To Use An Analogy....

Posted by Colin Doyle, April 28, 2010

When I was 14 I got my first summer job. I worked as a stock boy in the produce section of a local grocery store. I spent my summer days stocking fruit and vegetables in order to save up for a brand new guitar.

The recent inquiry into Goldman Sach and weather or not they had attempted to defraud investor got me thinking about something that was common practice at my summer job.

I was often asked to take down the cartons of berries and sort out the old/moldy ones, keep the ones that still looked fresh, and marry them with brand new cartons of berries. These cartons were then placed on top of the other fresher ones so that they would sell first. So when customers came in and bought "fresh berries" what they were really getting was some fresh berries and some older berries that hadn't gone bad yet but most assuredly would. Which is why they were marketed as fresh and displayed to sell.

This is what a market does. it creates efficient ways to reduce the risk of loss while seeking to squeeze as much profit as it can out of its products. The berries were arguably all fresh on the date of sale. Once you owned them what you did with them was your business.

This is what Goldman and a host of other Wall St firms did. Much like the sorting and mixing of the berries that were older and guaranteed to go bad, these firms packaged their weaker assets with healthier ones and aggressively sold them before they soured.

While most customers would simply purchase the cartons on top (the dumb money). There were customers (the smart money) who would examine the berries, check to see if the carton had been tampered or mixed. They knew what berries were in season, which were coming into season, and which were going out. They would ask the staff questions. Some even knew what days fresh deliveries would arrive at the store.

These customers never left with the short end of the stick. They evolved as customers to meet the efficiency of the market they shopped in and made the market a better place because of it. Not to mention profited from the taste of the freshest berries.

1. Stop !@#$%& crying and actually learn what a market IS.

2. Stop !@#$%& crying and actually learn how a market WORKS.

3. The next time Goldman Sach is on the phone selling you something don't be flattered... Be scared.