They say if you live long enough you’ll see almost everything. Well, I’ve only lived 37 years and a few months and can say not only that I don’t like what I’ve seen this year, but that the events of the past week have made me scared even to open my eyes.
Why am I scared?
Because I’m not sure that I could have avoided investing with Bernard Madoff or not have been willing to buy what Marc Dreier was selling. No Monday morning quarterbacking here. I’m not going to tell you that I’m that smart. And frankly, my advice to you is don’t believe anyone who tells you they could have avoided these two charlatans.
What will save you going forward (and me too, I hope) are two simple words: due diligence. Many of you are gagging already and thinking, “Here he goes again.” Well, you’re right. I am going to spout off on due diligence because you, me and everybody else needs to hear it.
It’s your money, stupid. That’s why you must take an active role in how it’s being managed. I don’t understand how people can just go on blind faith. I don’t understand how people can simply assume that because Mr. XYZ is using Manager A (as they say in Illinois), A must be good. It’s easy to say that when something seems too good to be true it probably is, but the issue is acting on it. People need to ask questions and get answers.
I never had the pleasure of meeting Mr. Madoff. All I ever heard was that he knows how to make money. I made a few inquiries a number of years ago for an interview and never heard back. I never really pursued it. I figured that like a number of other managers, he did not have time for a fledgling author. I was duped by his bravado.
Now he’s under arrest and charges of fraud have left me shocked, saddened, disgusted, displeased and frankly disheartened. This news puts vinegar icing on 2008’s cake of ashes. Many of my heroes have fallen over the last 11 months and 15 days. It turns my stomach to see that that so much wealth has evaporated, so many people are out of work and that prospects of change are slim to none. Wall Street is in total disarray and there seems to be no chance of a reversal of fortune in the near future.
I’m tired of learning about hedge funds that aren’t performing in these volatile markets. It makes me sick and I’m not going to take it anymore. I want you all to remember the following rule when it comes to making investments: Ask questions and demand answers.
It’s time to take stock in the future and have a clear view of how your money is being managed. It’s your job. Pay attention. Do your homework. Take responsibility. Stand up and make sure you’re counted, make sure you’re heard. Most important, make sure you understand what is going on with your money and know who is pulling the trigger when you make an allocation to a manager or fund. If no one will tell you, get demanding.
One of my closest friends in the hedge fund business called me late Friday to talk about the news of the day. His conclusion: “It is the end of the hedge fund industry as we know it.” Unfortunately, I believe he’s right.
The reason is simple – lack of knowledge. Investors are too lazy to ask questions, don’t want to take or make the time to demand comprehensible answers and so expect the government to step in to save them from themselves.
Whether it’s a mutual fund, individual stock, separate account, hedge fund or anything else, you need to get on the phone today and start asking questions and demanding answers. You need to understand where your money is, how it’s being managed, what the expectations are, whether the expectations have been met, and if they not, demand to know why not. And until people start asking questions and getting answers that make sense, there will be one fraud after another and one loss after another.
It’s okay to lose money – you can’t always win – however you need to understand how your money’s been lost. It’s not okay to lose money because you’re naïve and unwilling to ask questions and demand answers.
In recent days I’ve read a lot of newspaper articles about Madoff’s actions that have left me shocked, saddened and disgusted. But I was also fascinated that someone so successful seems to be nothing more then a con artist who preyed on those blinded by his power and fame as well as by their own greed.
Gordon Gekko was wrong. In this situation, greed turned out to be no good at all.