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The Relationship between Risk, Exchanges, and Auditing.

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Salvo Brunel	Posted - 2009.02.12 11:11:00 - [31] Originally by: Kazzac Elentria I don't know.. being able to pay for a GTC purely from investment profits seems to be a nice upside. I was trying to make a serious, if negative point. The whisky trollified it a bit. Sorry. My point about the lack of upside is that almost no shares / bonds pay great returns. If you look at the returns on a wide range of offerings you will find three clusters Good investments: +5 to +10% Underperforming investments: 0% to +5% Scams (of whatever flavour): -100% What is missing are the shares which give you very high returns (~+100%). These exist in normal stock markets (though the return comes from capital gain rather than dividends) and they need to exist here to balance the scam risk. IIRC one recent IPO did offer 100% returns but the issuer was laughed at as either an idiot or a scammer.
Ricdic Caldari	Posted - 2009.02.12 11:53:00 - [32] Originally by: Lo Lightshard But these are extreme situations and low in frequency. 50% of IPOs scam? (I didn't research this, just remember this figure being thrown around.) Whilst this is probably close to accurate anyone who invests in 50% of IPO's deserves to be scammed. If we change that structure and say I have invested in about 40 IPO/Bonds I could say that 4 have been scams meaning a far more reasonable number of 10%. Its all about making a judgement call based on the facts at hand combined with gut instinct.
Khrillian Minmatar Sebiestor tribe	Posted - 2009.02.12 12:26:00 - [33] Originally by: Hexxx If I have 1 coin, and I flip it once, the probability that it is head or tails is 50/50. If I have 5 coins, and I flip each one once, the probability that each coin is heads or tails is 50/50. Just because I flip more coins, does not mean I change the probability. The only difference is that I'll experience less volatility the more flips I do (the natural consequence from the Law of Large Numbers) The number of your high risk investments does not change the fact that they are high risk investments. You are correct that your relative risk can be managed (for example, if all your high risk investments are in technology stocks...well, you've got a double whammy) but your risk is still high. Having MORE high risk investments leaves you with a greater portion of your portfolio allocated towards high risk ventures. It doesn't make them magically low risk. Yeah that's what I was saying. Why does anyone care about individual asset risk? You should only care about portfolio risk. I guess you can put them on a fun pie chart with "high risk investments" and "low risk investments" but what's the use? Originally by: Hexxx EBANK now holds 1.86 Trillion ISK. When the Exchange launches, that's 1.86 Trillion ISK people can use to buy whatever Bonds and Stocks can beat the rate of 1.5% EBANK accounts offer. Disregard that I was imagining something independent of EBANK.
Lo Lightshard The Crimson Kiss Coalition Of Empires	Posted - 2009.02.12 12:44:00 - [34] OK, firstly my apologies for my last post. It expressed a point that wasn't adequately elaborated on and I feel that because of this (OP) your answer missed the mark. Secondly, I want to express that I enjoy your work. Your posts are well though out, I have listened to your workshop and have, in the past, been an E-Bank customer. I appreciate your input into EvE, it has added to my gaming experience. My question: why are you doing what you do? There are no in game mechanics that protect investors from being scammed, in fact it is an encouraged play style. Interest rates on IPOs/bonds are running at about 4%. I know the time and effort I have to invest into this game to earn a billion ISK. What is my incentive for investing? And to restate the question, what is your motivation for building a secondary market? So, perhaps it is that you are affiliated with E-Bank and you have infinite trust in that institution. I think it is well established that the likelihood of E-Bank breaching trust is low. But it is an IPO. Another well established principal on these boards is that it is harder to make a decent return the more capital you have. So, faith in your people is one thing but at what point does E-Bank collapse under the weight of a game mechanic change. We know that E-Bank heavily invest in particular areas. At what point does E-Bank become overexposed? Or perhaps this is just what you do, regardless. To tie the above three paragraphs together. My understanding is that You are working on an exchange that will involve "wrapping IPOs in E-Bank" thus exposing investors to double jeopardy. The chance of an E-Bank failure plus the likelihood of a third-person scam. Audits help, granted, but do you honestly expect this to work? This feels like a house of cards. You seem to understand (above post) the current financial crisis caused (in part) by CDOs. The simple fact is that there is a lack of enforcement within EvE. I feel you are building on an unstable base. My honest opinion is that your avatar should be posted in the urban dictionary under "herding cats" and "pushing ** uphill". To address your OP, I have been a successful (small) investor (not scammed yet). I no longer invest because the correct level of risk tolerance in this game is zero; it is a trap for young players, look through recent IPOs for the investor names. The risk v reward equation is wrong. There is too much money, the return is too low and the risk of being scammed is very real. Originally by:** Ricdic Its all about making a judgment call based on the facts at hand combined with gut instinct. This is a great point. Most people are not that smart (you are not that smart), the secondary market depends on people that are not that smart. Also, smart people make mistakes. Did Kwint really read the (para-)phrase "manufacture from a copied T2 BPO" and throw in 5B (I should probably check that)? To compensate for insulting the holy trinity of MD regulars. I love you Shard. [IMA6E REMOVED]
Ricdic Caldari	Posted - 2009.02.12 12:52:00 - [35] Edited by: Ricdic on 12/02/2009 12:52:50 You make me sad edit; However I do agree I am not that smart at all. If I didn't have the guys at EBANK to double check the stuff I do EBANK could have failed many moons ago.
Lo Lightshard The Crimson Kiss Coalition Of Empires	Posted - 2009.02.12 13:09:00 - [36] Originally by: Ricdic Edited by: Ricdic on 12/02/2009 12:52:50 You make me sad edit; However I do agree I am not that smart at all. If I didn't have the guys at EBANK to double check the stuff I do EBANK could have failed many moons ago. I would like to clarify. Your investment decisions have not been great. Your achievements are. Fake edit: E-Bank is a bond and not an IPO. The phrase "I know what I have to do to earn 1B" (or close, not on screen) I would like to change to "I know what it takes for a young player to earn 1B". The argument is not relative to what time you can earn 1B in. [IMA6E REMOVED]
Kazzac Elentria	Posted - 2009.02.12 13:36:00 - [37] Originally by: Lo Lightshard Originally by: Kazzac Elentria I get to play and someone else does the work. But you have done the work to earn the capital. It can be taken away from you on a whim. Sign me up, I am an investor. I may have done the work to get the intial capital, but I would have to keep working to get returns on that capital. What I am getting at is that, if someone else wants to do work for me and give me a little return on my isk I don't mind. Are there scams, of course there are, there always will be. BUt so far out of 30 investments so far I've had 5 scams. 16% is not that shabby and even then the scammed amounts compared to the good investment amounts are actually smaller. As I said, if some goal driven player wants to do work, I don't mind providing the opportunity so long as I can get a little return on it.
YouGotRipped Ewigkeit	Posted - 2009.02.12 13:47:00 - [38] Edited by: YouGotRipped on 12/02/2009 13:53:21 Edited by: YouGotRipped on 12/02/2009 13:53:08 Originally by: Lo Lightshard My honest opinion is that your avatar should be posted in the urban dictionary under "herding cats" and "pushing **** uphill". We must describe the cats as accurately as possible and take deep breaths. Black Sun Empire
Lo Lightshard The Crimson Kiss Coalition Of Empires	Posted - 2009.02.12 14:02:00 - [39] Originally by: YouGotRipped Edited by: YouGotRipped on 12/02/2009 13:58:15 Originally by: Lo Lightshard My honest opinion is that your avatar should be posted in the urban dictionary under "herding cats" and "pushing **** uphill". But first, we must describe the cats as accurately as possible and take deep breaths. o7 Sceptic or septic. You're the jury. [IMA6E REMOVED]
Hexxx Minmatar	Posted - 2009.02.13 04:47:00 - [40] Originally by: Lo Lightshard My question: why are you doing what you do? There are no in game mechanics that protect investors from being scammed, in fact it is an encouraged play style. Interest rates on IPOs/bonds are running at about 4%. I know the time and effort I have to invest into this game to earn a billion ISK. What is my incentive for investing? And to restate the question, what is your motivation for building a secondary market? It is not encouraged nor discouraged. CCP does not come out with weekly reminders to scam one another. Scamming is simply allowed. The principle reason for investing is trying to make use of money that you can not use yourself. For example, maybe you have 10 dollars but you can only really use 5 dollars. What do you do with the remainder? Let it gather dust? Some people choose to invest a portion of that. As to why I do what I do... I like challenges. I was a faculty member at my university while I was in graduate school. I work for one of the Big 4 firms. My current client is in the Fortune 50. Designing financial systems and bringing order to chaos is my idea of fun. Originally by: Lo Lightshard So, perhaps it is that you are affiliated with E-Bank and you have infinite trust in that institution. I think it is well established that the likelihood of E-Bank breaching trust is low. But it is an IPO. Another well established principal on these boards is that it is harder to make a decent return the more capital you have. So, faith in your people is one thing but at what point does E-Bank collapse under the weight of a game mechanic change. We know that E-Bank heavily invest in particular areas. At what point does E-Bank become overexposed? EBANK is not an IPO. EBANK is a cross between a retail and an investment Bank. EBANK is a private entity, and the public currently has no way of attaining EBANK equity or EBANK debt. This may change in the future. EBANK is also designed to contract. If EBANK can no longer earn the required ISK to meet interest obligations, we will publicize that fact. People will withdraw money as a result, allowing us to shrink. This will probably be painful, but I'm confident that we can weather the storm. If people will notice, I have talked about EBANK being in either a state of surplus (assets exceeding deposit obligations) or a deficit (assets not meeting deposit obligations). EBANK can actually operate in a deficit. It won't destroy the Bank, but it's not a very healthy way to operate. Also, as I've stated before...EBANK was designed from day one to be resistant to scams, defaults, fraud, and "hit by a bus" scenarios. Any single person can leave EBANK and it will not destroy the Bank. Multiple people know how to perform multiple roles. Is EBANK invincible? No, but it was designed to survive. Originally by: Lo Lightshard To tie the above three paragraphs together. My understanding is that You are working on an exchange that will involve "wrapping IPOs in E-Bank" thus exposing investors to double jeopardy. The chance of an E-Bank failure plus the likelihood of a third-person scam. Audits help, granted, but do you honestly expect this to work? This feels like a house of cards. The probability of a complete EBANK collapse is extremely low. This is not just because of how trustworthy each EBANK person is, but how risk is distributed across multiple people. We designed the system to mitigate risk independently of the people involved in the system. And yes...I expect this to work. EBANK's nearly 2 Trillion ISK in deposits at 1.5% is a testament to this. No one has every pulled off the scale and percision that EBANK has. Originally by: Lo Lightshard The simple fact is that there is a lack of enforcement within EvE...I feel you are building on an unstable base. I believe lack of state enforcement is not a fatal flaw. History shows that markets can flourish even without strong state enforcement and state regulation. EBANK Staff \| www.eve-bank.net
Ricdic Caldari	Posted - 2009.02.13 05:35:00 - [41] Come to Sydney, Australia if you want to meet the EBANK boss in person . This offer is open to anyone http://oldforums.eveonline.com/?a=topic&threadID=500043 Largest Empire Research Alliance in EVE!
Ray McCormack hirr	Posted - 2009.02.13 05:47:00 - [42] I didn't know Mr Horizontal lived in Sydney? [WTS] Tech II Component BPO Sets
Mr Horizontal Gallente KIA Corp KIA Alliance	Posted - 2009.02.13 08:57:00 - [43] Originally by: Ray McCormack I didn't know Mr Horizontal lived in Sydney? lol - Don't you mean Chicago (Hexxx)? I'm in your TZ, just several thousand miles north. Director \| www.eve-bank.net
Ricdic Caldari	Posted - 2009.02.13 10:01:00 - [44] Ok, EBANK Founder
Hexxx Minmatar	Posted - 2009.02.13 11:08:00 - [45] Originally by: Ricdic Come to Sydney, Australia if you want to meet the EBANK boss in person . This offer is open to anyone And if anyone wants to meet me, I'm in Chicago. Happy to pick up a beer once I get back in March. I'm in China on business until then. EBANK Staff \| www.eve-bank.net
Lo Lightshard The Crimson Kiss Coalition Of Empires	Posted - 2009.02.13 12:24:00 - [46] Originally by: Hexxx I believe lack of state enforcement is not a fatal flaw. History shows that markets can flourish even without strong state enforcement This is our main point of difference. How can a collection of randoms, who's anonymity is protected by the Internet, overall not do what is best for them over and above consideration for anonymous others when the benefits are so great and the consequences so light? Add to this CPPs omnipotence, the amount of spare money in the system and (as a consequence) the very low risk/return ration; my opinion is that this game skews more towards a half empty glass than a half full one from the point of view of investors. If you are right though (and 2T is a bucket full of backing) I would need to re-adjust a large portion of my belief system. I hope you are right.
Kazzac Elentria	Posted - 2009.02.13 13:12:00 - [47] Originally by: Hexxx Originally by: Ricdic Come to Sydney, Australia if you want to meet the EBANK boss in person . This offer is open to anyone And if anyone wants to meet me, I'm in Chicago. Happy to pick up a beer once I get back in March. I'm in China on business until then. Another Chi towner!? ..and here to think Im only an hour or so away stuck in Notre Damn country
Kazzac Elentria	Posted - 2009.02.13 13:13:00 - [48] Originally by: Lo Lightshard Originally by: Hexxx I believe lack of state enforcement is not a fatal flaw. History shows that markets can flourish even without strong state enforcement This is our main point of difference. How can a collection of randoms, who's anonymity is protected by the Internet, overall not do what is best for them over and above consideration for anonymous others when the benefits are so great and the consequences so light? Add to this CPPs omnipotence, the amount of spare money in the system and (as a consequence) the very low risk/return ration; my opinion is that this game skews more towards a half empty glass than a half full one from the point of view of investors. If you are right though (and 2T is a bucket full of backing) I would need to re-adjust a large portion of my belief system. I hope you are right. I think the very nature of how the market operates and by corollary the secondary market tends to draw people who for lack of a better term, have ethical morals above their own self service. We do it because we love it more or less.
Hexxx Minmatar	Posted - 2009.02.13 15:49:00 - [49] Originally by: Lo Lightshard Originally by: Hexxx I believe lack of state enforcement is not a fatal flaw. History shows that markets can flourish even without strong state enforcement This is our main point of difference. How can a collection of randoms, who's anonymity is protected by the Internet, overall not do what is best for them over and above consideration for anonymous others when the benefits are so great and the consequences so light? Add to this CPPs omnipotence, the amount of spare money in the system and (as a consequence) the very low risk/return ration; my opinion is that this game skews more towards a half empty glass than a half full one from the point of view of investors. If you are right though (and 2T is a bucket full of backing) I would need to re-adjust a large portion of my belief system. I hope you are right. If you look at game theory, and the "Prisoner's Dilemma" I am pursuing an irrational yet superior strategy. I've made billions through EBANK. So have a lot of other people.
Hexxx Minmatar	Posted - 2009.02.13 15:51:00 - [50] Originally by: Kazzac Elentria Originally by: Hexxx Originally by: Ricdic Come to Sydney, Australia if you want to meet the EBANK boss in person . This offer is open to anyone And if anyone wants to meet me, I'm in Chicago. Happy to pick up a beer once I get back in March. I'm in China on business until then. Another Chi towner!? ..and here to think Im only an hour or so away stuck in Notre Damn country You're actually 2 hours away by car and 2 hours and 40 minutes by train (the South Shore line). I grew up in South Bend, and I travel back to visit almost every single weekend.
Kazzac Elentria	Posted - 2009.02.13 15:54:00 - [51] Originally by: Hexxx Originally by: Kazzac Elentria Originally by: Hexxx Originally by: Ricdic Come to Sydney, Australia if you want to meet the EBANK boss in person . This offer is open to anyone And if anyone wants to meet me, I'm in Chicago. Happy to pick up a beer once I get back in March. I'm in China on business until then. Another Chi towner!? ..and here to think Im only an hour or so away stuck in Notre Damn country You're actually 2 hours away by car and 2 hours and 40 minutes by train (the South Shore line). I grew up in South Bend, and I travel back to visit almost every single weekend. You drive to slow I grew up in Chicago (hyde park) and moved out this way. Travel back at least once a month to visit family. Everyone says they have an evil twin in the world, perhaps you've found yours
Hexxx Minmatar	Posted - 2009.02.13 15:56:00 - [52] Originally by: Kazzac Elentria Another Chi towner!? ..and here to think Im only an hour or so away stuck in Notre Damn country You're actually 2 hours away by car and 2 hours and 40 minutes by train (the South Shore line). I grew up in South Bend, and I travel back to visit almost every single weekend. You drive to slow I grew up in Chicago (hyde park) and moved out this way. Travel back at least once a month to visit family. Everyone says they have an evil twin in the world, perhaps you've found yours Well hell, now we have to get together for a beer. email me @ [email protected]
Togen Lei Gallente Abyssal Heavy Industries	Posted - 2009.02.14 10:22:00 - [53] lol I'm a few hours the other direction (SE WI) Who Says you can't use a shuttle as a tank?

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