The Market Hick

The Tyranny of the Shareholders

Tyranny of the shareholders?
What are you smoking?(Pass it on, don't be a bogart)
It's the COMPLACENCY of the shareholders that have gotten us into this mess. And when I say shareholders, I mean the mutual funds and index funds that stand by while impotent management run companies into the ground.
I think the whole idea of index funds has been a giant failure because they have no incentive to monitor management through the board of directors. We have all been fed a line of bull that no portfolio manager can outperform the index over time so invest in index funds that are no check on management at all. I bet Bernie Ebbers loved that idea!
And look at all the other mutual fund companies who have failed to adequately price the risk into the strategies that the companies they invested in undertook(namely BSC,GS, MS, LEH, JPM).
Had they taken a more realistic approach to the risk these outfits took on when they expanded their leverage ratios, shares of such companies would not have been bid up to such unreasonable heights. Management, in turn, would not have profited so handsomely from their stock options and then, maybe way back when, the whole idea of overleverage would have been put to bed and prudence would have reigned.
But , no, portfolio managers are like the blind leading the blind. Taken by the nose by securities analysts from the same brokerage firms, they are led down the primrose path and are told all is well, keep buying lest the next guy outperform you. Chase the earnings, forget the risk. Do any of these guys bother to read a 10-k anymore?
What has happened to security analysis and portfolio management in this country?
What has happened to the idea that people should keep a reputation(that isn't a bad one)?