Technically, I don’t exist. I mean, I’m here writing these words, but on paper I am a perfect impossibility.
I am a former stockbroker and current investment advisor. I started as an independent while virtually everyone who has found success in my industry began their careers at large, well-known firms. I came in through the backdoor of the investing business, fought my way through, and learned everything through sheer force of will and the intellectual curiosity of an autodidact. This is important in that my training has not been informed by or infused with the traditional brokerage firm orthodoxy.
I am an artist and writer by nature, a financial professional by choice. I have no friends “at the top” or “on the inside,” and I don’t own a single one of those blue shirts with the white collars. Without having paid fealty to the traditional powers that be or having called in favors of any kind, I’ve used only my honesty, wit, and reputation to get to the Big Show. Thanks to the magic of the Internet, each day my market insights are read by thousands of people across the country and around the world. This is all without the marketing muscle of a traditional Wall Street firm and minus any PR or publicity help of any kind. I’m able to call it like I see it without fear of reprisal from a corporate hierarchy or the media establishment.
There is no such person as me in all of finance, and there has never been an investing book quite like this one; no one else could have possibly written it. No one who is currently working in the investment advisory or asset management business will ever say the things I am about to say or draw back the curtain the way I plan to. Most have too much invested in the mirage to tear at some of the scabs that surely itch them from time to time. I was never a part of that mirage, nor did it ever appeal to me. I was always a bit too “punk rock” to work at those vaunted banking institutions and hallowed halls of high finance—you know, the ones that unraveled like a ball of yarn right before your eyes during the credit crisis.
Rebels don’t necessarily survive on The Street, and they almost never rise to a position of any influence or prominence. The fact that someone like me has—and is articulate enough to tell of the things I’ve seen—well, let’s just say they’ll never see me coming. So when I tell you that I don’t exist, let me assure you, this is no exaggeration. To call me a unicorn would be an understatement; I am a unicorn that can swim and speak fluent Portuguese.
There is a financial services industry facade that has been built on the premise of precision, an artifice that’s been decades in the making and billions of dollars in the marketing. The implication of this perpetual campaign is that “there’s a right way to invest, and only we are privy to its mechanics, we’ll take it from here.”
On The Street, our back tests are our blueprints, mathematical proof positive of “what works.”
Our colorfully rendered charts and graphs are the stained glass windows beckoning you into the Cathedral of Exactitude, the Church of Certainty wherein all the secrets of money management are guarded by the Chartered High Priests of Financial Acumen.
But let’s keep it real. Behind the construction of every strategy, every product, and every program that has been sold to the investor class, there are very human people making very human decisions. Precision may be the intent, but at the end of the day we are all just people, standing behind big-kid lemonade stands doing the best we can. Some of us use better-quality ingredients than others or are more adept at attracting potential customers. Some of us are meticulous in our process, while others are more willing to adapt, selling hot chocolate when the season’s turn eradicates demand for our original icy offering.
The truth is, there is no more precision in financial services than there is in medicine or architecture or computer science. Things go wrong, people act emotionally, and not everyone has the best intentions at all times. I have several thousand headlines dating back to when stock trading first took place under the Buttonwood Tree to prove this.
Even in the aftermath of one of the worst financial crises in world history, a crisis that many believe is still ongoing, the Precision Myth enshrouds every communication from the investment management business. No one has done more in the last two years to shatter this Precision Myth than I have.
I’ve written thousands of articles and blog posts for my own site, The Reformed Broker, and for media outlets like CNN, the Wall Street Journal, Forbes, the Faster Times, the Christian Science Monitor, Yahoo! Finance, and CNBC. I’ve done hundreds of television appearances, web videos, and radio shows. I’ve been cited and quoted by the likes of Reuters, Bloomberg, the Financial Times, and several foreign newspapers whose names I don’t feel like misspelling here. I’ve been called “pot-stirring and provocative” by Barron’s, an “iconoclast” by Research Magazine, and “the Merchant of Snark” by the New York Times. The message I’ve tried to convey throughout is that there is no “system.” We all are fallible no matter how smart or rigorous we may be, no matter how sophisticated our process. Most importantly, investing precision itself is a fallacy, and those who make forecasts with certainty are doomed.
One of the main differences between those who work in the money management industry and their customers is that the former are trained never to allow the latter to catch even a glimpse of doubt. While this is obviously disturbing, there is also something oddly admirable about that near-universal dedication to the Precision Myth among financial professionals.
“Pick up those phones, people, and let them know it’s going to be OK.” But what if some of the professionals themselves are unconvinced that things will be OK? Is this permissible? Is there room in this line of work for even a molecule of indecision or doubt?
“Be right, be wrong, but have an opinion.” Is this a logical line of thinking or a spate of nonsense worthy of only the most grotesque character from the pages of a Lewis Carroll story?
“Hold their hands, be reassuring. This is what they’re paying us for.” You’d be amazed at how true this statement actually is, particularly in the midst of crisis. But what good is offering my hand to an investor if I believe, as he does, that we are both about to tumble off a cliff? It turns out that to that investor, my grasp is more important than oxygen itself, I have come to learn.
“They’re not buying the steak, they’re buying the sizzle.” This made sense in the early days of my career, as most of the men who delivered this line looked as though they lived upstairs from a steakhouse and the restaurant paid them rent in thrice-daily steak dinners.
“We’re in the business of selling intangibles, these are only pieces of paper after all … we sell the potential for profits, not the profits themselves.” When you are selling “goods” to a client in the form of investment products, can you also be providing “services” to that client in good faith? The industry’s regulations do not yet stipulate that you have to.
The civilians don’t often get wind of these types of statements; the attitude and thought process behind them somehow never make it into the marketing.
Hundreds of thousands of people currently work in the financial services industry in various capacities, many of whom will not be discussed here. In Backstage Wall Street, we narrow our focus on the customer-facing and marketing part of the industry. We concern ourselves with the men and women on the benches of the galley who create that daily veneer of investment management precision with every stroke. Lifting and dipping their oars, these are the rowers who keep the ship gliding smoothly in the eyes of the observers ashore.
I want to emphasize that these are good people by and large, doing what they can within the confines of their career choice and under the limitations imposed by the lizard brains we’ve all inherited. I may be a muckraker and a satirist, but I am by no means a heartless one. It’s never easy separating one’s disdain for an organization from the acknowledgment that within there are likely to be wonderful people who are caring, hardworking, and conscientious. Some of my very best friends and smartest acquaintances work for banks, brokerages, and the like. The late comedian George Carlin had a pragmatic way of making this distinction that I have adopted for myself. In the 1970s, he said, “I love people, I hate groups. People are smart, groups are stupid.” Anyone with a family member involved in pet causes, local politics, professional sports fandom in Philadelphia, or something along those lines can certainly relate to this rationalization.
So no, we do not despise the subjects of this book’s focus individually, though we may at times despise the practices and institutions they represent. I don’t believe that the industry on the whole is inherently good or evil; I simply believe that its very existence is ineluctable. If the World’s Oldest Profession is prostitution, then surely its second oldest is financial advice. Whenever money is earned, after all, there is a desire for the optimal preservation and utilization of that capital … be it animal pelt, grain, or stone weaponry. And besides, without all those financier Master of the Universe types, who’s going to keep all those prostitutes busy?
The methods of compensation, the means of delivering wisdom, and the instruments of investment themselves may evolve, but there will always be an advice business for as long as there is money. And as long as there is an advice business, there will be people who earn their living at it. The people toiling below deck are to be commended for the courage it takes to pit themselves so willingly against such unpredictable occupational hazards as economics and finance. They should also be feared to some extent, for they—we—must be certifiably mad.
Wall Street is everywhere. Its marketing reach is limitless. According to BusinessWeek, the securities industry spends $15 billion a year advertising more than 14,000 different funds, 8,000 stocks, and an unknowable number of bonds and fixed-income instruments. To put that number in perspective, the alcohol and beer industry spends only $2 billion per year. There isn’t a televised sporting event in the country that doesn’t count a financial firm as a sponsor. There isn’t a newspaper in the nation that doesn’t count on at least some ad revenue from a fund company, brokerage, or bank. Most people simply fast-forward the commercials and flip over the ad pages without stopping to pay attention. If you’ve seen one brokerage ad, you’ve seen every one of them.
There is a common theme that runs through almost all investment marketing: “We know what we’re doing in the market.”
This would be fabulous if true; unfortunately, by definition it’s impossible. A market is made up of buyers and sellers, both of whom believe they are on the right side of a given purchase or sale. They cannot both be right. Now we can take a detour and say that a buyer may be wrong short term but absolutely right long term, but the advertising we’re discussing doesn’t merit quite that degree of nuance. After all, what brokerage ads are meant to convey is that the firms cannot possibly be wrong because even when they are wrong, they are still right. Speaking of Lewis Carroll, somewhere the Red Queen is smiling down on this ubiquitous marketing message with immense, almost maternal pride.
Well, pardon me for acting as the wrench that fate has sent to be thrown into the works, so to speak. Excuse me for having heard (and written) every pitch and every sales rap that’s ever been uttered. Forgive me for having made the decision to begin blogging as a human being, and by doing so, to begin pulling back the curtain.
Not only have I seen these films before, I’ve been on the studio back lot during their production. I’ve met the director and have hung out with the actors in their trailer between takes. I know where the makeup artist parks her car each morning and which screenplays are most in need of a rewrite. I know what dishes craft services is putting out for lunch and which sequels were only green-lit because the studio knows you’re going to buy a ticket.
Wall Street has long incorporated the most effective showbiz techniques into its repertoire. And while you may have gotten a peek backstage before, what I’m about to show you will be entirely new and somewhat revelatory.
Welcome to the reality behind all the false glamour, contrived accuracy, and manufactured confidence. Welcome to a world where institutions feign perfection and human beings pretend an omnipotent mastery over the random and uncontrollable.
This is your guided tour.