The appeal of Mark Cuban's ShareSleuth, that he is making markets "fair" for the little guys (on the backs of which he extracts his short-selling profit), is in the wonderfully romantic but entirely absurd notion that markets can be made "fair." If you actually give it any thought, in this context "fair" often implies a certain blindness to things like hard work, research, and superior knowledge or expertise gained therefrom. Everyone, "fairness" proponents would argue, should share in the riches. Everyone should share in prosperity. Why should a lucky few enjoy disproportionate gains? Sounds appealing from an asthetic point of view. Really, very democratic, in the French sense, even. Pas vrai? No, not really.
This is the same logic, tied together with an insidious vein of political savvy, that causes people (mostly those facing an election year) to call for taxes on "windfall profits," as if record revenues for oil firms are somehow a gift from the Tooth Fairy rather than a good deal of strategic planning coupled to a sustained program of massive capital expenditure and exploration efforts. Now we have a more dangerous strain of this fairness virus: shared pain.
Abnormal Returns gives me no peace, filing their daily link post in the afternoon hours after I thought I had my news hounding done for the day. Today they point to two Wall Street Journal articles on an emerging trend (subscription required) (which has actually been around a long time) whereby slow to respond investors sue early exiters from a failed (fraudulent?) hedge fund arguing that the early exiters, and I'm not making this up, "should be sharing the pain."
The legal term of art is "restitution for unjust enrichment." The rub, of course, lies in the definition of "unjust."
Some of the allegations include the suspicion that higher profile investors were "tipped off" and allowed to get out early. Absent this, however, letting anyone recover on this kind of a legal theory you'd have to collect every Enron shareholder who sold before the plummet and chase down their assets. So I ask, how far back do you go? Surely, the original investors in Enron, the very first, are more deserving than the bandwagon jumpers. Shouldn't they get a larger bit of the pool? It's only fair, after all. What about more "deserving" shareholders? Widows and orphans! They, certainly, are more deserving. No? Suddenly, "fair" becomes a political status question, not a concept of equality (if it ever was). Are we really saying that we are going to punish the investor who, because she carefully monitors her investments, one day, smelling something sour, catching a nuance in the tone of a manager of the fund on a conference call, decides it's time to lock in gains. We should, I suppose, transfer her gains to the passive investor who jumped on the next "big thing" and failed to pay any attention to the signs? Sure, we sympathize with the second investor, but "fair" is in the eye of the beholder once you make it political.
Dangerous, this line of thinking.
