

Why I Fired My Broker - thomas
http://www.theatlantic.com/doc/print/200905/goldberg-economy

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HSO
Several misconceptions in this articles, quite typical ones actually:

1) "I can’t imagine what led all of us to believe that we could regularly
expect double-digit annual returns on our money, for doing no work"

You did work. You worked, exchanged your product for money, and saved it. But
other people did work too. So you took your money, in effect lowered the
capital cost of other people's enterprises (unless you bought in the primary
market), and in return have a chance of participating in their venture's
success (if). Those who are more discerning in their allocations earn higher
average returns on their capital. It's not alchemy, it's capitalism! Whether
the assets are fairly valued or not is a totally different question.

2) " Let’s say you own a Procter & Gamble in your portfolio and the stock
price goes down by half. Do you like it better? [...] If you don’t, you’re not
an investor, you’re a speculator"

Quoted like this, wrong! THe crucial condition is that you did an independent
valuation of the asset and came up with a higher value. The price itself
doesn't tell you anything other than what other people think or feel.

3) "An out-of-print guide to value investing, it sells for as much as $2,500
per copy on the Web."

Just for the record, these are collector's editions. If anyone is simply
interested in the material (which is not all that original, btw) it floats as
free PDF, just google it.

In general, I find it fascinating that people like to think that there is
someone out there with their best interests at heart. Where does this come
from? Where is their independence and responsibility? Balthasar Gracian, a
Jesuit priest from the 18th (?) century, put it thus: You don't count on the
kindness or gratitude of people but on their self-interest.

~~~
christofd
Hmmm... I don't really like this comment and the fact that it's being upvoted.

Regarding 1) Why are you going on over 6 sentences to explain that capital
(just like labor) commands a return on investment in the marketplace, while
the simple message being delivered is that in fact there is a perceived
anomaly going on with these exceptional capital growth rates. If the system,
of how the Fed hands out money to banks and creates the incentive for a false
bubble, is the problem at hand, then an answer citing a lesson in capital
markets is not helpful.

Regarding 2) Again, I don't like this short-sighted smack-down. Actually, I
like this quote. Well, if I buy an asset (own it) then I have made an implicit
judgement to how I assess the value of the stock. So thereby the fluctuation
compared against this base value does very well matter to me.

Regarding 3) In a time of failure of capital markets the answer to the problem
voiced here seems to be "self-interest". Again, a short-sighted smack-down
with a resolve that sounds catchy. The answer to this whole financial mess
does not lie in the private sector, for capital markets, as they have shown,
are quite narrow-minded. Bad oversight has led to this. The solution lies in
looking at long-term effective regulation, which goes beyond the perspective
that narrow-minded self-interest can deliver. The Chicago school of thought in
Economics truly has suffered in 2008.

Sorry, reading the article again... the point is valid, that blind belief in
non-educated financial advisors (basically the equivalent of used-cars
salesmen) or profit-motivated pros is deadly.

~~~
HSO
Sorry if I ranted but I went on for "over 6 sentences" because I am sensitive
to this cliche of investors/speculators as nonproductive blood suckers. It was
one of the images that was used in a certain historical catastrophe where I
live (Germany). It's also a very popular image today, risking throwing the
baby (capitalism) out with the bathwater (corruption, greed, ...).

Regarding 2, I also like the quote. But the article misquotes it by leaving
out the crucial part: independent valuation, based on economic fundamentals. I
think you overestimate people's "implicit judgement". Many if not most people
buy because the price recently went up, and vice versa, without reference to
fundamentals or doing their homework. Leaving out the valuation part makes it
read as if Klarman was simply inverting the trend-followers. But not so, the
point was doing independent research and acting only when price deviates
sufficiently far from one's own judgment.

~~~
christofd
How ironic, I've lived a long time in Germany. Didn't expect a pure pro-market
comment to come from there, which doesn't mean that there is anything wrong
with a pro-market view (just to clarify). The historical context is
interesting; in other countries speculators are pursued often with more vigor.

Even more ironic, that after the downer the Chicago school of thought
(Economics) received in 2008, the President's economic and intellectual team
is, well, from Chicago.

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brc
I thought this was an entertaining piece, probably very familiar to many.

My maxim has always been : I don't to hire a financial advisor who I can
actually afford.

You either need to educate yourself on what you're doing or stay out of the
market. I know a guy who is paid to give advice to retirees looking to buy
funds by a main street bank: he's paid on commission and has very little idea
about what is going on. He dresses in a suit and sits in a little office and
hands out shiny brochures, but as far as I can tell, he has less money than
me, so there's no way I would ever take his advice. Most of these people would
warn against investing $5,000 in your brother's startup, but would happily
recommend purchasing AIG stock, even now.

It's my take on the old 'I don't want to be a member of any club that will
accept me as a member'

~~~
noodle
indeed.

i invest my own money, have had success even through this down market, and i
only follow one simple rule: i invest only in what i personally understand.

i learn about a company, see that they're a good investment, understand what
my money is buying, and then decide on whether to invest or not. if i can't
figure out where my money is going or what its doing, i don't invest. simple.

i refuse to put it into a black box or have any black magics performed on it.

~~~
maximilian
This is very closely along the lines of what I have been thinking a lot about
lately regarding investing. You are basically betting that a company will not
go bankrupt (when the stock is worthless..). The rest of the price
fluctuations are just people's opinions. If I buy stock in companies I know
nothing about, how can I possibly predict how well they are doing against the
competition and why they are not going to go bankrupt.

I think there is a place in an investment bank for quantitative analysis, but
not for the regular investor. Most of the formulas they give are pretty shoddy
anyway.

When I have money to invest I will probably buy a big ol' index fund, which is
like betting on the US economy, which will (hopefully) always be doing well. I
might also then invest in a few companies that I know, understand, and really
like.

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luckyland
I clicked the link and read a lively piece written by someone unfortunately
burned by his own ignorance of the financial markets.

There's no such thing as a lottery ticket with guaranteed winnings, yet that's
what millions of people throw their money away believing.

The truth is that your 401K and other investments are driven by you, not your
broker (who owes you nothing morally), and you have to tend them as a gardener
with a farmer's almanac under his arm.

It takes more than the simple expectation of wealth to make your -earnings-
work for you when you are sleeping.

People spend more time laboring over Amazon user reviews of LCD televisions
than understanding what retirement planning really means.

~~~
stewiecat
Everytime I hear about a 60 year old losing their 401(k) because of the stock
market crash I refuse to feel for them. Why were they so equity-heavy at that
age when having cash/fixed income assets would be safer? They either didn't
know or didn't care but either way it was their money to control and they
didn't.

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mynameishere
Broker != Investment advisor, by the way. This article has made the rounds I
see, finally winding up here.

I'm also not an investment advisor, but let me give you guys a tip before the
[dead] tag appears. Equities are finished. Money flows made the bubbles and
money flows will unmake them. A whole generation of retirees will liquidate in
order to survive and that means lower and lower prices. Just stick your cash
in short-term bond funds. Unless you're a gambler.

------
anigbrowl
I have to admit that articles like the above make me feel somewhat better
about my failure to accumulate any significant financial assets over the last
20 years. Not having enough salted away is somewhat worrying, but if I'd
watched it evaporate I'd be going long on assault rifles right now.

------
DannoHung
A microcosm of what is wrong with our financial system.

The growth of real value, in terms of goods produced, materials harvested, and
knowledge created has absolutely no correlation or bearing upon the systems
that get to determine the distribution of capital above a strictly consumer
level. Thus, investments are made illusory, despite them being closer to
actual growth in value, and trading, for no other purpose than to collect
fees, becomes the primary activity. Any player not large enough to collect
fees is funneled into a loser's game.

Were we all not caged within the giants' houses, I would say the only sane
course would be for everyone to take their ball, go home, and let the
behemoths feast upon each other until they starve; go to a barter system, let
the markets burn. Rebuild them such that anyone that does become too
successful must fall, as opposed to not being allowed to fail.

------
tybris
May came early this year.

------
ilkhd2
I disagree with point made in the article, that Americans are more tolerant to
insecurity than europeans. There in my point several points that have to be
made. 1\. America has horrible mass media, that does not even talk about real
issues, what is going on in the country. 2\. Americans overall have not seen
so many horrible things that Europe during it is own history - there is simply
no collective idea what big problems may look like.

There are many other reasons, but majority of people here I beleive are
Americans, I am not going to insult them.

~~~
frossie
I don't think that the article meant that Americans _feel_ less insecurity
than the Europeans. I think that statement should be understood in the context
of the author's reaction to his situation: his self-described passivity.

In my experience, it is the case in many European countries that when there is
perceived financial insecurity, or other threat to material well-being (eg.
welfare changes), the insecurity people feel quickly turns into anger and then
political protest - strikes, demonstrations etc.

The US, and to a lesser extent the UK, people engage in a lot of expression of
all the same emotions in the media, but due to cultural differences that does
not translate into the kind of civic protest seen on the old continent. Hence
the populace in the US can be perceived as more tolerant.

That's how I understood what he said, anyway.

