In 1980, the compensation of the average chief executive officer was forty-two times that of the average worker; by the year 2004, the ratio had soared to 280 times that of the average worker (down from an astonishing 531 times at the peak in 2000). Over the past quarter-century, CEO compensation measured in current dollars rose nearly sixteen times over , while the compensation of the average worker slightly more than doubled. Measured in real(1980) dollars, however, the compensation of the average worker rose just 0.3 percent per year, barely enough to maintain his or her standard of living. Yet CEO compensation rose at a rate of 8.5 percent annually, increasing by more than seven times in real terms during the period. The rationale was that these executives had "created wealth" for their shareholders. But were CEOs actually creating value commensurate with this huge increase in compenstion? Certainly the average CEO was not. In real terms, aggregate corporate profits grew at an annual rate of just 2.9 percent, compared to 3.1 percent for our nation's economy, as represented by the Gross Domestic Product. How that somewhat dispiriting lag can drive average CEO compensation to a cool 9.8 million in 2004 is one of the great anomalies of the age.
The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it
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they pale by comparison to the trading volumes of hedge funds, to say nothing of the levels of trading in exotic securities such as interest rate swaps, collateralized debt obligations, derivatives such as futures on commodities, stock indexes, stocks, and even bets on whether a given
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