Posted on 02/03/2011 8:27:25 AM PST by SeekAndFind
We had Michael Lewis on TechTicker yesterday. He told the story of how his Merrill broker sold him Lehman preferred and auction-rate securities just before the financial crisis. Lewis has since fired Merrill and moved to Schwab.
Best-selling author Michael Lewis knows his way around Wall Street and the world of money. His first book, Liar’s Poker, chronicled his misadventures as a bond trader in the go-go 1980s. In Moneyball, he explored the way economic analysis is applied to baseball. And in The Big Short, which has just come out in paperback, he chronicled how a few shrewd investors managed to profit during the meltdown of the housing and credit bubbles.
Lewis has learned, from personal experience, to cast a jaundiced eye on establishment Wall Street firms and the innovative financial products and advice they sell. That has let him to a generally conservative posture when managing his own money. But even those with the most market knowledge violate their own rules.
In a recent interview with us, Princeton economist Burton Malkiel, a longtime advocate of the efficient market theory – i.e. the notion that individuals can’t beat the market – said that he occasionally tries to pick individual stocks and sectors because it’s fun. Similarly, Lewis found himself sitting on some toxic assets in the fall of 2008 that he had purchased at the advice of a large Wall Street brokerage firm.
As he tells Henry Blodget and I and in the accompanying video, Lewis is, in general, highly skeptical of the large Wall Street brokerage business model. “The stock market is not necessarily rigged against individual investors,” he says. “But if you’re listening to what brokers are telling you, they’re shading the odds against you rather than for you.”
(Excerpt) Read more at businessinsider.com ...
Stockbrokers do not have a fiduciary responsibility toward their clients. Any time they try to sell you something, you can be sure it’s against your interests, almost by definition. If it happens to work for you, it’s an accident.
Different story with many types of fee-based financial planners.
I thought he was a pretty bright guy but at Merrill buying the crap they were selling? Not very bright. Stan O’Neil turned it into a mortgage bucket shop at the time.
There is no reason why individuals can’t beat the market.
The market consists of a large number of people buying and selling stocks. If you are smarter, wiser, and have better self control than most of them, you will be successful.
Warren Buffet is a good example of this.
Brokers are salesmen as much as used car salesmen.
I had one particularly egregious person attempting to sell me every lousy product the firm pushed.
I love online trading. It just eliminates the horsepuckiness of investing.
I don’t disagree at all, but I sincerely believe listening to brokerage salesmen will not help your results.
ML has been nothing but a bunch of crooks stem to stern for decades; selling proprietary toxic crap to unsuspecting marks has been their standard modus operandi forever. Like clock work, at least once every decade you could count of ML being caught in some kind of major scandal where they were screwing their customers to the tune of billions of dollars.
Warren Buffet did not have to deal with HFTs and the rules (or lack of) that we do now. His buy and hold strategy would not serve him as well now as then. Different era - different results. If he was just starting out now, he’d be just another person floating along IMO.
The markets are primarily directed by Fund Managers who can stifle or propel a stock on a whim. The individual investor has to have his wits about him and be ready to act quickly or lose substantially.
Just curious, but does FR have a stock investing group ping list? I've never seen one here.
Most of the trading is done by the pros. You have to be able to out-think them.
“...does FR have a stock investing group ping list?”
I Don’t know. I usually see the same posters on business threads and Lori usually posts some good financial discussions, but no dedicated group ping list that I’m aware of.
There probably is a ping list somewhere on FR.
I consider anyone selling me something that will put money in their pocket as having a conflict of interest. In fact, I don’t know that it is even possible to get truly objective financial investment advice. The “Family CFO” concept comes as close as anything I have found.
When it comes to Merrill Lynch/BOA I have to bite my tongue.
Well, you can’t expect to compete with short term traders with powerful computers. They are just picking up pennies in front of steamrollers anyway.
What you want to do is visualize two or three scenarios about how the world might evolve over the next five years, and cover that in your portfolio. You should not make any sudden changes based on market fluctuations, and you should be receiving a good flow of dividends regardless of stock prices.
That is my formula, and it has worked over the long term. Naturally I’ve had losses, everyone has. I need them to offset my gains.
One final point: do not put more than 3% of your financial net worth in any one security, nor more than 20% in any one sector.
http://market-ticker.denninger.net/
The forum is where the action is at:
http://tickerforum.org/akcs-www
Denninger is a libertarian/conservative who runs his forum with an iron fist. It's somewhat obnoxious at times, but you learn lots.
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