I sure am glad that we had swine flu to kick around in the news this week. The talking heads on cable probably feel a whole lot better, even purged and colonicked, now that they’ve been able to scream about “Black Death” and “pandemic” ad nauseam.
Wait, is nausea a symptom? Ooooohhhh, I don’t feel so hot.
But as the newsworthiness of the economic meltdown has subsided, there’s been a shortage of articles on a topic that I was really beginning to enjoy: First person accounts of the people who lost money with Bernard Madoff. I gobbled these news reports up whenever I found them, even reading more than one article in an issue of Vanity Fair, which is probably a first.
Now, I’ll say up front, to avoid looking like a heartless bastard, that of course I’m sorry that this guy got away with swindling people for all those years, even as the SEC was tipped off again and again that the returns Madoff was getting were incredibly suspicious. I’m also sorry that charities were devastated, and that many people lost their life savings. Terrible thing. Horrible thing. And I think Madoff is a criminal of the first order.
But as I absorbed the articles, a faint glow of satisfaction would often came over me, that reassured me that I wasn’t quite as ignorant about financial matters as I’d thought. I try and keep up with things, and show a little economic acumen (especially around the first of the year, when resolutions and good intentions are flying through the air), but finance simply not my area. My father was an economic whiz, slaving for Ford Motor Credit Company for almost two decades, in a job his successor told me would burn him out in three years. My eldest brother has made a nice career in the tech industry balancing costs and savings and keeping his company at the top of its field. But I try to be honest with my limitations and don’t get fancy with my money.
But at least I can attest to one investing principle that works: DIVERSIFY!
That’s exactly what most of Madoff’s victims failed to do. Many got greedy, mortgaged their houses and sank every penny into his brokerage. And, as so many articles pointed out, these were people who knew how to make money. They weren’t greenhorns, they were very successful and had been around the block several times. But the desire for more riches–and the need to be let in to Madoff’s inner circle of investors, the cognoscenti, the non-suckers, which seems to be at least as strong a motivator here–proved so strong that they ignored the most basic single word that an investor should remember. Diversify your holdings, or you’ll get burned.
My heart goes out to these people, but my sympathy is also tempered by incredulity. How could they let this happen to themselves? Is it true what Fields said, that you can’t cheat an honest man? Sometimes I read the articles to find the one or two voices of reason that, amid all the wailing and the anger, points out common sense, and the negligence people showed in trusting all their money to a single company. But maybe sometimes, I read them to realize again that not being overly clever with my money has generally worked out for us.