Tags: Bitran | MIT | market | return

MIT Swindlers Prey on Unwary Investors

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Wednesday, 20 Aug 2014 09:41 AM Current | Bio | Archive

The Massachusetts Institute of Technology is a storied institution with an excellent faculty, but at least one of them is also a second-rate swindler. His "research" proved that wealthy, intelligent people make dumb decisions just like regular folks.

Gabriel Bitran, a former professor and associate dean at MIT's Sloan School of Management, and his son Marco Bitran agreed last week to plead guilty to securities fraud and obstruction of justice. The father-son duo attracted more than $500 million from 2005 through 2011 into their hedge fund, GMB Capital Management. Virtually all the money is gone now.

The Bitrans did well for themselves, extracting millions in management fees with stories of a complex mathematical trading model based on Gabriel Bitran's groundbreaking MIT research.

In fact, no such model ever existed. The pair invested the money in other hedge funds, including the one run by Bernie Madoff. Oops. Instead of the claimed 16 percent to 23 percent returns, GMB investors earned negative 100 percent.

Victims naturally want their money back, but they won't get it. What they will get are some hard lessons in financial reality.

Yes, the Bitrans deceived people, but only by telling prospective investors what the investors wanted to hear. "Look at my track record and expect more of the same. Trust my impressive pedigree. You can get rich quickly and easily."

In fact, all these claims are always false.

Historical records are exactly that: historical. Even if they are real and not hypothetical, they tell us almost nothing about the future. They frequently contain false assumptions, unrepeatable circumstances or statistical flukes.

Do some investors have extraordinary skill? Yes, but true market-beating talent is extremely rare. Warren Buffett, the gold standard for long-term success, has only made 19 percent to 20 percent average annual returns. Expecting someone else to beat the Oracle of Omaha is a recipe for disappointment.

What about that MIT pedigree? Surely smart professors can do better than ordinary folks do, right? Wrong. Having a high IQ and a Ph.D. doesn't make you a better investor. Those credentials do make it easier to attract investors, though. That's why so many managers have them.

Financial markets are efficient. High returns don't come without high risk, and the nature of risk means that some people will lose. Risk-free returns are a mirage.

If you think you found a way to make big money without taking big risks, look again. I can assure you the risks are there.

In my experience, the most successful investors are people who pour their energy not into beating the market, but into a cash-generating business. They then save a high percentage of their income in boring, low-risk investments.

Do likewise and you will have a much better chance of joining them.

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PatrickWatson
The Massachusetts Institute of Technology is a storied institution with an excellent faculty, but at least one of them is also a second-rate swindler. His "research" proved that wealthy, intelligent people make dumb decisions just like regular folks.
Bitran, MIT, market, return
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2014-41-20
Wednesday, 20 Aug 2014 09:41 AM
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