It would be funny if it wasn’t so sad. The saga of Bernard Madoff, the gentleman felon, whose Ponzi scheme is said to have taken upwards of $50 billion, has made banner headlines. Pretty impressive. Hospitals, colleges, schools, charities for disabled children – even the many people he met and befriended, wealthy people, many of whom were self made and had clear talent in their business.
But being a successful film producer/director, or a dress manufacturer, or a supermarket chain does not make one a brilliant and successful investor. The stereotype is that physicians are very smart people who are poor at managing their money. The lesson here is this: being very smart, even being very smart in business, does not mean that you will be very successful in investing money. The Superman Effect can take hold: business success means that one can be successful in other investments, outdoing others who spend their lives investing and managing money.
The reality, of course, is that you cannot predict the future, and events can scramble any investment scheme that you have. Everyone is a genius when the markets are rising. Jeff Immelt, GE CEO, is the poster child for the lesson in business reality. Immelt was tapped to succeed the legendary Jack Welch, who produced years of growth for GE. Immelt’s first day on the job?
There is nothing inherently wrong in using a money management firm to manage your retirement accounts. Yes – get references, which have limits as we saw with Madoff and Al Parish (a
We can only do the best possible under the circumstances. A conservative approach would be to still to large, well known firms. Yes, they have their problems, but they generally are better able to absorb – and prevent – rogue operations. You may also want to divide your money among two or more managers. My inclination is to avoid the “stars” or the ones who claim to walk on water.