"If you’re taking investment advice from me you really are a dummy"
Of the many self-help books I’ve perused in my lifetime, one that sticks in my memory is a Canadian paperback publication called “Investing For Dummies.” As you might have guessed, it’s a basic, beginner’s guide to personal finance and investing.
It’s still on the bookstore shelves after multiple printings so obviously it’s connecting with its target market. But the question remains why anyone – and I include myself in that category - would see a book proudly labeled “for dummies” and think that it’s speaking directly to them.
Maybe I should write a book called “Raising Your Self Esteem For Dummies.” That could be a million dollar idea.
When it comes to investing money though, I do think identifying yourself as a Dummy is probably a good start. As a reluctantly self-confessed Dummy, it seems to me that to be a successful investor, the first thing you have to accept is that there are people who know a lot more than you do. They’re not necessarily smarter, they’re just in a better position to profit from any given situation.
Take Facebook, a company whose stock went public about 3 weeks ago and in that time has lost about a quarter of it’s value.
This is where the dummy in me takes a more prominent role. I see the names Goldman Sachs and JP Morgan (two of the big banks involved in underwriting Facebook’s debut as a publicly traded stock) and I just assume the deck is stacked and those big banks are going to win.
By underwriting the Initial Public Offering, these big banks are getting paid to drum up interest in a stock while selling it to select clients before it goes on sale to the general public. At the same time, another department of that same bank could also be making big profits by shorting the stock (betting that it will go down).
There are also a number of lawsuits currently being filed claiming that these banks had prior information about lower than expected earnings for Facebook just days before the IPO date, yet they only made that information known to their largest institutional investors who would have been able to dump the stock at its peak price the moment it went public.
Starting to feel like a dummy?
Maybe you feel like a “muppet.” You should, according to a former senior executive at Goldman Sachs. In a public resignation letter published in the New York Times earlier this year, Greg Smith said that Goldman Sachs had “lost its moral fibre” and was sacrificing its own clients to increase profits. He also revealed that managing directors would regularly refer to clients as “muppets.”
Warren Buffett, one of the most successful investors of all time famously said “Be fearful when others are greedy, and greedy when others are fearful.”
The greed comes naturally. Whether it’s tech stocks, ballooning real estate values, or billion dollar internet ideas that help us keep tabs on people we used to date in high school, we are constantly made to feel that an overnight financial fortune is out there, waiting for us to simply grab it. And if we don’t grab it we’re suckers, missing out on a sure thing.
Cue Facebook, a phenomenon that most of now use on a daily basis but probably didn’t know existed 5 years ago. The company’s founder, the billionaire wearing the hoody, is everywhere. They even made a movie about him and the billions of dollars he created for himself out of thin air. Who wouldn’t want a piece of that?
Now throw the greedheads on Wall Street into this mix and you have plenty of reasons to be afraid. Very afraid. But instead of seeing the potential pitfalls, all we see is easy money. Suddenly, people who know next to nothing about investing in stocks turn into 1950’s cartoon characters with dollar signs ka-chinging in their eyeballs.
Perhaps the dust has settled a bit in the Facebook story, and you may be asking if now is the time to swoop in and buy some stock in the company? Well, you’re going to have to ask someone else – in fact, if you’re taking investment advice from me you really are a dummy. But I will say this: Just because we waste half the day on Facebook doesn’t mean we have to waste half of our retirement savings on it as well.
- post by Marty Strong