Hard to imagine with financial markets still buoyant and newspapers full of tales of bonus greed, but there is still the possibility that captialism will end.  At least there is according to prestigious investment consultants Watson Wyatt in their latest study called "Extreme Risks".

The firm listed the demise of the system of private ownership as one of 15 threats to investors and the global economy that probably won't happen but which it reckons are worth worrying about anyway. The idea behind the report is that such things as climate change, the break up of the euro zone and war are always worth being included in an investment risk management process.

As for the future of capitalism:

In our view, the most likely scenario is moving along from one end of a spectrum where market is king (minimum regulation) towards the other end, where we could see more onerous regulations and government intervention in, and control of, the economy. The extreme risk, however, is the demise of the capitalist system and the end of the market as the primary means of resource allocation.

And the impact:

The economy would be likely to run a higher risk of failure and economic growth would be sluggish in the long run due to lower productivity.  Centrally controlled economies tend to be characterised by shortages, which are inherently inflationary. Private investment activities would collapse or even be terminated. The end of capitalism is simply the ultimate extreme risk. The economy is likely to be associated with extreme uncertainty and a large amount of wealth destruction during the transition period.

Watson Wyatt does try to give its free market clients some hope, suggesting that buying gold may be one way to hedge against the propect of capitalism's demise. But it admitted that in such a circumstance investors would probably be more concerned about the return of their investments rather that the return on them.

(Illustration called The Communist Party, from Threadless)

-Kully Samra is branch director at Charles Schwab, UK. The opinions expressed are his own.-

The economic crisis that has prevailed over the global markets in the last 12 months has undoubtedly rattled investors worldwide, but rather than leaving their heads in the sand, seasoned investors have continued to search for opportunities amidst the instability.

One such opportunity that seems to have been overlooked by UK investors is that of overseas share ownership.

Whilst I have no doubt that there are viable investment opportunities in other markets, I do believe that the U.S. market provides a whole wealth of opportunities for the UK investor, especially those looking to diversify their portfolios. 

Whilst this belief stems from our experience of the U.S. markets it was recently supported by the findings of our latest survey which looked at the investing habits of active UK retail investors; specifically in relation to their views on overseas investments.

Our independent survey of more than 1400 British-based active retail investors found that 44 percent believed that the U.S. economy and financial markets would recover sooner than those of the UK, with only 28 percent believing that the UK will recover ahead of the U.S. 

We also found that investors expect the U.S. to lead recovery more generally, with 39 percent of respondents believing the U.S. will take more than 12 months to come out of recession, compared to 50 percent for the UK.

We agree with this assessment of recovery and believe that with the Dow and S&P posting their best quarterly results in Q3 since 1998, the U.S. economy is showing some signs of improvement and recovery is starting to get underway.  We are not however unrealistic and expect a few bumps along the way. 

It would not be surprising to see occasional selling surges in the market, though we believe that the dips are likely entice investors who are still on the sidelines back into the market.  This should help to keep any pullback relatively limited.  We also believe that the third quarter will post positive GDP growth that will continue into the fourth quarter.  With growth returning both in the U.S. and around the world, we remain optimistic on the near-term future of the market.

The Land of (Missed) Opportunity

Despite this positive assessment of the opportunities that the U.S. market holds for investors, the sentiment of missed opportunity that I discussed previously is echoed in our survey.  Only 17 percent of respondents who believed that the U.S. would be the first to recover actually invest in U.S. stocks. 

This naturally poses the question of why this is.  Our research shows that the main reason investors do not automatically turn towards the U.S. market, despite their belief in a quicker recovery than the UK, is not because UK investors prefer to invest in British companies (only 15 percent of respondents stated this reason) or because they perceive any barriers to entry (a small 2 percent of respondents cited this factor), but because they do not feel they know enough about the U.S. market (41 percent).

In terms of investment behaviour, the U.S. stock market is largely unexplored and under penetrated by UK investors, especially given our survey participants’ expectations of a speedier recovery in the U.S.  In addition, Dollar weakness should make U.S. companies relatively more attractive to foreign purchases.

Amidst the turmoil prevalent in the global financial markets in the last 12 months, a diversified portfolio is ever-more crucial, and the U.S. is one area where investors could definitely benefit from increasing their exposure.

By Lynnley Browning
(Lynnley Browning is a guest columnist. The views expressed are her own. She is a frequent contributor to the business pages of The New York Times and is a former Moscow-based correspondent for Reuters, where she covered energy and commodities.)

Some have argued that the victims of Bernie Madoff's enormous fraud should simply take their lumps for having trusted their money to the greatest con artist in history.

The victims, not surprisingly, disagree. More important, many of them are organizing in a way that could change the way investors are treated in the future. As the Obama administration pushes to add greater protections and even a new agency for investors, the Madoff victims stand to make an impact that goes beyond simply being objects of pity.

Two groups of Madoff investors, the Madoff Survivors Group and www.madoff-help.com, are trying to persuade Congress to overhaul the rules that limit the ability of investors to try to recoup their losses.

The Madoff groups want the Internal Revenue Service to extend the time that investors can reclaim taxes paid on fictitious Madoff earnings beyond the current limit of five years. They are also backing legislation in Congress that would create tax breaks for phantom profits and extend carry-back losses to 10 years.

And the Madoff victims are pressing for changes at the Securities Investor Protection Corporation, the government chartered insurance agency that is funded by the securities industry and whose mission is to protect and reimburse investors.

SIPC has infuriated many victims by saying it will only reimburse, up to the $500,000 limit, those who invested directly with Madoff, instead of those who went through feeder funds like the Fairfield Greenwich Group.

It has also angered some victims by using a new definition of "net equity" that largely limits recoveries to how much money the victims initially put into Madoff's scheme, minus what they took out -- not how much money Madoff said they had on their balance statements.

The government, says Sherry Morse, a victim, "is disenfranchising a whole class of investors." Ronnie Sue Ambrosino, coordinator of the BernardMadoffVictims.org Coalition, argues that the SIPC is not doing what the SEC authorizes it to do: to borrow money, by issuing bonds or other notes, to repay swindled investors. Mary Schapiro, the SEC chairman has said that SIPC lacked the money needed to repay all the Madoff victims.

Lawrence Velvel, the dean of the Massachusetts School of Law and himself a victim, contends that the government should issue bonds that would reimburse victims for their losses. The bonds would be bought by the securities industry, which would pay the interest and principal to the victims.

"Industry will end up financing the payment to the victims, because the whole meltdown is because of the industry," he says.

The battle pitting early investors in Madoff, who withdrew gains over the years, against later investors, who typically lost more and paid taxes on phantom profits, is a wedge that could blunt the coordination of all the efforts.

But it's not an intractable division, said Frank Partnoy, a professor of law and finance at the University of San Diego, who says that the victims' demands dovetail with those voiced in recent years by activist shareholders.

Arthur Levitt, a former SEC commissioner who is now co-chairman of the Investors' Working Group, a new, independent task force aimed at protecting investors, says the Madoff victims' efforts mark "the empowerment of the investor community as a political force."

In recent weeks, the Madoff Survivors Group has formulated what its main spokeswoman, Ilene Kent, calls the "adopt-a-congressman" strategy, aimed at helping compelling victims to court key members of Congress.

The Madoff groups are considering a fund-raising effort among survivors who were not wiped clean to bankroll the estimated $1.5 million needed to hire a Washington lobbyist.

The Madoff victims' efforts represent a potential turning point in the crusades of activist investors because of the resources they can muster -- many of the victims are still wealthy even after being defrauded -- and because the scandal is a rare instance of late where the wealthy, largely because they are individuals and not abstract banks or insurers, are seen sympathetically.

On this drive for new protections for investors, Morse says, "we're the canary in the coal mine."

– Margaret Doyle is a Reuters columnist. The views expressed are her own –

One of the challenges for bond investors over the coming years is how to deal with the enormous ballooning of government debt that is happening as a result of the credit crisis.

Traditionally, investors allocate funds between asset classes and require managers to manage to a benchmark. However, most indexes are based on market capitalisation: the securities with the biggest value in aggregate have the largest share of the index.

This is less than ideal in equity markets, where indexing can lead to herding by forcing investors to buy overvalued shares. But it is particularly perverse for bond investors. The countries with the largest weightings in the indices are those that have issued the most debt.

At present those are the countries with the most colossal deficits to finance. So, traditional index-tracking bond funds are being obliged to allocate more money to precisely those countries whose creditworthiness is decreasing fastest.

PIMCO, the world’s biggest bond investment manager, has come up with a new index — the Global Advantage Bond Index (”Gladi”) — that tries to get around this problem.

Gladi, which is being administered by Markit, a global index provider, is weighted by national income rather than by historic debt issuance. When initially launched, after 2 years of research, earlier this year, it was pitched as a way of “building in a tilt toward these countries that are developing rapidly but their capital markets and market capitalization haven’t caught up yet.”

However, now it is being marketed as a way for pension fund trustees and other investment managers to avoid increasing their exposure to the debt of countries like the United States and the UK, which are planning to issue trillions of dollars worth of bonds over the next few years to pay for their bank bailouts and to stimulate the economy.

Indeed, PIMCO reports that some clients want to avoid government bonds — which account for around 50 percent of traditional bond indexes (the remainder is roughly split 50/50 between corporate bonds and various mortgage-backed securities), altogether.

In the past, governments have found cunning ways of increasing demand for their bonds, whether patriotism, to flog war bonds, or requiring insurers to hold more “safe” gilts as a hedge against long-term liabilities. Now regulators are going to require banks to hold more capital, and more of it in the form of liquid instruments, i.e., government bonds.

However, they will also need to persuade non-bank investors to buy their bonds if the interest burden is not to spiral out of control. And unfortunately for the deficit-hit governments, investors seem to have seen them coming.

(Editing by David Evans)

— Margaret Doyle is a Reuters columnist. The opinions expressed are her own –

Three months is a long time in the markets, and particularly for banks. Alongside the rally in bank shares, investors have also bid up bank bonds, especially so-called tier 1 bonds which rank just above the equity in the list of creditors.

In some cases, the prices these bonds have tripled and, overall, yields to perpetuity have halved across the sector, according to Morgan Stanley.

This rally has now overshot and the risks are on the downside. Despite being labelled debt, tier 1 is pretty much like equity: issuers can stop paying coupons, the coupons do not always accumulate if missed and the issuer can choose not to “call” (redeem) them at the call date.

So the additional protection they offer over bank equity is not great. This is why prices crashed last autumn along with those of bank equity.

Over the past couple of months, confidence has returned as governments across Europe have recapitalised their banks, removing the risk of a systemic failure.

The ensuing confidence has enticed private banking clients — who are missing the income traditionally provided by dividends and bank interest — into this market.

Moreover, banks have themselves been buying back their own debt, trying to lock in the “profit” that many have booked on the write-down in the value of their debt.

Institutional investors have committed much of their substantial cash holdings to this market too. These factors have driven up prices.

However, the juicy yield that has enticed recent buyers may simply disappear: issuers could simply pass the coupon.

This is what has happened with Bradford & Bingley, a failed British bank whose loan book is being run down by the British government. Last week’s announcement failed to damage other bonds, suggesting that investors see B&B as a special case.

This assumption may prove too optimistic. Most banks are short of cash and will be tempted not to pay their tier 1 coupons if they do not have to.

This is especially true of state-owned banks, like RBS and Lloyds, and Ireland’s AIB and Bank of Ireland that are not paying dividends.

Their state paymasters may consider “optional” coupons to be a poor use of precious capital.
Moreover, the European Commission may stop them from doing so. It has already prevented Commerzbank from paying out on hybrid bonds.

The Commission is currently examining the British and Irish state guarantees and may conclude that insolvent banks should not be making discretionary payments to bond-holders who, after all, are typically institutional investors who should understand the risks inherent in such instruments.

The biggest risk — that investors will be wiped out by nationalisation — has not gone away, even if it has subsided.

If banks do need any more government bail-outs, the terms are likely to be harsher than in the past. Even in the absence of full-on nationalisation, governments may choose to impose a debt-for-equity swap on bondholders.

After all, everyone else — depositors, shareholders, taxpayers — have borne some pain. Why should bondholders be any different?

- David Kuo is director at The Motley Fool. The opinions expressed are his own. -

What is the one thing that young investors have but older investors would give their eye teeth?

This isn’t a trick question and nor does it have anything to do with body parts.

The answer is time. Older investors may have more money, more experience and more investing knowledge than younger investors. But the thing that older investors don’t have on their side is time – time to correct mistakes should anything go wrong with your investments.

In particular, time has to be a key consideration if your investment forms a vital part of your retirement portfolio. That is why older investors are regularly urged to rebalance more of their portfolios to less risky investment the closer they approach retirement age. If you are wondering how to rebalance a portfolio, there is a handy rule of thumb that may help. It’s only a rule of thumb so it will have limitations depending on the length of your digit.

It simply states that the proportion of your investment portfolio allocated to cash should be equivalent to your age expressed as a percentage. Put another way, you can afford to take more risk with your investment the younger you are. But as you get older you should start shifting more of your money into cash.

So, 25-year-olds should have no more than 25 percent or a quarter of their portfolios in cash; 33 year-olds should only have a third or 33 percent of their investments in cash, and so on.

By the time you reach middle aged or around 50 years of age, about 50 percent or half of your investment should be in cash. The rest can be in shares, property, corporate bonds or any other type of investment that takes your fancy. The reason for allocating more of your investments away from shares is because cash or near-cash investments such as Governments Gilts are safer.

Shares on the other hand can be volatile. The value of a share can fall (to zero) as well as rise (to great heights) but cash won’t. It will grow at a few percent a year, which is great if you happen to have lots of it and don’t plan to spend any of it.

But there are a couple of things to bear in mind before you rush to sell off your portfolio of shares. The rule of thumb does not take into account longevity or inflation.

These days, more people are living longer. Around 30 years ago, we would consider living to 72 years of age to be a fairly decent innings. Today, the average life expectancy is 78. Additionally, it is not inconceivable that life expectancy could improve further with advances in medical science.

Consequently, we need to ensure that our investments more than keep pace with inflation. Whilst it is generally accepted that cash is seen as safer investment, we have to also appreciate that their returns are lower than that of shares. That may seem a preposterous thing to say now with the stock market looking limper than a two-week-old iceberg lettuce leaf. But even middle-aged investors have time on their side. As they say, it’s time in the market, not timing the market that’s important.

So, can a return of 2 percent on cash be adequate for my retirement, which could be for as long as thirty years after I retire? I very much doubt it. So, I’m going to take my chances with a portfolio of lower-risk shares instead.

- David Kuo is director at The Motley Fool. The opinions expressed are his own.-

BT’s annual results were expected to be bad. It turns out that they weren’t just bad – they were awful.

Now, many of us were expecting massive losses, a slashing of dividends, the axing of jobs and a gaping hole in the company’s pension fund. And BT duly delivered on all fronts.

Thanks to a dreadful year from BT Global Services (which handles network services for large businesses), the company announced an annual loss of 134 million pounds after having taken a painful 1.3 billion pound write-down from that unit (a big chunk of which was due to a single IT contract with the NHS).  So they’ve taken the losses on the chin and got rid of the bosses.

Meanwhile, BT’s dividend has been at the forefront of many investors’ minds, with the company having enjoyed an enviable track record of steadily rising dividends since its crisis year of 2001. But fears were today realised with a near 60 percent cut. The full-year dividend has been slashed from last year’s 15.8 pence to just 6.5 pence.

Over in the pensions department, it’s been a dreadful year too. This past year has seen its fund reduced from a 2 billion pound net surplus last year to a 2.9 billion pound deficit this year - 2.9 billion pounds is a hefty hole to fill, and BT is planning to increase its pension fund contributions to 525 million pounds a year over the next three years.

Finally, with 15,000 jobs having already been lost in the 2008-09 year, a further 10,000 redundancies were expected to be announced for the coming year. But the jobs picture has turned out worse than that, with 15,000 now expected to go. BT hopes that most of those will go through natural wastage and voluntary redundancies, and that no compulsory redundancies will be needed.

Truth is, BT needs to improve productivity significantly if it is to compete in a global telecoms market. Currently, revenue in the global telecom sector is around 260,000 pounds for every full-time employee. But BT is some 30 percent less productive – its employees generate just 185,000 pounds per year.

Vodafone, on the other hand, boasts one of the highest levels of productivity. Its full-time workforce generates almost 500,000 pounds per employee or twice the industry average. Vodafone’s workforce also generates almost three times more revenue per worker than a comparable BT worker.

Of course BT’s low productivity is an unfortunate feature of its history as a denationalised monopoly. And although direct comparisons between, say, Vodafone and BT are difficult because one is mobile telecom business and the other fixed line, investors should nevertheless take this into account.

Private investors should consider efficiency and productivity of businesses when making long-term investment decisions. Lower productivity can translate to lower long-run returns for shareholders.

When investing in shares we tend to find that a rising tide may lift all boats, but a financial hurricane can sink many ships. BT has benefited from a rising financial tide, but its low productivity has now been found wanting.

– Margaret Doyle is a Reuters columnist. The opinions expressed are her own –

Eugene Sheehy told investors last October that he’d rather die than raise equity. Luckily the Allied Irish Banks boss, who has announced his imminent “retirement”, won’t have to make good on that pledge.

His forthcoming departure, along with that of finance director John O’Donnell and chairman Dermot Gleeson, is the bank’s last chance to prove that it deserves to remain in private hands. One more mishap and finance minister Brian Lenihan will have no choice but to nationalise it.

These departures suggest that Ireland’s finance minister, who speaks for 25 percent of AIB’s shares, is at last taking a tougher line with the bank. Sheehy et al have stubbornly resisted admitting the scale of their problems.

And AIB is in a very deep hole of their making. Loans to builders more than doubled between 2005 and 2008, on Sheehy’s watch, and accounted for more than a third of the Irish loan book in 2008. Even worse, almost a fifth of AIB’s property loans were secured against Irish land-banks.

As the credit crunch deepened, the board’s reaction to it seemed to part company with reality. They raised AIB’s dividend by 10 percent last July only to scrap it altogether four months later. Only last month did the bank finally admit that it will need no less than 5 billion euros of new capital, of which 3.5 billion euros is coming from the Irish taxpayer. Given his prior statements, Sheehy had backed himself into a corner.

His departure clears the way for AIB to raise new money and shift some of its property loans into the National Asset Management Agency, (NAMA), Ireland’s bad bank. Davy Stockbrokers expects AIB to move 30 billion of assets.

In view of the discount NAMA is likely to apply, the bank could end up taking a 6 billion euro hit, leaving it with core equity of just 1.7 billion euros or 1.6 percent of risk-weighted assets.

Lenihan has left the door open to private capital to plug the hole, while promising that the state would step in if necessary. If that promise is called, the Irish taxpayer would end up as the majority shareholder in AIB, possibly holding up to 80 percent.

Lenihan is understandably reluctant to take AIB fully into state ownership. The pressures to lend to politically-popular sectors, like farming and, again, home-owners, would be intense. Nor does the Irish state enjoy unlimited access to cash on the wholesale markets.

However, whether he nationalises or not depends on AIB’s ability to recruit credible new management and to come up with a believable financial plan for the business. If either of those conditions aren’t met, Lenihan’s hand will rightly be forced.

-- Alexander Smith is a Reuters columnist. The opinions expressed are his own --

Volumes may be down, but there are green shoots appearing in the M&A market after the frozen winter of financial distress.

This doesn't mean a return to the boom years of a few years ago. It could take years for deal values to reach the dizzy heights of the second quarter of 2007, given falls in asset prices. But the number of deals is recovering fast. This fell off a cliff in Q1 of 2009 and at just over 8,000 deals was the lowest global tally since Q3 2004.

The week starting March 29 was the busiest of the year in terms of deals announced, with 821 transactions, and the 5th busiest since Sept. 2008, according to Thomson Reuters data.

There are still some complications (the disappearance of loan-funding, equity market volatility to name just two), but investors seem to be back on the hunt for bargains.

M&A deals may tend to be pretty hit and miss (indeed the failure rate is high) but historically the best returns from deals have been achieved on those struck during economic downturns, when activity is low.

True, M&A has been fuelled so far this year by a spate of large deals in the pharmaceuticals sector, an area that has been least affected by the crunch, with healthcare accounting for 27 percent of the total of $472 billion of announced deals during Q1. Pfizer's $68 billion acquisition of Wyeth and Merck's $41 billion takeover of Schering-Plough were the blockbusters.

But this was only just ahead of the distressed financials sector at 25 percent. And it is this area of activity which will grab a significant share of deals (by volume if not by value) as banks, insurers and fund management companies rejig their portfolios and vulture investors pick off the walking wounded.

The restructurings resulting from the meltdown in financial services are just getting underway. Look at the businesses UBS is  selling, Barclays' disposal of iShares, or indeed the auctions of Citigroup and Royal Bank of Scotland units in Asia.

Banking groups are under pressure to offload non-core businesses to strengthen weakened balance sheets and therefore are less sensitive to value. Add the assets which governments will have to repackage or offload once they have feel confident they have stabilised the sector and the deal pipeline starts to look positively healthy.

No wonder some investment bankers -- especially those in boutiques and which thus have no conflicts with mainstream financial businesses -- are rubbing their hands.

The main constraint on buyers (other than those lucky or sensible enough to still be sitting on cash) is obtaining financing. It is possible for companies to raise money for deals that seem to investors to make strategic sense. Roche of Switzerland, for instance, tapped the bond markets for a whopping $39 billion to fund its Genentech buy-out.

But stock market investors aren't flush with cash and are wary of giving companies a free hand. UK's Pearson recently had to pull a small share issue that was designed to give it a cash pile from which to make opportunistic acquisitions. Meanwhile, it is still difficult to obtain loan finance from banks, and the bond markets are only really available to larger companies.

Even so, with debt-strapped companies being forced to sell off assets to meet covenants and prices relatively low, there should be plenty of action this year.

-- At the time of publication Alexander Smith did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.--

-- James Saft is a Reuters columnist. The opinions expressed are his own --

Our brains are wired for bubbles, it would appear, and regulation and tight external controls are the only way to save ourselves from ourselves.

Bankers, traders and investors effectively became addicted to the pleasure that comes from making money, while at the same time increasingly losing touch with just how much risk they were taking.

The result was a bubble in risk taking, debt and many financial assets and the inevitable crash and complete pull back in activity.

"The finance industry was adapting to the level of risk," said Gregory Berns, a professor of neuroeconomics at Emory University in Atlanta who uses brain scanning technologies to try and decode the decision-making systems of the brain.

"It is an insidious process, you are not aware of it. You are addicted to returns, you are addicted to risk, you are addicted to cocaine -- it's all the same as far the brain goes."

Berns, who says that the brain has no mechanism for being satisfied, compares the process of becoming adjusted to new stimulus such as making money or taking risks to the eyes adjusting to the light; while at first it seems bright, your brain adjusts and you no longer perceive the light as bright, the money as enough, the risk as high.

So in order to get the same buzz from making money you have to up the stimulus, doing more of what it was that brought in the money in the first place. At the same time your perception of risk becomes less sharp.

So with the same regret that a recovered alcoholic looks back on driving after seven martinis, we all now look back on an investment bank with a 40-1 leverage ratio.

Seemed like a good idea at the time, but an addiction like any other. Berns, an outsider to finance, looks at other addictions and concludes that what's most likely to succeed is a system of controls imposed from outside, namely government regulation.

"It needs an imposition from outside; addicts have a difficult time self-treating, it needs structure."
But that of course is complicated by the fact that what government and the rest of us want the banking industry to do is not go off risk cold turkey but to control the amount of risk it takes so that enough credit is created to allow the economy to grow. So it's a bit like a 12-step addiction program that meets in a bar and in which the object is not sobriety but being just pleasantly tipsy. It's a hard ask.

SOMEONE TO WATCH OVER ME

People who are against government regulation will say: why do we think governments are going to be better at figuring out what is risky? But if you look at it from the point of view both of compensation and conflicts of interests, and of brain chemistry and psychology, you will see that is not the point.

Governments are probably marginally more hopeless than bankers or the markets at figuring out what is what in the beginning, just as the guy in the risk department at Big Bank plc knows a lot less about the derivative market than the physics PhD he has to oversee. But the person with the most to gain from the activity is the person most likely to have his opinions distorted over time. The important thing is to be beholden to someone with oversight and power who will check your natural tendency to get carried away.

We simply need outside controls, both in terms of company controls and government controls, to help stop us from deluding ourselves.

James Montier, a strategist at Societe Generale in London and an expert in behavioral finance, says that our beliefs about our abilities and future behavior is often profoundly out of step with reality.

People believe they will act in one way when contemplating an emergency, for example, and then act in quite a different one in the heat of the moment. The solution is harder rules and more process, just as data has shown that even the most experienced surgeons have better outcomes if they use something as simple as a checklist.

"What it drives you to is the primary role that process has to play in investment," Montier said.
"You can't control return, can't control risk; all we can control is how you approach investment."

The fact is that controls are needed. Parts of the system like hedge funds which have no call on state insurance if their bets go bad would be well advised to put in their own controls. Those parts which we all seem to be insuring need to have those controls imposed from on high.

Those controls will be circumvented and worn away by future successes, but that is no reason not to try.

-- At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns by James Saft, click here. .  --