Ordinary Americans get a lesson in low finance.

[randomness]

From Michael Lewis, at Bloomberg:

Our willingness to believe that we can hire some expert to tell us how to outperform markets is a big problem, with big consequences. It underpins Wall Street's brokerage operations, for instance, and leads to a lot more people giving out financial advice than should be giving out financial advice.

Thanks to the current panic many Americans have learned that the experts who advise them what to do with their savings are, at best, fools. Merrill Lynch & Co., Morgan Stanley, Citigroup Inc. and all the rest persuaded their most valuable customers to buy auction-rate bonds, telling them the securities were as good as cash.

Those customers will now think twice before they listen to their brokers ever again.

Comments

[allyphoe.livejournal.com]

Our willingness to believe that we can hire some expert to tell us how to outperform markets

Client: Can you tell me what to invest my IRA in?
Me: If I knew the answer to that, I'd be making my money trading stock, not giving advice.

I've got a broker client who's the investment advisor for a bunch of other clients. Those folks are invariably in professionally-managed (by someone other than the broker) accounts with hundreds or thousands of trades a year, often with a good number of exotic products in the mix. The broker himself? Plain-vanilla investments, buy and hold.

[frotz.livejournal.com]

Those customers will now think twice before they listen to their brokers ever again.

It seems quite unlikely any thought was applied the first time; why start now?

[r-ness.livejournal.com]

why start now?

Losing large amounts of money can often be an educational experience.

[evilmagnus]

Statistically, unless you've got millions already and access to insider private investments, buy and hold is the best way to build investment wealth.

It's not sexy, though, and doesn't make commissions.

[frotz.livejournal.com]

I certainly imagine some will learn, but the general way Wall St. works these days largely seems to mirror the way our culture works, where there's always some sexy new thing that's the answer onto which everyone wants to sign. Now we'll just have a bunch of brokers and fund managers talking smugly about how smart they were to stay away from all that evil nasty mortgage debt and pushing their new magic solution instead.

I don't see that changing without a real fundamental cultural change. I do think that it can happen; the attitudes towards money that I've gotten from family members who survived the 30's here or post-war Britain is fundamentally different from that I've always gotten from my friends and pop culture in general, but it was really a major cultural change driven by economic problems, and I don't see that hapenning here. (But given what the radio is saying about consumer spending lately, maybe I'm wrong.)

Now the news is that the fed is willing to set up an RTC-style institution to bankroll the continuing party, and while I think there are actually some really smart people in the system who will have the will and (now) authority to shore up the house of cards a bit, Joe Sixpack is still looking for the next LTCM.

[maggiebex.livejournal.com]

Buy and hold got me a nice house, eventually.

But this is why I never use the consulting services at my brokerage, and I just bug Sam and Alvarez periodically for their thoughts.