Greed is one of the main drivers for our equity markets. The greed for more money. I’ll have a look at a few examples of greed from the simplest – a case that we can all hopefully relate to, to something that may apply to some of us (Forex traders and stock traders) and an example at a professional level.
Greed at the Most Basic Level
Imagine you are a child again, and you are playing with a group of friends. You are host to a playgroup and your Mum comes along with a plateful of treats – all the kids gather round and grab at the sweets. Your Mum had brought enough to be equally shared among your friends, but you manage to grab more than everyone else. “Share your treats,” your Mum tells you. “But Mum…” Greed at the most basic level…
Greed is Your Worst Enemy
You are now an established and successful Forex or stock trader. You are holding a profitable position. You can sell at any moment and you would be sitting on a substantial trading profit. You have a take profit price in mind. You are simply watching the screen waiting for the price to tick your way a few more pips or cents. You know you are pushing it, as technically you have set your take profit at the top – virtually picking up a top (And as we all wise traders know that picking tops and bottoms are an impossibility) Take profit is at $20.00 or 1.200 (for stock and Forex traders respectively. The current price is $19.90 and 1.190 respectively. Suddenly, the price falls and you are back to break even. Greed is your worst enemy.
Finally we come to a professional example of greed. These come in the form of professionals misusing their places of trust, breaking company systems and procedures for their own gain. We are talking about the likes of William Adler of HIH fame (Australian example) and Prudential Financial (US example).
In the US example, the investigations have been going for three years as part of a crackdown into market-timing abuses in mutual funds. So far, 16 firms have reached settlements totaling $4 billion. Among those include the Janus fund, Prudential Financial and the $9.3 trillion dollar fund Eliot Spitzer. These market-timing transactions are prohibited trades in and out of mutual funds. These excessive and illegal trades can benefit hedge-find clients but can harm long-term investors as they increase the mutual funds’ operating costs.These professional traders broke the rules. Why? It all boils down to greed.