These are the many questions requiring answers in investment – Business Daily
PHOTO | SHUTTERSTOCK
Jasakiss released “Why”, the single to his sophomore album, Kiss of Death, 18 years ago and he asked some pretty important questions. Some of them are still relevant to this day.
Questions like why rappers lie in 85 percent of their rhymes, why is the industry designed to keep the artist in debt, why Denzel had to be crooked before he took it (Oscar) have been left unanswered for too long. Today’s article borrows the same concept and explores some unanswered questions in the world of finance. Here we go.
Why is the concept of “Chinese wall” – the imaginary barrier blocking the sharing of information among departments when an ethical issue could result – only good on paper?
Why do we have self-regulating organisations (SROs) such as NEXT, yet none of the players would be willing to trust a self-regulating pharmacy to buy drugs from or even bank with a self-regulating financial institution? Why do we imagine that finance industry SROs are more public-spirited?
Why are government securities sold as risk-free yet have a history of defaults? Why is the “safe haven” idea not seen as a self-fulfilling prophecy? Why did Warren Buffett demonise credit default swaps as financial weapons of mass destruction yet used them to hedge against municipal bonds losses?
Why do we still believe in the “successful day-trader” myth when about 90 percent of day-traders lose their money? Why do we pay investment management fees yet 95 percent of investment managers underperform the market consistently? Why do Africa-focussed venture funds still chase after the “white man in a hoodie”?
Why allow 400:1 leverage ratios for margined products but refuse to accept that’s “gamifying” the markets? Why are investors vilified when they try to influence the markets but when central banks do the same, it is called “intervention”?
Why is the reflexivity theory still not widely accepted? Why haven’t the numerous failed sightings of the “invisible hand of the market” not relegated the concept to the dustbin of the finance world? Why do fund managers spend time on research only to think in herds?
Why are some free-market economies still crying for freedom? Why did the International Monetary Fund (IMF) encourage developing countries to reduce government spending and deficits, to allow insolvent banks and financial institutions to fail, and aggressively raise interest rates during the 1998 economic crisis (advise that led to collapse of many local businesses and massive unemployment – at some point, “retrenchment” became a buzzword in Kenya), but advised the opposite when developed countries faced recession in 2008 (insisting some financial institutions were “too big too fail” even bailed out some and supported expansionary policies, such as lowering interest rates, increasing government spending and cutting taxes)?
Why does “hot money” flee at the first sign of trouble? Why haven’t the fathers of the Washington Consensus admitted to their policy failures? Why do cryptocurrencies, built on decentralised platforms, trade via centralised exchange platforms?
Why is puff-daddy still dancing in his artists’ videos? Why is mumble-rapping considered an artform? And why is Johnny Mathis still hot? I think he’s the best tenor in Soul and RnB.
The writer is the MD, Canaan Capital
