Basically, Goldberg has been investing for 15 years, “playing by all the rules,” and has now lost lots of money, like almost everybody else. He’s unhappy and confused. A financial journalist he ain’t, but as a journalist, what he knows how to do is write, so this article, in a sense, feels like therapy – self-medication, in a way. It has some great moments – my favorite is when Goldberg pipes up at one of those lavish gatherings full of rich finance type people and asks
“What do you tell the ordinary mortal … who has $20,000, $50,000, $100,000, or $200,000, maybe, parked somewhere doing nothing? What is your advice right now for that person?” I looked around. The wizards in the room were having difficulty calculating figures of such humble size. I had thought $200,000 sounded like a large and unembarrassing number. But the room reacted as if I had asked, “Bill, I have 75 cents in my pocket. Do you think I should buy Twizzlers or a big red gumball?”
Anyway, for this piece to be treated as a salient piece of analysis, there are a few too many contradictory ideas thrown around, both for comedic effect, and presumably to recreate the confusion and anxiety Goldberg feels. Buying the Dow 30 turns out to be risky! Individual stock picking is even worse. (Both true, actually!) Buy and hold doesn’t work, trading is the only way to make money. But wait, frequent trading means that fees will eat up your returns. We should be putting together a cache of canned goods and buying guns. No, scratch that, America will be just fine. You get the idea. Still, he interviews some interesting, wise people, who basically tell him what he already knows. For instance, one advisor says:
“If one were to trade the S&P 500 for one day, the probability of losing money is about 46 percent However, as one extends that time horizon from one day to one month to one quarter to one year to 10 years, the probability of losing money decreases as the time horizon lengthens.”
To which I would add this observation from Keynes: “In the long run, we are all dead.”
True enough. Goldberg is smarting from one of the biggest market corrections in history (certainly the hugest of his life!) Towards the end of the article, he confesses that he wants nothing more to do with investing, even if that means he’ll “miss the next run-up.” And here, he is making a huge mistake. Goldberg is 44 (thanks Wikipedia!) and has decades and decades of earning in his future. For those of us who are younger, and didn’t have very much yet to lose, things are even better. Sure, as he points out, the market has reverted to 1997 levels. And just as surely, this is an overcorrection, just like the run-up in the last five years was a bubble. Anyone who had any money in the market this past year lost wealth, and that hurt. For Goldberg, who has been buying stocks since the 90’s, a fair chunk of his net worth was bubble wealth – an illusion. Just like some of the losses are now. And how exactly has Goldberg been investing? Here’s a description that should make any index fund enthusiast shudder:
It was more than a decade ago that our first Merrill Lynch adviser put us in a company called Boston Chicken. A Merrill analyst described it as “the restaurant concept of the ’90s.” It went bankrupt in 1998. Only later did I learn that Merrill had underwritten the initial public offering for Boston Chicken stock, and so had an interest in selling the company to its customers. There were other brilliant pieces of advice–long-term “buy and hold” recommendations that emerged from the Merrill analysis factory: Qualcomm; Sun Microsystems; Nokia; and Citibank, of course, which has recently dipped as low as a dollar a share. The full-service trading fees at Merrill–$80, $100, $130, for modest chunks of stock–were high, but we were told that we were paying a premium for quality research.
So much undiversified risk, for someone who, as it turns out, really doesn’t like losing money! The market may have dropped 30-40% in the last year, but a financial stock that looked so juicy in 2007 could be down 90%! An individual company may go bust, and the stock may go to zero, with no chance of an eventual rebound at all. Indeed:
In the harsh light of recession, I find it hard to believe I listened to a magazine that, in August 2007, recommended American Express at $63 a share (a “conservative way to make hay from global credit-card growth”), which as I write this is selling for $13 a share; Wynn Resorts, $94 then, $20 now; HSBC, $93 then, $25 now; Washington Mutual, $36 at the time, seized by the government last September–rendering the stock worthless.
Ugly. But like I said, amongst the mess of ideas, recollections, regrets and self-recriminations, Goldberg actually manages to solicit a lot of sound advice. One investor tells him: “You should find someone who isn’t overpromising or overcharging. Amen. Another says “It’s critical not to be greedy. Avoid leverage and don’t invest money that you can’t stand to lose.” And another:
“I’ve always said that if you want to take risk–any risk–you have to be prepared to put your money away for five years or more. If it’s that kind of money, I would give someone a couple of alternatives. Do you have enough money in the bank that if you were to lose your job, you’ve got a good window to get reemployed? You’ve got to make sure you have a safety net.
None of this is rocket science, though the way it’s been going lately, people who should have been rocket scientists went into finance instead. We know all of these things, and we need to stick to these principles. For those of us starting out, history is smiling, if you can believe it. For those already on their way, staying the course is especially important. Goldberg, of course, realizes this:
I’m long on America, as my friends on Wall Street might say. I believe that equities will grow in value. I expect the Dow to return to 9,000, or 10,000, if not sooner, then later.
Let’s hope he takes his own advice. I’m sure he’s got a lot of articles left in him, and I bet he gets a pretty good per word rate. Investing shouldn’t be complicated – it shouldn’t be your job. Doing your job should be your job. Keep it simple. Maybe someone will tell him about Betterment.
Betterment is the largest independent online financial advisor with more than $10 billion in assets under management. The service is designed to help increase customers’ long-term returns and lower taxes for retirement planning, building wealth, and other financial goals. Betterment takes advanced investment strategies and uses technology to deliver them to more than 270,000 customers across its three business lines: direct-to-consumer, Betterment for Advisors, and Betterment for Business. Learn more.