Nothing is set in stone

The Lex column today reminds us that back in 2000, after many mega mergers, the "big ten" or "supermajors" oil companies represented 2/3 of world's oil companies market cap. In a sector where scale is so relevant, all other players were believed to be doomed, destined to eternal irrelevance.

Fast forward to January 2008. It turns out that once again the "game-over" was called too soon. The "big ten - supermajors" today account for only 23% of worlds oil companies market cap. The take-aways?

1- Too big is often bad. Even in big oil.

2- Labels are terribly dangerous. Triple A companies can go bust very quick as we've been given many examples recently, "genius fail", and five or more sigma events that were statistically supposed to occur once in a million years have been blamed for many of the crisis over the last decade.

3- You can never be sure of anything in the future. You must have values and should have some convictions but certainty will always elude us. Build your positions accordingly.

When morons failed

After Citi's and Merril's CEOs, now it's Bear Stearn's CEO turn to be forced out. When you look at that, the size of the losses (even if you assume that they were "just" the tens on Billions already recognized), the disruption created and the fact that so many signals were highlighted and warnings given beforehand by many, from Buffett to the mass newspapers, if you're committed to make a living in the capital markets, it should be inevitable to ask: how can it be? How can all those highly educated, ultra-highly paid, brilliant guys make such a mess that seemed so obvious?

My answer is: hubris, greed and the wrong incentives systems. As they say: if you want to find the answer, follow the money. The guys that created the mess might have suffered at the end, but received tons of money in the process and thought they were not only smart, but smarter then the other guys. At the end, they ended up looking, and being, morons.