Archive for August 15th, 2008

Cheating and gamesmanship (The Financial Athlete #42)

August 15, 2008

In the 2008 Olympics at Beijing, China’s women’s gymnastics team performed the best and took the gold. Yet, the victory was tainted. Some of these girls are believed to have actually competed as young as 13, which violates the rule that gymnasts must be at least 16-years-old within the Olympic year. This rule was instituted to protect the health and welfare of children.

By the looks of these little girls and earlier reports on their actual ages, China is being accused of falsifying their birth documents. To the chagrin of the accusers, China is likely to get away with it.

A cheater deceives for the sake of winning or gain. They are everywhere…on Main Street and Wall Street. Although the vast majority of stock trades are legitimate on Wall Street, much illegal insider trading and naked shorting (selling shares that don’t exist) goes unpunished. Oftentimes, illegal trades cannot be prosecuted because of the loophole of offshore accounts executing the trades. (The SEC has no jurisdiction over offshore accounts.)

Less severe than cheating is gamesmanship defined by Merriam Webster as 1: the art or practice of winning games by questionable expedients without actually violating the rules; 2: the use of ethically dubious methods to gain an objective.

The object of gamesmanship in sports is to disturb the opponent mentally or break his flow such as by taunting and delay tactics. Its intent is to manipulate. Like it or not, gamesmanship is a part of competitive sports. It’s also very much a part of the stock market, whereby others try to influence you to buy or sell for their benefit, not yours. Athletes and investors should train themselves to be impervious to these tactics.
“Book smarts” can get you far in school, but it could give you a false sense of security with investing. To protect yourself against manipulators and cheaters, you need “street smarts,” which cannot learned by reading books. Best I can do to guide you is to advise: Never put blind faith on anyone, no matter how sincere, competent, or professional he seems. Always remain skeptical about people and numbers. Financial reports can be a work of fiction. Things often are not what they appear to be. To be safe limit a position to no more than 20% of your portfolio, and that aggressive 20% allocation would only be for something you feel extremely bullish about based on extensive due diligence and earned trust.