to not understand capitalism

[IceBeing]

Some people work hard (say 60 hours a week all year) and get paid about £20000 a year...and some people work hard and get paid 10 or even 100 times as much a year.

How can 60 hours a week of work from 1 person be worth 100 times as much as 60 hours a week of work from another person?

I suppose not outperforming the market is different to not changing in value...assuming the market is in general increasing in value...is it though?

good grief...I just looked at the dow jones index over its history...you would have to be MAD to put money on that roller coaster.

Kim147 that's a very simplistic view. Firstly you're saying the active management gets same returns on average over the long term. But that's surely because there are both good and bad fund managers and some will not get the market return and others will exceed it? Secondly passive investing kind of depends on active investors existing. If everyone passively invested then the market would just be a giant misprice

Ice I think its a bit naive to think that anyone will look at two job offers, one similar to the other in terms of the job involved, but choose the one that pays £250,000 rather than the one that offers £750,000 ? That would be a very rare (probably already very rich) person indeed...

I know that's what he said, I'm just saying that it is an incredibly simplistic statement. So if you as an individual with little knowledge of the markets or how to appraise a fund manager ate deciding who to invest with right now with the market how it currently works then you might be as well using a passive manager. But that's not the same as there being no point in active managers as a whole. If nobody invested actively the market wouldn't work. At all

the thing I heard
So this already bafflingly ill-informed thread is now shifting to attack fund managers fees because of something you heard down the pub?

If you want to look up the performance of the 'mega managers', please do so.
The most well-known is probably Neil Woodward at Investco, who managed an equity (stocks and shares) fund which managed to delivery 23 times increase - or put another way, if you had invested £1k with him, you would now have £23k

Another one, Ed Legget, at Standard Life, delivered a return of 434.9 per cent over five years.

But if you heard that they aren't worth their fees, then you must be right.

Can I borrow that magic microwave of yours?

Might have been said already but wasn't capitalism in the beginning supposed to be "give the breaks to the wealthiest, they in turn employ people who will in turn create the need for services which will create employment and a wage for the lowest"?

The way capitalism has gone spectacularly tits up is because the people at the top are greedy and keep the wealth for themselves, employing loopholes in the tax system and taking funds out of the country instead of following the capitalist model of the "Trickle down effect" which theoretically would've resulted in a benevolent society.

"people are assuming that you have to pay massive wages to get good people but what if that simply isn't true? What if there are people who want to manage companies and would be good at and wouldn't require 7 digit salaries to do the job?"

If you are getting quotes for work that needs doing to your home, two well-known companies offer to do it for £2000 and a third says they've no real experience but they'll do it for £100, would you feel confident in taking them on?

Look at the performance of Tesco since the very expensive Terry Leahy left and was replaced with a much cheaper CEO recruited internally. You could argue it would have gone that way anyway but, under new management, their share price has slumped, profits are down and that has a knock-on effect to the thousands of people they employ and the thousands of people employed in associated companies that trade with Tesco.

Kim, I think you need to look beyond long large cap equity funds.

OP tried to take a pop at hedge funds earlier, I suspect without having the faintest idea what a hedge fund is beyond 'something that employs rich men'.

But the principles of hedging investment risk is something any portfolio manager will do. So you don't stick everything on black with Woodward, but spread it around a little bit.

I don't want to sound patronisingly simplistic, but it is a case of investing in the ice cream company and the umbrella company at the start of summer to cover all the bases. Most investments work to a certain extent in pairs or groups so when some go up, others will naturally fall and vice versa. The better active managers tend to be better at spotting these and all spotting when to trade in and out. The reason they tend to be better is because when they take a position (buy a chunk of shares) they buy big, and they also drumroll have regular meetings with the CEOs and CFOs of the companies they buy.

A good CEO will have a clear strategy in the short, medium and long term, and track that strategy against the macro conditions (and make allowances for those macros) AND will be able to communicate that strategy to their investors. So, taking a recent example of Morrisons, the results come out and are bad, but investors know in advance that they are suffering because of losing customers and the CEO has already got a strategy in place to win those customers back.
So when the results come out, they don't all go charging out of Morrisons (some did, of course) and they also know that they won't get much return out of morrisons in the short to medium term, so have plumped up the portfolio in other areas to account for that.

"good grief...I just looked at the dow jones index over its history...you would have to be MAD to put money on that roller coaster"

Not mad, just realistic and on the ball. Invest when the roller-coaster is in a down phase, sell up when it hits a high... that's the way to make money

What if there are people who want to manage companies and would be good at and wouldn't require 7 digit salaries to do the job?

OP, I think what you're trying to say is that if no companies paid the top dollar wages, then all C-level execs would have to work for peanuts.

But that would never work. They would simply leave the country and move somewhere else that was paying a competitive wage, leaving their old country in shambles because anyone who was worth their salt has fucked off somewhere else. Are you suggesting that the global economy should all adopt the same policy, so it wouldn't benefit the C-levels by going somewhere else? That would never work either. Inflation, climate, resources... All of these things will naturally drive up a currency, therefore people will always gravitate to the highest bidder.

Global currency? Good luck with that.

Also, I'd love to know what cote said as well... The least you could do after publicly proclaiming that you're ignoring her is say why!

And OP, you still have never said what exactly you think is so wrong with a society that rewards success. You make a load of money for your company: you get a share of that. You score a lot of goals for your team and help them win the league: you get a bonus from that.

Where's your issue with that?

The massive glaring problem with refusing to pay top execs top money for running companies is that we can't stop people starting their own companies and making money.
If you are a hugely gifted business brain, but you're only going get paid a fairly small salary relative to the contribution you make to the company once you reach the top of the tree, then you work for yourself, surely?

Many, many top bankers leave investment banks every year to run their own funds, free of the bad publicity of bonuses and payrises
The same would happen with CEOs

Unless you want to ban business ownership in this new beautiful egalitarian utopia?

I think capitalism is fantastic. Of course certain things could be done better, but you'll never have a perfect society; someone is always unhappy with something. All things considered, I think that we're doing pretty damn well. At any point in time, my lazy next-door neighbour can get off his arse, decide that there's a market for more supportive couch cushions due to other lazy sods like him, and he can go out, create an item, sell it, and make himself a millionaire.

It rewards hard work and dedication, and it also provides for those who are unable (though perhaps it provides a bit too much for those who are unwilling, but that's a different story) to do the work themselves. It offers choice, and it benefits the customer to be able to not only choose between the products or services, but choose between suppliers. It allows companies to identify gaps in the market, and offer a replacement. Not a fan of the iphone? Get a Nokia. disagree with Nestle? Use a different brand.

Without free market competition, companies can hold customers hostage, and it makes for a pretty bleak existence where there is never any motivation for improvement or success.

Unless you want to ban business ownership in this new beautiful egalitarian utopia?

I was assuming that would be the case, so I didn't even mention it sparechange

"but is it worth paying a ceo that?"

If it wasn't, they wouldn't offer to pay it.

Contrary to popular belief, companies are not generally in the business of throwing away money unnecessarily. If CEO salaries were lower, they would not deliberately push them higher.

"Could we do things better?"

You would need to understand the current system much better to propose improvements to it.