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To: Mark Adams who wrote (49895)	12/25/2003 6:57:33 PM
From: Mark Adams	Respond to of 53068

The Equity Lifecycle Venture Capital funds via private equity startup and developmental concerns with an eye on the IPO exit. On IPO and shortly thereafter, Venture entities recover capital and profit, presumably recycling some or all to fund additional prospects. Thus birthing capital driven wealth creation and accumulation. Equity is accumulated by the public directly via share holdings, mutual funds and indirectly via pension fund managers & insurance pools. During the public ownership phase, a concern may be bled via +taxation and regulatory takings +mgmt graft, self dealing, extraordinary salaries, perks, & options packages +capital destruction via poor judgement in execution of mergers, acquisitions & divestures. +fees & interest on both equity & non-equity financing extracted by the system +additional compensation costs in the form of newly minted future promises to pay- ie increases in retirement and health benefits for employees- which may be subsequently repudiated in the final phase A portion of companies in the public ownership phase enjoy a finite life, followed by bankruptcy. At this point, Vulture capital picks over the pieces, accumulating the bones at prices offering the possibility of ROI, and possible future exit via IPO or sale to another entity. This is the machine. Wealth appears to accumulate the fastest in the first and last phases. The middle phase seems dominated by the struggle to divide a finite, slowly growing, or shrinking, pie. With many straws inserted by many interests. Only a portion of the entire pool of private enterprise is made available for public participation. Note that the public at large, are participants in the 'game', even with no direct equity investments. Transfer or destruction of asset value ultimately translates back to consumer pricing. Indirectly via markups in mandatory insurance premiums due to poor investment returns. Or more directly via higher product pricing. Younger, or global players, without legacy mistakes and resulting stranded costs to recover, may outcompete, thus accelerate the decline of companies attempting to recover from past errors via higher product pricing. But until & unless competition brings to the fore the hidden errors, higher pricing is paid in the end by all. It appears to me that odds do not favor the broad public in equity investing. At one time, I suggested that mutual fund investing made good sense, if one could find the select few with managers who truly earned their keep. With mutual funds out numbering stocks, I knew of maybe three managers in that group (Marty Whitman, Bill Miller, Bill Nygren). And even with that, I may have been 'Fooled by Randomness'. Now I'm left with a new dilemma. It appears that the same may hold true for equities in general. How can the part time investor identify a company with ethical, intelligent mgmt, not already a shell destroyed by past promises and mistakes? One with a fair chance of navigating the shifting sands of the geopolitical environment. What are the odds? 60 out of 6000? If investing is a 'game' in which the very nature of the landscape suggests 80% of the players are likely to end up less than whole, considering long term real returns, is it appropriate for me to 'play' if my commitment and effort place in me in the 20% who come out ahead? Or by participation am I endorsing a system which ultimately denudes willing and unwilling participants of their earnings and wealth? I don't know that we have much choice. Only by playing do we come to understand where the systemic faults lay, thus have the chance of creating the vision of something better. One additional thought; Consider the juxtaposition- invest only what you can afford to lose, with the recommended equity allocation typical of WallStreet advisors. How many of us can afford to lose 65%+ of our networth? A cautionary xmas tale.