Greed is Hazardous to Your Wealth – by John Grace

This title is in sharp contrast to the “Greed is good” words made famous by Gordon Gekko in the 1987 monster movie Wall Street.  1987 was a long time ago when that movie was made, but no matter the times there is always someone ready to shake you down for money, whether on the street or in business.   Clients have asked how it was possible for someone like Bernie Madoff to put together a multi-billion dollar Ponzi  scheme in the midst of all of the technology currently available.  There are a lot of possible answers to the question.  But as a wise man once said, “Truth is simple.”  So after meeting Harry Markopolis, the Madoff whistle blower, at a conference that followed Bernie for about nine years I will keep it simple and say to you the first problem wasn’t the telling initials of Mr. BM, it was the greed and ignorance of the investors.

Let’s start with an example of how ordinary people allow strangers to pick their pockets.  It is no different than a magic show; the primary method magicians have learned to entertain the audience is by distraction.  Humans, particularly in our world of ADD, focus on one thing, so if you give us anything interesting to look at we suddenly go unconscious when it comes to our money and our valuables.   In the pickpocket world setting up a distraction can get pretty elaborate.  It is not uncommon for there to be two or more people involved in staging a fight or a car accident, for example, so that another member of the pickpocket team can take advantage of the inattentive mark.

It becomes even simpler when we look at the word mark.  As a pre-med student at NYU I personally witnessed and heard stories about visitors getting their pockets picked.  I was determined not to tell a story like that when I returned home to CA.   Apparently the pick pocket people study folks as they walk down the street.  They look for folks who are distracted, those who are walking in amazement at the skyline,  with no sense of direction visitors can wander as they walk,  allow their billfold, purse or wallet to be readily discernable and easily snatched.  Those who pick pockets look for people who could be easily overtaken or appear they would put up much of a fight or a protest.   Working alone or with a team those who pick pockets identify the mark, a marked person who stands out in a crowd they can distract and steal.  It is not uncommon for some folks to immediately offer their wallet or cash to someone they find threatening.

So that I did not become a marked student I tried to dress as the locals dressed when sightseeing, I made certain my wallet was in my front pocket, not my back pocket, I carried only the cash I thought I would need for the time away from campus, I stayed vigilant as to who was nearby on the street or the subway, I used the maps I carried, and I maintained a good sense of direction.  When I left public transportation I knew exactly where I was going.  When lost I looked for public places where I could get information.  I also looked at faces to see if the person I was approaching looked dangerous or helpful.  I found the people who looked helpful to take the time to give me good directions so that I got to where I was going and got back to campus safe and sound.  Some students stayed on campus in fear.  I ventured out from campus with confidence.

People who run Ponzi  schemes are not much different than people who pick pockets.  Warren Buffett is quoted as saying, “Risk comes from not knowing what you’re doing.”  If you do not take the time to determine where you want your money to take you, you probably won’t keep what you have for as long as you need it.  If you don’t understand what you own and why you own what you do, you are probably setting yourself up for a big, ugly surprise down the road.  When investors noticed that their statements were printed on Madoff stationery, that was a sign that all things were not as represented.  When the annual returns never have a loss in any year and are consistently higher than their respective benchmark year after year that is another sign that something is not right.  When the question is asked “How do you do this work?” and Mr. BM or anyone else replies with anything like, “It’s too complicated for you to begin to understand it” you need to place your funds elsewhere.

Harry Markopolis tells me that Bernie Madoff was a master at prospecting.  It was not uncommon for Bernie to be at the funeral of one of his friends.  Markopolis reports that Bernie would appear well dressed and well poised as he comforted the widow saying something like, “Come in to my office and I will take care of everything.”  He sure did.  To women I say, get involved.  Learn about risk and money management options.  Odds are women will live longer than the man in their lives.  So women cannot afford to allow the husband to “take care of everything” because the husband may not be in the picture and the widow will have no one she trusts with whom she can discuss such matters.  As one widow said to me, “My friends at church know I have money.   All of them want me to invest in something.  You know my husband and I didn’t agree on everything, but now I don’t have him to talk to about what to do with this money.”

Once women understand things better they are also better equipped to help the husband determine what to do.  Many women are surprised by how much risk the husband was taking.  I encourage couples to look at risk with their eyes wide open.  In the past risk was your friend more than your foe.  When the economy is expanding more than it is contracting, risk and debt doesn’t often get in the way of profit taking.  When the economy is contracting more than it is expanding, as it is right now, investors are smart to determine when to accept risk and when to be more defensive.  In the current difficult economic and market environment my suggestion is to look for investment strategies that offer traditional, tactical, quantitative, and alternative options.  As Paul Samuelson, the first American to win the Nobel Prize in economics said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, go to Las Vegas.”
If you do not take the time to learn how to protect and grow your assets and if you do not take the time to understand what you need your money to do and if you do not understand the risk you are taking when you invest, it is no different than throwing up your hands in despair.  There will always be someone more than willing to pick your pockets and relieve you of your money.

John L. Grace is President of Investor’s Advantage Corp in Westlake Village CA which has been helping investors since 1979 manage wealth and prepare for a better future in spite of the unexpected events produced by God and by man. John is a Registered Principal with National Planning Corp, a national independent brokerage firm headquartered in Santa Monica, CA. In 1999 John Grace became Master Certified and a Charter Member with the H S Dent Advisor’s Network.

The opinions voiced in this article are for general information only.  They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC.

At Investor’s Advantage we help take the mystery out of money management since 1979.

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