Invest Like Goetz

I know that am destined to burn in the after-life, but there’s probably a special place in heaven saved for those that fuel the eternal flames so needed by the underworld.

Without evil, there would be no good, so you’re welcome.

27 years to the day of the attempted subway robbery heard around the world, one of the 4 assailants took his own life in the squalor of a Bronx motel.

The fact that he didn’t bring his own towels either told you that he wasn’t staying long or that he wasn’t leaving.

I’m from The Bronx, so I know of what I write.

It seems odd not to qualify an earlier paragraph with the word “alleged.” No one was fooled by the claim that the 4 young men were just trying to panhandle from the meek “electronics” expert that day on a New York City subway car.

Bernhard GoetzEveryone knew that they meant to rob the defensless guy just minding his own business on an isolated subway car.

On the day before Christmas, these guys clearly didn’t believe that the meek were going to inherit the earth. And if they were, they were just going to take it away from them.

You may remember 1984. It wasn’t a very good year as far as crime statistics went in New York City. Assaults and violent crime were commonplace and the city was truly at a low point. Even during its fiscal crisis in the 1970’s there was never that feeling of fear to simply go about routine activities.

Like going to work, or going for a walk.Or just riding on the subway.

There’s absolutely no excuse for drawing an analogy between those events 27 years ago, culminating in this weekend’s suicide death of an inveterate criminal and a stock market investing strategy.

The road to hell is paved with people using such analogies for their own personal gain.

Like many others, I was greeted with the news that one of the 4 assailants of Bernhard Goetz, later known as the “Subway Vigilante” had died and had a quick journey back a generation.

As real evidence of a generational gap, neither of my two kids, who have 46 years between them, had ever heard of Bernhard Goetz, but there was a time when he was both reviled and revered.

In fact, you could easily go back and forth yourself with those two opinions on any given day and then do precisley the opposite the next day.

Racist, citizen standing up for his rights, vigilanate?

When confronted by 4 men on a New York City subway, with intent to rob him, Goetz did the completely unexpected. Not only did he pull out an underpowered gun, but he shot and wounded each and every one of the four.

Shades of “grabbed from the headlnes” only in reverse. Goetz recreated the fictional “Death Wish” role played by Charles Bronson a decade earlier and transformed it into real life, only he didn’t disappear into the ether seeking out more evil-doers.

Another decade later and Rudy Giuliani was elected mayor of New York CIty.

Racist, citizen standing up for your rights or vigilante?

Giuliani is widely credited with turning New York City around. His first act was to eliminate what he referred to as “quality of life” crimes, like banishing the homeless guys that would make your windshield even dirtier with their squeegies, in the hopes of getting some spare change.

Truth be told, it was Bernhard Goetz who turned the city around and got its citizens to leave the fear behind and retake the greatest city on earth.

Without Goetz, there would be no Giuliani.

You see, I’m a big fan of “Game Theory“.

You may also know it as  “The Prisoner’s Dilemma”.

I believe in it because I’m cycnical. Most people will only do the right thing if there are consequences to mis-reading the boundaries. It took an irrational act by Bernhard Goetz to get rational behavior to return to its rightful place in society.

The essence of the theory is that the unknown leads you to act prudently and to minimize risk. If you believe that in some way your fate may be determined by the actions of another, who has the same self-interests as you, but doesn’t have your interests at heart. It causes you to think like you’re going to potentially be a victim to a criminal, because he’s equally likely to become a vicitom of a criminal.


Criminologists talk about how the certainty of punishment is the best deterrance. The death penalty, for example is never going to be a deterrent if never carried out.

Empty threats? Worthless.

Threats? Worthless, unless occasionally carried out.

Behavioral psycholgists will also tell you that the best way to effect change is to have a variable reinforcer. Keep the subject on their toes. Never let them figure out a pattern.

With Goetz’s action the rules of the road were changed.

No longer was it a sure thing that a seemingly meek guy riding the subway was going to be a sitting duck. Now there was a channce, maybe small, but still, a bit of uncertainty, that the next guy was going to be packing as well.

All of a sudden, the risk-benefit ratio had changed.

In investiing, it’s all about modifying that risk benefit so that you don’t carry all of the burden.

Invest like Goetz.

To one extreme you may have someone like Raj Rajaratnam. He didn’t want to carry any burden and in that regard, he’s just like how we all should be thinking.

Risk is bad, reward is good.

Again, we can do away with the word “alleged” when discussing Rajaratnam, although I continue to believe that insider trading is a victimless crime.

On the other extreme is the kind of person that does nothing to protect himself and just gives in to the whims of the market as it bounces wildly from subway car to subway car taking whatever it needs to fuel its movement.

But let’s face it. You may be honest and well intentioned, but the next guy, maybe Raj Rajaratnam may not have your interests at heart.

I know. Hard to believe. But even if what he’s doing may or not be criminal and may or not leave victims in its wake, you can become a victim by your own apathy.

To get the best deal, you have to think like a criminal confronted by other criminals also seeking to get the best deal.

But just imagine that while you’re talking to the police officers your doing it submerged in a tank of water. Your sound waves travel at only 550 feet per second in your tank, while your compadre in the other adjoining holding cell has unfettered access to sound travelling at a full 1100 feet per second.

He gets to cut his deal first and you lose, because you were a flounder. Don’t blame high frequency trading for your problems, just do something about it, like not worrying about being whip-sawed.

The point is, don’t trust the next guy and don’t come unarmed to the party, even if it is only a snub-nose. The one on the other side of any stock transaction is a faceless and nameless soul, although more than likely “he’s” a fund.

Although the Supreme Court has ruled that corporations are people, it hasn’t extended that largesse to investment funds, they don’t really have souls.

Instead, take the deal. Use hedges to better define your reward and potential punishment. But, you still can’t screw the other guy, because that’s what greed is all about and it gets in the way of rational thought.

Prisoner’s Dilemma shows that a reasonable person realizes that if his counter-part tries to screw him over, he would be met with the same response.

By virtue of the game, that would result in the worst outcome for both, a lose-lose situation

So instead, the aim is to escape only slightly tarnished, knowing that the chances of escaping unharmed is tiny, while the chances of getting hit with a ton of bricks is great if you try to outsmart the system.

Where the analogy falls short is that in Game Theory you assume that your opponent is a rational thinking entity, with a drive for self-preservation.

That’s why the U.S. and Soviet Union never fired those nuclear warheads at one another.

Enemies or not, they weren’t crazy and were too smart to take a risk that had little assurance of reward.

Nuclear arms in the hands of a terrorist, especially one that believes that a better world awaits if the ultimate sacrifice is made puts us in the realm of the irrational, at least by most rational people’s perspective.

The market is supposed to be rational, but lately it hasn’t necessarily been behaving that way.

When faced with an irrational or unpredictable opponent, you have to abandon the Goetz Princple, and instead have to be proactive. Just assume the worst and you’ll be right.

When faced with the dilemma and you will be, just ask yourself, WWGD?


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