Too many people see Wall Street as a street paved with gold.
I don't know how skeptical you are by nature, but when you're thinking about buying stocks, bonds, or mutual funds, be very skeptical.
Your stockbroker, the mutual fund industry, and your friends are usually all too eager to bring you the good news.
Your broker wants to talk about how much money you would have if you had invested $100 a month in stocks for the past ten years.
The mutual fund companies want to advertise how well they have done for the past year or five years, whichever is more advantageous to their cause.
And your friends who bought Internet stocks in the fall of 1998 want to brag about how much they made in the subsequent eighteen months (if they had the good sense to sell in the spring of 2000).
Sure, a lot of smart, happy people bought into the Magellan Fund in 1982 and have profited greatly thereby.
And some brave pioneers bought stock in Microsoft (symbol MSFT) in 1982, and now they pave their driveways with gold.
But we are not going to look at the markets through rose-colored glasses.
How The Mighty Fall Have you heard about Richard Whitney? He was a man who had it all.
Born to one of the most famous and respected old Boston families, he eventually became the president of the New York Stock Exchange.
His brother was a partner in J.
P.
Morgan & Co.
, the leading investment banking firm of the day.
In 1912, the young Richard bought a seat on the New York Stock Exchange and later founded his own brokerage firm.
This guy started out with good money, good family ties, all the professional and "old school" connections, and all the training and experience that Wall Street could provide.
A lot of people in the business wanted him to succeed.
But where was he in 1938? Playing first base for the Sing-Sing Prison baseball team and bankrupt.
It is not for us to judge Richard Whitney, but there ought to be a lesson in his story somewhere.
He wanted to succeed, perhaps more so than you and I.
He thought he had good information.
He should have had the experience and good judgment to buy and sell at the right times, probably more so than we do.
But Whitney wasted a fortune.
He bought things he didn't understand, and he failed to take profits when he might have.
Finally, driven to desperate measures by the pressures of his failures, he embezzled money from his customers and lost that, too.
In fairness, we should note that Whitney was caught up in a maelstrom of markets gone mad, but he above all should have recognized the risks and known how to work around them.
If the president of the New York Stock Exchange, with all his connections, experience, and resources, can find his way to ruin, then it could happen to any of us.
Don't ever think that you or your broker or your friends are too clever to get hurt-really and truly hurt.
Don't Fall For The Games In 1992 Cigna Corporation, a financial services company, was ordered to pay $5.
3 million to a retired investor for selling him unsuitable limited partnerships.
Cigna was found to have sold twelve risky limited partnerships to a retired GTE executive who had $2 million to fund his retirement.
Those investments lost 90 percent of their value, leaving him with less than $200,000.
Cigna was also found to have misrepresented the progress of those investments and to have charged their client $22,000 in fees for handling the investments.
In 2001, an administrative judge ordered the brokerage firm Josephal & Company and two of its officers to pay over $3 million in restitution to clients, and more in penalties for improper stock trading.
The firm had identified a stock it wanted to dump and decided to dump it on its own customers.
The company offered their brokers exorbitant fees to sell the stock to the clients.
It may be assumed that the customers trusted the brokers and the firm, and that they believed the advice and explanations they were offered.
The stock ended up being peddled to the unfortunate clients at ridiculous prices, and eventually it crashed, a worthless investment.
I don't know how skeptical you are by nature, but when you're thinking about buying stocks, bonds, or mutual funds, be very skeptical.
Your stockbroker, the mutual fund industry, and your friends are usually all too eager to bring you the good news.
Your broker wants to talk about how much money you would have if you had invested $100 a month in stocks for the past ten years.
The mutual fund companies want to advertise how well they have done for the past year or five years, whichever is more advantageous to their cause.
And your friends who bought Internet stocks in the fall of 1998 want to brag about how much they made in the subsequent eighteen months (if they had the good sense to sell in the spring of 2000).
Sure, a lot of smart, happy people bought into the Magellan Fund in 1982 and have profited greatly thereby.
And some brave pioneers bought stock in Microsoft (symbol MSFT) in 1982, and now they pave their driveways with gold.
But we are not going to look at the markets through rose-colored glasses.
How The Mighty Fall Have you heard about Richard Whitney? He was a man who had it all.
Born to one of the most famous and respected old Boston families, he eventually became the president of the New York Stock Exchange.
His brother was a partner in J.
P.
Morgan & Co.
, the leading investment banking firm of the day.
In 1912, the young Richard bought a seat on the New York Stock Exchange and later founded his own brokerage firm.
This guy started out with good money, good family ties, all the professional and "old school" connections, and all the training and experience that Wall Street could provide.
A lot of people in the business wanted him to succeed.
But where was he in 1938? Playing first base for the Sing-Sing Prison baseball team and bankrupt.
It is not for us to judge Richard Whitney, but there ought to be a lesson in his story somewhere.
He wanted to succeed, perhaps more so than you and I.
He thought he had good information.
He should have had the experience and good judgment to buy and sell at the right times, probably more so than we do.
But Whitney wasted a fortune.
He bought things he didn't understand, and he failed to take profits when he might have.
Finally, driven to desperate measures by the pressures of his failures, he embezzled money from his customers and lost that, too.
In fairness, we should note that Whitney was caught up in a maelstrom of markets gone mad, but he above all should have recognized the risks and known how to work around them.
If the president of the New York Stock Exchange, with all his connections, experience, and resources, can find his way to ruin, then it could happen to any of us.
Don't ever think that you or your broker or your friends are too clever to get hurt-really and truly hurt.
Don't Fall For The Games In 1992 Cigna Corporation, a financial services company, was ordered to pay $5.
3 million to a retired investor for selling him unsuitable limited partnerships.
Cigna was found to have sold twelve risky limited partnerships to a retired GTE executive who had $2 million to fund his retirement.
Those investments lost 90 percent of their value, leaving him with less than $200,000.
Cigna was also found to have misrepresented the progress of those investments and to have charged their client $22,000 in fees for handling the investments.
In 2001, an administrative judge ordered the brokerage firm Josephal & Company and two of its officers to pay over $3 million in restitution to clients, and more in penalties for improper stock trading.
The firm had identified a stock it wanted to dump and decided to dump it on its own customers.
The company offered their brokers exorbitant fees to sell the stock to the clients.
It may be assumed that the customers trusted the brokers and the firm, and that they believed the advice and explanations they were offered.
The stock ended up being peddled to the unfortunate clients at ridiculous prices, and eventually it crashed, a worthless investment.
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