Kidnapping vs. Index fund investment

Caffeinated a few hours ago to read; got an idea; writing this (on the toilet) now to burn off caffeine before imminent sleep.

In the year of 2019, S&P 500 gained 31% in value. Over the previous ten year period, S&P 500 gained 10% annually on average. Investing in index-linked mutual funds or ETFs such as the Vanguard vehicles would offer similar returns. These returns are a lot better than most hedge funds’ performances in the past decade, without the need for a 30% commission price tag.

So, if on Jan 1, 2019 (the first day of a particularly lucky year), one were to invest 100,000$ in SPY, then by Dec 31, 2019, one would be able to sell the SPY positions for 130,000$. If one were to have put it in some sort of long option instead, one could receive many X more return than that, perhaps minting a new millionaire in the process.

Kidnapping (humans in exchange for wealth) is historically far less lucrative.

I don’t feel the need to look up statistics for this, but for our collective safety and happiness, I’m going to hope there’s some sort of stat stating “nearly 100% of kidnappers end up captured, their sinister operations foiled”.

While kidnapping and equity-trading seem to both belong in the “redistribution of wealth” territory, the former is clearly much less desirable.

And it should be. We don’t want kidnappers. But I will write on…

The biggest reason for this poor return is probably: kidnappers are, overwhelmingly, impulsively evil people. They’re super evil, and they’re impulsive while being evil.

When a potential kidnapper is in dire need of money, and is willing to take huge risks to acquire it, they wouldn’t execute that risk by taking out a 100,000$ loan from a major bank and put it in Vanguard index fund for a year. No. They would chloroform some wealthy businessman off the streets into a van, then call his family and ask for 10 million dollars.

(I’m not delving into the kidnapping of kids since that’s too evil even for a meme contemplation piece)

There is a rule (or so I’ve heard) in police work regarding kidnapping: “always wait for the kidnappers to make the first move”.

When your loved one goes missing, first call the police. They will probably wiretap your phone, then tell you to do nothing but wait for the kidnappers to call with demands. Of course, the police will do behind-the-scenes work in the meantime, to ascertain the validity of the kidnapping, and try to track down the kidnappers before they make any moves.

But in the worst-case scenario for family members, (and incidentally, near-best-case scenario for the kidnappers), the kidnappers will be untraceable and they’re in the clear to make the first move.

A ransom call rings. Some shenanigans go down. Maybe money changes hands. We can only have fingers-crossed on the kidnapper’s incompetence and the police’s competence, and hope for the survival of the victim.

Usually, according to our imaginary statistic above, nearly 100% of the time, the kidnappers end up with nothing and probably lose decades of their lives in jail.

What if kidnappers treated their kidnapped subjects as an investment?

Imagine this operation:

1. Kidnapper kidnaps wealthy businessman.
2. Kidnapper eludes the police from initially tracing their whereabouts.
3. Kidnapper imprisons the subject in some appalachian log cabin, keeps him well-fed and entertained.
4. For an entire year, Kidnapper continues to keep subject well-fed and entertained, and makes no contact with the family at all.
5. One year later, Kidnapper calls the family for ransom.

What would happen when the kidnappers call?

1. Family members would be a-b-s-o-l-u-t-e-l-y elated. They filed that missing persons report in utter apprehension on a rainy Wednesday afternoon. The police told them to wait for a kidnapper’s call, and put a detective squad on their case. They’d be stationed to listen to calls, surveyed the home and workplace continuously, and went through all possible means of witnesses to figure out where the kidnappers went.
2. Twelve months, 48 agonizing Wednesdays go by, the police have given up. Their kidnapping is now a cold case. The detective in-charge stood solemnly next to the crying family members, quietly giving condolences. With a heavy heart, the detective files the missing-person report, adding “presumed dead” somewhere on the file.
3. Life goes on. The businessman isn’t legally dead, not after a single year. So his business interests would still be carried out by various functionaries and executors. The family would have lost a heart-wrenching piece of their hope; permanently unhappy for the rest of their lives. Yet, they learned to move on.
4. The call comes.
5. Absolute joy and relief. He’s alive!
6. “Here’s his picture holding today’s newspaper. Don’t be threatened or feel anxious. His life clearly isn’t in danger, after all, he’s been safe in our hands for an entire year now. However, if you’re to inform the police, that would be another matter…”
7. In one particular aspect, the family would have much more confidence than a year earlier: the kidnappers are very likely to release their loved one if paid. After all, if they aren’t going to release him, then why bother ensuring his survival for an entire year?
8. SINCE it’s nearly guaranteed that their loved one will return to their embrace once the ransom is paid, then what other reason is there to inform the police of this now much-less-dangerous transaction?
9. Can we pay the ransom? Yup. We’ve only lost a main source of income for a single year, we’re still pretty wealthy.
10. Let’s say the cost of all operations for kidnappers (including feeding and hosting the subject) is about 50,000$ for the entire year. At a 1 million $ ransom, that’s a solid 2000% return.

Terrifyingly, what if the kidnappers were to kidnap one person every month? For twelve months straight?

As with many time-sensitive investment attempts, this amoral musing is based only on the lengthening of investment timeframe (one year). A time period much longer than that would have drastically diminishing returns.

Edit:
In response to this article, a friend shared with me a vastly more fascinating piece by Ranjan Roy. This one has real data:

Doordash and Pizza Arbitrage