More words of wisdom about managing money, from reporter Joe Nocera at The New York Times:
At a panel a month ago, put together by Portfolio magazine, [Elie] Wiesel expressed, better than I’ve ever heard it, why people gave Mr. Madoff their money. “I remember that it was a myth that he created around him,” Mr. Wiesel said, “that everything was so special, so unique, that it had to be secret. It was like a mystical mythology that nobody could understand.” Mr. Wiesel added: “He gave the impression that maybe 100 people belonged to the club. Now we know thousands of them were cheated by him.”
And yet, just about anybody who actually took the time to kick the tires of Mr. Madoff’s operation tended to run in the other direction. James R. Hedges IV, who runs an advisory firm called LJH Global Investments, says that in 1997 he spent two hours asking Mr. Madoff basic questions about his operation. “The explanation of his strategy, the consistency of his returns, the way he withheld information — it was a very clear set of warning signs,” said Mr. Hedges. When you look at the list of Madoff victims, it contains a lot of high-profile names — but almost no serious institutional investors or endowments. They insist on knowing the kind of information Mr. Madoff refused to supply.
I suppose you could argue that most of Mr. Madoff’s direct investors lacked the ability or the financial sophistication of someone like Mr. Hedges. But it shouldn’t have mattered. Isn’t the first lesson of personal finance that you should never put all your money with one person or one fund? Even if you think your money manager is “God”? Diversification has many virtues; one of them is that you won’t lose everything if one of your money managers turns out to be a crook.
“These were people with a fair amount of money, and most of them sought no professional advice,” said Bruce C. Greenwald, who teaches value investing at the Graduate School of Business at Columbia University. “It’s like trying to do your own dentistry.” Mr. Hedges said, “It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”
And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff. There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it.
Read the rest here.
Filed under: Current Events, Economics and Finance, Education |
Thanks for the link, Becky.
Crazy, huh? It’s good to read Mr. Nocera taking this personal responsibility stance. It is the only one that makes sense. To a great extent, I’d apply this to the mortgage crisis as well — a lot of poor borrower judgment there, too. It’s amazing how many people who appear to be otherwise intelligent and savvy, lose their common sense when enticed by profit potential.
I don’t watch much TV these days, but happened to catch online the interview Mr. Nocera did with Jon Stewart (The Daily Show). The same one that led to the tiff (and subsequent invterview) between Jon and Jim Cramer (Mad Money). It was unusual and uncomfortable to say the least — If you haven”t seen it, I’d recommend it if only to see the usually manic Cramer disarmingly cowed and contrite.
As far as the Cramer interview went, he basically apologized for his networks (CNBC) poorly investigated financial reporting and his own overly bullish “buy, buy, buy” and “this rally could be limitless”-type pushes of the last couple of years.
In his defense, though, on his show he did try to emphasie that people should use his words as a jumping off point, but do their own research! So, while he was often misleadingly bullish, he did try to encourage investor knowledge & responsibility.
Tough times all around. Maybe this time everyone will learn that valuable lesson.
Happy Calfing! :) joan
…or is it calving?