Investing and Trust

The word is that lots and lots of big money is changing money managers in the wake of the Madoff scandal and last year’s market meltdown. The question is raised regarding investing and trust. Portfolio management is a business and investment success is never guaranteed. It’s best be able to do your own investing and trust in yourself. If you choose to place your money with an expert in portfolio management be sure that you have a very clear idea when he or she is up to and be sure than you can get your money back promptly. If any big money had demanded that Madoff cease portfolio management and return their money the scam would have collapsed years ago.

Regarding investing and trust, it’s not about trust. It’s about money. Portfolio management by someone other than yourself always has an element of risk. Thinking otherwise is fantasy. After the great depression and the creation of deposit insurance a lot of survivors of the Great Depression never let a bank balance get over $10,000 before they started depositing savings in another bank. When the limits went to $100,000 the old timers remembered but those without the memory of the Depression and the Dust Bowl years didn’t have that experience as a guide and tended to put all of their portfolio management eggs in one basket.

Everyone wanted investment success and folks who never saw the bad years wanted better returns on investment and not security. Investment success was measured in high rates of return on progressively chancier portfolio management decisions. The core problem gets back to what constitutes investment success over the long run. Trust is a good thing but it must be earned. That is why many are moving their money around after loosing large portions because of risky portfolio management. Investing and trust should not really go together. Investing and skepticism should be what guide the investor when letting funds go for portfolio management by someone else.

No one was skeptical with Madoff. They stood at the door begging for the con man to let them in. Those who should have been skeptical were preaching investment and trust and let many estates disappear in a grand ponzi scheme.

Investment success is when you have more money in the end than you started out with. Investment success comes from having a solid investment plan, sticking to a manageable number of investment vehicles, and always doing your homework. If you choose portfolio management by someone else then choose two or three individuals in different firms for portfolio management. Forget investing and trust and ask pointed questions. Investment success comes from being able to manage your own money and using portfolio management only if they make you more money in the end than you would have made putting the money in the bank, or perhaps, a number of banks.

There is old advice to beware of “story stocks.” Perhaps we should all, especially in the wake of Madoff, beware of “story” portfolio management and money managers. In the end you have to trust yourself. So, get busy and write down your investment plan, do your homework and manage your money, even if portfolio management by someone else is part of the game plan.