Your Fault, Dear Reader

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Apprentice Investor” column is up at

This week’s installment is called “Your Fault, Dear Reader.” The title credit goes to my well-read editor, who crafted the clever twist of William Shakespeare’s Julius Caesar (“The Fault, Dear Brutus, Lies Not In Our Stars, But In Ourselves”).

Here’s an excerpt:

Bad Excuses for Poor Investments

“Over the years, I have heard every complaint imaginable for why losses occur. Inevitably, these gripes go something like this: “It’s not my fault but the fault of:

-The analyst who recommended it.
-The banker who did the deal.
-CNBC, which hyped it.
-The talking head who loved it.
-My brother-in-law, who got a hot tip on it.

I’ve heard people complain about their broker’s bad advice, the lousy execution they got, and how a market maker or specialist hurt their trade. Other kvetches? Management stinks, insiders are dumping shares, regulators are overzealous. Margin calls did it. Or was it the president’s policies or congressional gridlock or Chinese imports? Really, who can trade when the economic data are cooked, and the “Plunge Protection Team” counters your best positioning?

I’ve overheard people complain that they lost money because Alan Greenspan raised, lowered and/or left rates unchanged. Oh, and Eliot Spitzer, too.

Well, folks, I’ve got some bad news for you. None of those are the reason any of you lost money. The dirty little secret is much simpler. You lost money because you bought a stock, and that stock went down, and then you sold it. Period, end of discussion.”

Based on the email response, I hit a nerve. People were upset about the
indicted NYSE specialists, about WorldCom and Enron, and about banking
corrupted analysts. One person questioned whether I was raised in a
third world country. That response suggests their complacent
not-my-fault worldview was shaken.

Call it tough love. The rest of the piece can be seen here.

Your feedback is appreciated . . .


Apprenticed Investor: Your Fault, Dear Reader
4/12/2005 7:07 AM EDT

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  1. Brad commented on Apr 13

    Interesting, but I believe that you used a number of false metaphors. For instance, while it is true that some people spend more time planning a vacation than planning how to pay for retirement, it is not true that people spend more time thinking about how to pay for that vacation. If you compared the amount of time people spend planning how to pay for their vacations and retirements, the issue is quite different.

    Don’t you think that you are also minimizing the fundamental basis for economic growth in a capitalist society, specialization of labor? You mention Michael Jordan; he was never outworked on the basketball court again, because he wanted to be the best basketball player in the world. You try to outwork others in the financial field, so that you can be the best investor. It would make as much sense for Michael Jordan to try to know more about CDOs than you as for you to try to develop a devastating fade away J. By specializing, a person in particular and society in general benefit. We shouldn’t expect a financial advisor to farm, a farmer to hit a jump shot, or a basketball player to underwrite a mortgage.

    I’m all for self-determination and a minimization of the whining of society; however, we do pay financial advisors to advise us. If they do this poorly, either by recommending a poor equity purchase, or by failing to adequately plan for the risk involved, then the blame should fall on them, not the investor.

  2. B commented on Apr 13

    How much time do most people spend “thinking” about paying for their retirement? How about “thinking” about vacation? — I think you may be wrong on the facts here.

    As to the advisor — Out of the 300,000 financial advisors in the US — Who picked that one advisor?

    What’s his track record? How much digging did you do? how many references did you check? how many clients did you speak to?

    The bottom line is no one is more qualified/concerned/responsible to take care of your financial future than you

  3. dd commented on Apr 13

    The refrigerator example made me laugh. Oh that equities and mutual funds came with a right of return or even a one year warranty if they failed to perform as advertised! I think you hit a nerve because you made it clear that the performance risk is 100% with the investor and no amount of kvetching changes a loss. This realization may drive some to become MJs but I suspect most may conclude that they’re personally better off becoming savers, rather than pretending to be investors

  4. dm commented on Apr 13

    People might be responsible for their investments in the sense that it is their money that is at risk, but clearly there are many circumstances where losses occur and the investors aren’t responsible in a legal sense. There is a whole industry of lawyers, both private and public, who do nothing but disgorge money from brokerages and companies that have ripped off investors. While it is clear that the bulk of these claimants are never recompensed in full for thier losses, I can’t help but suspect that these activities mitigate away from your overall point.

  5. dm commented on Apr 13

    Immediately after posting my comment above I went to read today’s Washington Post, and what did I find? This:

    Fifteen current and former traders at the New York Stock Exchange were criminally charged yesterday with cheating investors out of the best prices for their stock trades in what could be unparalleled abuse of their position at the world’s largest and most prestigious stock market.

    The exchange also faces disciplinary action for failing to adequately police its sprawling floor, where 1,366 traders handle an average of 1.6 billion shares a day. The traders are accused of getting in between orders to buy and sell, taking for themselves the best prices and depriving investors who ordered the trades of at least $32.5 million.

  6. David Bennett commented on Apr 13


    Your column states a basic reality. People need to face it. My position is that even if you hire an advisor to direct your investmenrs you need to have a clear sense of who they are and what their approach is. If you can’t analyze and you have a long term perspective then dribble a little bit a month into a balanced set of index funds or etfs. Or avoid markets.

    However the fact that you need to show certain cautions in certain neighborhoods does not mean the neighborhood is functional or sane. One essential social mechanism is trust. Many people make bad investments because they trust the integrity and competence of the advisor. Just as we trust doctors and though it’s wise to have a second opinion, we expect honesty and competence as the rule.

    My parents and many decent people who work hard and play by the rules are not sophisticated in these games. And I’m talking people here with IQs over 100 which is not half of the population.

    People are persuaded by “authority” which has all the aura of trustworthyness. In the worst cases we found that many of these people are sleazy, others are less than competent and there is typically an underplay of the risk. The limits of danger and prediction are not stressed.

    So people are informed that if they want to keep their savings above x they should engage in such behavior (a somewhat justified cllaim) they believe this, and risk their futures. We are still programmed to expect a certain conservativism and caution in our bankers.

    Now things like you write need to be stressed and at the begining of any discussion. They are not. We have an entire media and social culture, including a press which encourages certain behaviors.

    And you are completely wrong about many in the that I know. They accept responsiblity, they don’t sue, they say to themselves they should have known better, but the simple fact of the matter they had that “quiet conversation” (or whatever) with someone who they assumed was doing business the way they would, with integrity and the best evaluation they could of the situation.

    Now of course people who are reading the kind of publication you are writing for may not fall into this category. They look at enough things to be responsible, though I’m not sure their problem is not enough time lstudying issues, but too much time. But we alsoi have a system that persuaded seventy year olds to buy net stocks in 1999 and where bankers suggest you borrow on your home at 6% to make twice that in “investments.”

    A viable social system depends on trust and the whining coming from some individuals is smoke that indicates a smoldering fire.

  7. Omar commented on Apr 13


    I think that your article speaks volumes of truth. It is easier to blame some market ‘authority’ (analyst, banker, CNBC, Advisor) than blame ourselves.

    It all ties back to the principal of due dillegence. The word has lost so much meaning and I bet that most investors know what the phrase represents (do your own damn digging to find out if the investment is worthy of your money or not) but so few actually practice it.

    ‘Due Dillegence’ requires effort and work like you said. Investors are people, and people usually want to avoid the grudge in work and want to concentrate on their vacation or next home theatre purchase. So they look for shortcuts — from analyst tips, business mags, CNBC, advisors, etc.

    Not-My-Fault is easy, and it’s a shortcut for claiming responsibilty and lack of due dillegence.

  8. dark1p commented on Apr 13

    I think we’re only beginning to see just how angry and bloodthirsty people who lose money can be, and how much grandstanding politicians (see: Hatch, elitists) will fan those flames. Mr. Bennett’s acquaintences who accept personal responsibility for their losses are not, or perhaps I should say, will not be the norm by a long shot. As Paul Tudor Jones said years ago, there will come a time when you don’t want to be someone who made a lot of money on shorts. They will be coming for you, and most people will be glad to see it.

    Most folks just don’t get it, and never will. Most brokers are ‘just following orders’. They do not take a Hippocratic oath; they are employees of a company and are expected to generate income for that company. A number of them may mean well, but few will buck the ‘common wisdom’ (too upsetting and difficult for most clients, and basically not an income-generating idea), and most don’t understand when it should or shouldn’t be bucked (unless someone at work tells them, and even then…). As in all endeavors, the majority of advisors range from bad to mediocre. Part of the definition of excellent is that very few people are.

    Speaking of taking responsibility, a lot of advisors don’t ever really admit to themselves the damage they may be allowing or even encouraging. It’s the only way to stay in that career without collapsing under psychological weight — either that, or you become callous and cynical and just don’t give a damn.

    In their defense, I work in a professional service business myself, and you learn pretty quickly not to push too hard when your income hangs in the balance. You can tell a client when they might be making a mistake, but experience teaches you to shrug and let them do what they obviously want to do. Maybe you can mitigate the downside a little, maybe not. A lot of clients don’t listen, or can’t even comprehend what you’re saying. After a while, you don’t always have the energy to try to make them. You get tired of beating your head against the wall. It’s not really what you want, it’s just how it too often is.

    One other note. Keep in mind that both clients and brokers are both very susceptible to the prevailing herd psychology. During the go-go years, especially in late ’99 and early 2000, how many brokers really believed–and how many clients would be willing to listen– that the market was about to tank? Not many. Almost everyone was greedy and smug and complacent and actively promoting the same feelings in everyone they knew. That’s how otherwise smart but naive people lost their shirts. And that’s one of the signs of a top.

    Caveat emptor. The markets are unmerciful, especially toward the trusting.

    Yet, as Barry says, ultimately the herd will blame someone else for their troubles. For most people, accountability is for the next guy. Heck, our political ‘leaders’ drive that point home on a very regular basis.

  9. bhaim commented on Apr 14

    Real Estate might have another leg up because of the stock market scandals. If investors feel the Wall Street game is rigged they’ll put their money elsewhere.

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