Angus’ investment behavior is irrational because he segregates the available choices. He fails to compare them so that he can make the best decision. He does not compare the performance of his investment with that of other firms in the oil sector. In addition, he does not compare the oil industry with other industries to make a wise decision. Angus decision shows bias in a number of ways. First, it shows overconfidence. Overconfidence in the company he has invested in makes him stick to it without much consideration on other available options. He underestimates the number of other possibilities that exist. His decision also expresses ambiguity aversion bias. He prefers his current investment over the others due to his familiarity with it. However, this denies him the chance of better investment returns in the unfamiliar companies. Since he relies on the information availed by the energy sector, it shows availability bias. He does not check the other sectors that could be having good investment opportunities. He has representativeness bias because he relies on his firm’s past performance. He ignores the possibilities that other companies and industries could be performing well than where he has invested.
According to the site, Harry Markopolos, a financial analyst and fraud investigator, figured out about Madoff’s scheme. Harry figured it out when he worked for an investment firm based in Boston. His boss told him of Madoff’s huge unregistered hedge fund. The investment’s returns were incredible. The boss required Harry to reverse-engineer the hedge fund’s trading strategy and revenue streams so that the firm could duplicate Madoff’s results. Harry noticed right away that something was amiss. However, he took almost four hours doing mathematical calculations to prove the fraud. He noticed that Madoff’s investment had few downs. Only four percent of the investment months were downs. The other months the market went up. Several organizations became victims of Madoff’s fraudulent endeavors. They include; Lawrence Velvel, dean of the Mass. School of Law, Rosenman Family LLC, Credit Suisse, Henry Kaufman, BNP Paribas, New York University, Norman Braman, owner of Philadelphia Eagles, and, Chais Family Foundation, Rye Investment Management
In his defense through his lawyer, he requested that the sentence be reduced to 12 years below his life expectancy estimate. The investors’ overconfidence bias played a great role in their loss. Their trust on the investment resulted in their loss. The regulatory oversight contributed in the fraud by their failure to follow on the allegations about Madoff’s firm was front running. The oversight regulatory had representative bias since they ignored the fact that a well performing firm could be fraudulent.
The most important indicators of a healthy economy include; gross domestic product, inflation, unemployment, and interest rates. Other leading economic indicators include; length of the average workweek, initial weekly claims for unemployment compensation, new orders placed with manufacturers, index of consumer expectations, and change in the money supply. According to the US department of finance, in 2011, the country had a GDP of $ 14.99 trillion. In 2011, it had a 3% inflation rate, and 9.1% unemployment rate. The interest rate in 2011 was 0.25%. This information shows that the economic status of USA is strong. This survey shows that the economy will grow over time hence ideal for investments.
SEC is an investor’s advocate because it maintains orderly, fair, and efficient markets. SEC’s watchwords refer to transparency in the market and have fair competition. SEC has several divisions that include; Corporate finance, trading and markets, investment management, enforcement, and economic and risk analysis. It works with organizations such as Financial Industry Regulatory Authority, the municipal Securities Rule Making Board among others. SEC enforces laws such as Security Act of 1933, Security Exchange Act of 1934, and Investment Company Act of 1940. In case of a complaint, the number to call is 1-800-SEC-0330.