Contrary to popular assumption, the term "business ethics" should not be considered an oxymoron. However, there are two stories from the news this week that show the dichotomous nature of ethics in the stock market.
One man, William von Mueffling, has taken the challenging but honest route to save his company. Von Mueffling, the former hedge fund manager of Cantillon Capital Management, made headlines this week with his unique strategy. That strategy involves "going long" with stocks (profiting from an increase) as opposed to capitalizing off a decrease in the price of stocks by "going short." Von Mueffling realized that taking a long position would be best given the Federal Reserve's plan to buy government bonds.
Yet, von Mueffling has some skeptics. One of them includes Former Fed chairman Paul Volcker. Volcker believes that the Fed's plan to buy government bonds will not do much to help the economy. And this is likely a concern of von Mueffling. But it doesn't seem likely that the Federal Reserve would purposely waste $900 billion dollars on a strategy it didn't have some confidence in.
By contrast, it appears as if Mark Mobius, a hedge fund manager in Turkey, wanted to manipulate the markets by using a short selling strategy. Mobius is being investigated after predicting a market correction during a press briefing on October 26. The markets in Istanbul subsequently fell 3% the next day. While most analysts have clarified that it is not illegal to speculate about the markets, it seems strange that the markets would respond in a such a volatile matter after Mobius's statement.
But I am not accusing Mobius of doing anything except exercising poor judgment. Given his level of influence in the marketplace, he should have realized that his statements could create controversy. If you look at how von Mueffling is changing the game by "shifting the lineup" rather than "predicting the outcome," it should appear evident that words are powerful.
Some would argue that Mobius was being responsible by using the term "market correction" -- which refers to overpriced stocks falling back to realistic levels. I understand why they would feel that way. However, there is always a better way to share knowledge without causing trouble in the markets.
Just like a coin game of "heads or tails," fund managers must make quick decisions about a future outcome while the piece is "mid-air." Sometimes they will be rewarded for a hasty decision and other times reprimanded for thinking too long.
But if they use bad judgment, investigators will be slapping their hands on top of the coin sooner than later.