playing by the rules
Competition has forever been fierce and at times may not be entirely fair. Thus, a student of the market must be ever aware of the trends around them so they can promptly identify growing areas of opportunity which haven’t yet been revealed to the majority. Mr Madoff made a very good living (while it lasted) offering clients a steady ~10% return on their investment. Bush league stuff, it turns out. The real maestros of money are doing rather better.
Accounting and legal researchers at the University of Kansas have identified a bull market in influence-peddling: returns on the order of 22,000% for firms who “invested” in lobbying efforts to favorably modify the tax code. These people obviously learned that it’s important to play by the rules.
I’ve written some decent strategies and have been blessed with moments of great luck, but I’m ashamed to note that I’ve never gotten remotely close to these kinds of returns. Can you imagine the sharpe ratio these guys can claim? And it’s a repeatable process. Although the Kansas researchers don’t mention it, there are many other cases of such legal arbitrage as pointed out in an AP piece on the subject:
The nonpartisan group recently released a study comparing the amount spent by bailed-out banks on political contributions and lobbying with the amount of money they got from the Wall Street rescue fund, known as the Troubled Asset Relief Program. The results produced eye-popping rates of return, an overall 258,449 percent for the $114 million they spent on campaign donations and lobbying.
Now this number – ~260,000% ROI – is clearly a bit inflated as $114M barely covers what Citi paid out to Mr Rubin for his services over the relevant period, but we’re probably in the ballpark. Perhaps the banks only made 100,000% on their investment, but we can still see why they’re “the pros.”
I’m wracking my brains trying to figure out how to shoe-horn this marvelous alpha-generator into my trading algorithms. I confess that I haven’t yet figured it out. But I take solace in the knowledge that, as an American, I have the best government money can buy!
