and not profit. Secondly, that will mean over a decade before breakeven. Thirdly, we know nothing in technology can last that long. Look at where is icq and yahoo messenger now. They have went the way Encarta encyclopedias had went - replaced by better and more efficient products embraced by the public. New products that appear on the internet almost everyday.

Just back from a product awareness talk conducted by CS. A fund that has a 60% ytd performanace? Keep talking. There are products out there that don't enrich the pockets of those who thrive on zero sum games.