One Value-Investing Strategy One Warning Regarding Complex Financial Statements

Incentives for Most Money Managers are Mis-aligned

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Wall Street's compensation structure encourages money managers to place bets which have a high probability of a small gain and a small probability of disaster. As long as disaster is avoided, shareholders think everything is fine. But when the perfect storm hits, they get wiped out but the money managers don't share equally in the misery, they merely lose their bonuses, or in the worst case their jobs. This is privatization of profits and socialization of risks, and it's a recipe for disaster.

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