AND HERE IS the latest in the brilliant thoughts of Mr Kwong Ki-chi, a man who just cannot get it into his head that he has left government to take a job in finance and whom we shall therefore have to redesignate as the secretary for exchange services. Mr Kwong says that Hong Kong Exchanges and Clearing, where he is boss (and which he runs with about as much skill as I could run a space launch), has appointed three fund managers to invest a portion of its HK$4.5 billion reserves in securities and high-yield bonds as this would achieve better investment returns, thus enhancing profits. Now shift the scene for a moment to Long Term Capital Management (LTCM), a big American hedge fund that went spectacularly bust three years ago from pursuing enhanced profits through high-yield bonds. LTCM's game plan was a clever one. American universities had led the world in new techniques of pricing risk. The rapid emergence of the options market in the 1980s, for instance, was the result of something called the Black and Scholes model, the product of a Mr Fischer Black and a Mr Myron Scholes, two academics who in 1973 devised equations to solve problems that had been troubling others for years. So the folks at LTCM asked themselves a simple question. Why not hire some of these clever people? If anyone could figure out whether the yield on any given security outweighs the risks associated with that security and does so more than for any other security then surely these bright boys could do it. LTCM thus scoured the campuses for such geniuses and put them to work. Well, you know the results. They couldn't do it. Even the very brightest academic thinkers could not outsmart the market. It turned out they were the ones left smarting. Bye-bye LTCM. What Black and Scholes had done was explain how the market for options works. They had not devised a market-beating system that would make speculators who used it rich. Even if they had, the market would soon have adjusted to this new system and those speculators would have been back at square one. If you are operating in an efficient market and not benefiting from inside information or committing fraud then the rule for you is the one it is for everyone else, however bright you may be. The risk-adjusted value of any security is the one at which it is priced. Luck may be at work for you if you buy it but science will not. Science is at work in an efficient market only to ensure that the price you get is the one that the conditions at the time say you should get. Money does not grow on trees. That is to say it has not grown on trees until now but let us all rejoice. Mr Kwong has proven all investment principles wrong. He has found the fabled money tree. A letter of appointment each to three fund managers and high-yield bonds now bring enhanced profits. Why did the directors of LTCM bother to go to American universities for an edge in pricing risk when the man they really wanted was a Hong Kong civil servant? Granted they would have had to pay him a budget-busting package even to match what we pay him but surely a super-genius like this is worth his weight in diamonds. And why bother to point out that high-yield bonds are corporate bonds? If this is where Mr Kwong puts the exchange's reserves then he may find he has a little trouble getting the exchange's rainy-day money back just when the exchange itself is down on its luck because of corporate trouble. But, no, that would be thinking like a professional investor thinks and Mr Kwong has transcended such mundane considerations. I swear to you that I am not the only investments man who is shaking his head at the pronouncements of this wizard.