TEXT OF INTERVIEW
Tess Vigeland: You know the basic rules of investing: Keep your eyes on the long-term. Diversify your portfolio.
Yeah, well, at this point it’s hard not to notice that even if you did everything right, lots went wrong. Despite all the assurances from Wall Street-types that if you followed the rules you’d be ok. So, what now?
Well first, you might fire your broker.
Which is what Jeffrey Goldberg writes about in a recent article in The Atlantic magazine. Welcome to the program.
Jeffrey Goldberg: Thank you so much for having me.
Vigeland: Here’s the line that caught my eye right off the bat. You say, “I took a random walk down Wall Street and got hit by a bus.” Tell us about that.
Goldberg: I was like a lot of people. I thought that I had an investment strategy that worked. I read what I thought needed to be read, including that book, “A Random Walk Down Wall Street,” and some of the Warren Buffet writing.
It was only in September, October of last year that I realized that the game is being played at two different levels on Wall Street. And at the high level, are the people who know what’s going on. And at the other level, are the people who don’t really know what’s going on.
Vigeland: Right, the rest of us.
Goldberg: Yeah, meaning approximately the 100 million other Americans, who were involved in the stock market, even in some peripheral way. It’s a very dangerous game to play and you wind up getting, periodically, hit by a bus.
Vigeland: You write that we all did not have a proper appreciation for risk. Why didn’t people understand that they could lose all this money?
Goldberg: You know, I think of myself, I’m in my early 40s, I think of myself and my generation as children of the bull market. We don’t really have experience with long downturns. You know, there were dips and there were valleys, but you always sort of climbed right out of them.
And so, you don’t really get the point that you can get wiped out in a matter of days, not months, but days.
Vigeland: So your approach was to get a lot of different views. And you started with Richard Bernstein, chief investment strategist at Merrill Lynch. What did he tell you?
Goldberg: I called him, in part, because I had my money at Merrill Lynch. And we had this conversation and he underscored for me the fact that he was bear-ish for a while, before this crash.
I told him that I never got the sense that Merrill Lynch was communicating to me that the bears are out and you guys should probably get out of those financial stocks that you’re in. I had, you know, 150 shares of AIG and 200 shares of CitiBank or whatever it’s called.
So I said to Bernstein, I said, “Pardon me for asking this, but if you were so bear-ish, why weren’t you yelling, ‘Hey, by the way, these financial stocks are built on toothpicks.'”
And he said, “I didn’t want to go running around saying, ‘Sell, sell, sell.’ That would’ve been irresponsible.”
And I was like, “Ahem, excuse me, if you would’ve said, ‘Sell, sell, sell’ to me, one of your clients, I might’ve sold.”
By the way, this is not a blame thing. I consider myself lucky for any number of reasons, including the fact that I have a job. And I blame only myself. We are in charge of our own money. So I’m not blaming Richard Bernstein for not holding my hand and walking me through the garden with all the serpents in it.
Vigeland: OK, so you ate the apple all on your own.
Goldberg: But I didn’t gain any knowledge, did I? I ate the apple of knowledge and it said, “Bye.”
Vigeland: But you know, so many people listen to what you talk about as the “hot tips” that you’re getting from your financial institution. They’re really not caring about you at that point.
Goldberg: There job is to make money. They make money through inefficiencies in the market. What are the inefficiencies in the market? They’re us. They’re the people who don’t know to get out when the getting’s good.
Going back to Richard Bernstein from Merrill Lynch for a second, what really sort of ticked me off was a piece of advice he issued on the Merrill Lynch Web site several months ago, in which he said that one investment strategy in these difficult times “is to elongate your time horizon.”
To which I respond, borrowing from Keynes, in the long run, we’re all dead. I had an elongated time horizon; I got into the market 15 years ago. You know, I consider myself marginally wiser for having now this experience and having this information in my hands. Which is that, you should pick a financial adviser the way you would pick an oncologist. You don’t sort of randomly pick an oncologist, because your friend says “Oh, this oncologist is great. He cures cancer.” You shouldn’t pick a financial adviser, because somebody says, “Oh yeah, he’s really smart, he made me 12 percent last year.”
Vigeland: But there are plenty of people who did that research. Who really did trust the financial advisers.
Goldberg: Now you’re just going to make me feel bad.
Vigeland: But I want to go to this extraordinary quote that you have in the piece from Seth Klarman, who wrote the book on investing, called “Margin of Safety.”
Goldberg: He’s a smart guy.
Vigeland: He says outright to you, the average person can’t trust anybody, not their broker, not a mutual fund. That’s really depressing, because most of us have become convinced that if we don’t have money in the markets that we’re never going to have enough of it, to say, retire or send the kid to college.
Goldberg: Well what you have to do is elongate your time horizon.
Vigeland: Apparently I do, yes.
Goldberg: Apparently to about two hundred years.
I don’t blame somebody for giving me advice that turns out to be wrong. Predicting the future is very hard, because it hasn’t happened yet.
But do I trust? No. But you know what, this is the problem here, is that if you’re going to do this, if you’re going to look for the 8 percent return, the 10 percent return, the 12 percent return with a financial adviser, you have an obligation to stay on top of the situation and do your own reading and bring your own skepticism to the table. But of course, that takes time and a willingness to learn about matters that are arcane and boring sometimes.
Vigeland: The article is called “What Now?” It’s the cover story from the May issue of The Atlantic. And Jeffrey Goldberg’s been talking with us and it’s been awfully fun. Thank you so much.
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