Inherent Underlying Motives in Finance

Let’s spend some time discussing inherent underlying motives in the financial industry. As I implied in the last post, this cannot be stressed enough.

I have addressed the topic many times throughout this blog. One that comes to mind is here. I discussed “Karen the Supertrader” here and here. I’ve touched on related subjects here, here, and here.

Let’s go back to the fifth paragraph of my last post:

      > We can read articles, blog posts, watch CNBC interviews by “industry insiders,”
      > and potentially talk to industry representatives ourselves [e.g. IARs, quants
      > we meet at dinner parties, or principals of financial firms that we casually
      > encounter (how?)], but most of these people cannot escape inherent conflicts
      > of interest. We are left to choose whether or not to believe

An inherent conflict of interest exists when someone has something to sell. IARs may sell us on their firms. Quants may solicit investment in their funds, subscription to their services, or purchase of black box systems. Principals may become our paid money managers. The more practiced, knowledgeable, experienced, and successful they seem, the more likely they are to profit from us. Even if we are not the target clients, they may profit if we refer them to someone who is (i.e. networking).

It’s always possible that a conflict of interest renders someone unbelievable because it provides motive to deceive for [direct or indirect] personal gain.

As a deep refresher, recall this post. Everything financial that we read, we see, and we hear must be critically evaluated. If we don’t work hard to avoid chicanery, then hard-earned capital has a good chance of landing in someone else’s pocket to our own detriment. This is not a certainty, but it happens far too often to demand anything less than our closest attention. It takes just one lapse of judgment to suffer losses and permanent impairment to our ability to ever trust a financial professional again. If we have the drive and time to learn for ourselves then problem solved! Otherwise, we may be in a bind if deep-seated distrust prevents us from ever again going forth to access valuable services provided by ethical financial professionals.

      > (and to what extent). While I do believe select individuals have a bead on
      > the truth, that’s not me and I’m not afraid to admit that to myself or to you.

If I worked for a financial firm then I may have direct knowledge of how firm assets were managed. That may be typical of other firms. If typical, then I could truly be said to know these things (and if not then I may be unknowingly misinformed). I have only traded personal capital to date. With no bona fide industry experience, I won’t pretend to know smart money financial truths about how (or if) the industry manages assets successfully. Most people, like me, have no experience working in the financial industry. Lots of people have spoken to people with conflicts of interest who are disqualified as objective sources of information.

If you are one with industry experience, then you can believe yourself. Because we may not be able to take credibility much farther than that, it is essential that we conduct due diligence with the awareness of what we cannot possibly know (regardless of how much it may seem to the contrary).