Why do we care about the Dow? We don't really. Only a fool would buy the Dow at today's levels. Still, there's a fool on every corner…and they're fun to watch.
Buying the Dow is a gamble on an entire asset class - large-cap stocks. Whether they will go up or down, we don't know. But if we feel like gambling, we'll go to a casino. There, at least, we'll get drinks and pretty girls to look at too.
Investing in a particular stock is a different matter altogether. You can always find one or two decent stocks - even in an over-priced market. If you do your homework - the way Warren Buffett does, for instance - you'll be making an investment. We leave it to others do that kind of heavy lifting. Here at The Daily Reckoning, we just point and laugh.
We laughed at the dotcom buyers in the frenzy of the late '90s. Then, we laughed at the subprime buyers in the 2001-2006 house price bubble. We still laugh at anyone who 'invests' in a hedge fund. And we love laughing most at the 'sophisticated' institutions - including many hedge funds - that put money into derivative contracts composed of subprime mortgages. Investors in these funds must have had enough willing suspension of disbelief to hold up a bridge. They thought that, by some mysterious transubstantiation never explained, loans to people who couldn't pay them off could be sliced and diced and turned into Triple A credits. What's more, they were willing to give up 2% of their principal and 20% of their gains to the fellows who offered to let them in on the deal!
Ha…ha…ha…
But you've got to hand it to the Goldman crowd. They gave investors what they wanted - good and hard. They securitized these dicey mortgages…sold them to their customers…and then, in order to protect themselves from the inevitable losses…sold them short!
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