Start with the fact that it’s hard to beat the market occasionally, but impossible to beat it long-term.
Move onto the fact that the easiest way to beat the market long-term is to take a handsome management fee — irrespective of how well you do, or don’t.
Personally I have found little joy with money managers I’ve employed. All made more money out of me than I made out of them. (There was one exception.)
These realizations have become widespread. Hence the huge influx of monies out of managed money into dumb, boring index funds, especially those low-cost ones run by Vanguard.
Money managers and brokers tend to prey on older folk. On Sunday, the Business Section of the New York Times ran an amazing story of how a troubled Morgan Stanley employee managed to lose half his clients money, or about $50 million.
Here’s the beginning of the story:
Morgan Stanley Neglected Warnings on Broker
A troubling call came in to Morgan Stanley’s internal hotline in May 2010.
One of the company’s top financial advisers in Mississippi, Steve Wyatt, was struggling with medications and was “not sleeping, coming in 3 and 4 a.m.,” his assistant said on the call, according to notes taken by the person who answered the phone. Mr. Wyatt, a broker, was also trading client money “erratically,” the assistant said.
Morgan Stanley is one of the top banks on Wall Street, operating one of the most sophisticated financial advisory businesses in the world. But when the call came in, there was little effort to help fix the problems, Mr. Wyatt’s colleagues – and Mr. Wyatt himself – testified in arbitration.
This was not the only time Morgan Stanley did not heed warnings about Mr. Wyatt, who managed tens of millions of dollars of customer money, according to a settlement this week and documents from arbitration cases against him and the company.
During Mr. Wyatt’s five years at the company, supervisors and compliance officers noted his problematic behavior and business patterns many times and failed to step in, documents show. Lawyers for his former clients claim that they lost about half their money, or around $50 million.
Mr. Wyatt’s case, while involving just one broker, reveals the difficulty that even sophisticated companies can encounter in supervising their far-flung networks of brokers, who manage the retirement savings of millions of people nationwide.
Wall Street companies have been expanding into wealth management and brokerage services, as profits from other businesses have been under pressure from regulations imposed after the 2008 financial crisis. Morgan Stanley now has nearly 16,000 financial advisers, one of the largest such forces of any company.
Mr. Wyatt, who oversaw more than $100 million in client money, was fired in 2012, more than two years after that phone call and after more concerns were raised.
In an interview, Mr. Wyatt, now 44, described falling into depression and having suicidal feelings, set off by the chaos of the financial crisis and its aftermath. He said his supervisors never offered help or expressed concern. “If they thought I was suicidal, if they thought I was depressed, nobody mentioned anything to me – concerned or otherwise,” he said.
You can read the full story here.
Housing: The Next Financial Crisis?
That was my headline yesterday.
Fact: Housing is huge — our largest asset class, and the cause of more financial crises than any other.
You can’t predict financial crises. But — since I wrote yesterday’s piece, it’s amazing how many pieces I’ve received extolling NOW is the time to buy residential real estate. Samples of what I received:
Says Market Watch (part of the Wall Street Journal,
“Jeff Reeves argues that despite surging prices, the housing market isn’t headed for another bubble. See full story.“
Harry’s comments on all this euphoria:
This absolutely isn’t “the best time in history to invest in real estate.”
It may actually be the best time in recent history to sell some of your real estate. This morning’s headline:
Sell at the top.
Bill Gates is the richest man in the world. He’s worth $90 billion.
Where is Gates’s money coming from? According to ABC News of Australia:
Most of it is not coming from Microsoft.
The original (and self-described) computer nerd now owns just 2.5 per cent of the world’s biggest software company, the one he co-founded after dropping out of Harvard. Those shares contribute about $11 billion to his net worth.
Mr Gates’ biggest asset is a company called Cascade Investment. It invests heavily in publicly traded companies and it is these cash cows boosting the Gates’s fortune.
The world’s richest man is making big bucks from:
+The Canadian National Railway
+ The Strategic Hotel group (the owner of several Intercontinental, Four Seasons and Ritz Carlton branded hotels across the US)
+ The not-as-luxurious waste disposal company Republic Services
+ Deere and Company (think: John Deere)
+ Water, hygiene and energy technology company Ecolab
So, trains, tractors, hotel rooms and rubbish. If ever there was a lesson in diversifying investments, let it be Mr Bill Gates.
Read the full story here.
Global Warming?
Favorite lawyer billboard
Favorite photo illustrating falling oil prices.
Favorite medical cartoon
Favorite oldies cartoon
And finally, favorite recent New Yorker cartoon
Harry Newton, who loved this quote from NYTimes writer on the Olympics:
And so, you sell your real estate and do exactly WHAT with the money?
Thanks, but I’ll hold on to the dirt and collect rent. Income is good.
And, as Tom points out, the correlations of AlGore were horribly bad math. You can only look at AlGore’s predictions and be embarrassed. The 1% tried to create “Global Warming / Cooling / Changing” as an International religion designed to make them richer. If you bought into their religion, you never looked at the math.
Clean air & Clean water? All good stuff. THAT is a good reason to reduce emissions and pollution. “Climate Change”? Bullshit.
Hi Harry – just a bit on Global Warming – record temperatures are pretty much guaranteed each year because NOAA keeps adjusting the data upward. ALL of the upward trend in temperature for the last 60 years is due to “adjustments” made by NOAA. I dont personally know whether warming is real or not, but I guarantee you that if you were asked to invest in a company that keeps records like NOAA you’d be gone in a New York minute. I can elaborate if you like, but in the meantime consider this: if the powers that be were really concerned, why arent they busy building nuclear power plants, which is the most certain way to reduce carbon dioxide?
Ami Forte from Morgan Stanley was ranked #1 annually by Barron’s.
And now, the rest of the story:
http://www.thinkadvisor.com/2016/05/19/ex-morgan-advisor-ami-forte-grapples-with-fallout
Good Day!