Madoff's Far-Reaching Fallout
Legitimate advisors confront skepticism, mistrust.
A few weeks ago, I had never heard of Bernard Madoff. When news broke of his Ponzi scheme, I may have spent 5 minutes, at most, pondering those affected by his actions. I’m not insensitive - but it simply didn’t concern me, and life goes on. That is, until recently: Madoff’s actions have started to affect me directly in ways I never could have imagined.
Allow me to explain.
I'm a simple man - a father and a husband. My family, which has been tied to the stock market for over 100 years, gave me a passion for the markets. My regulatory title is investment advisor, and I have been managing money in one capacity or another since 2000. I don’t sell commission products, fancy incomes partnerships, or exotic investment strategies. I simply trade equities, and I'm always looking to make money regardless of the environment.
I custody assets with Charles Schwab, which means my clients can see their accounts 24/7, and money is never in my possession. My 2 limited powers are to manage the client's funds and withdraw my paltry 1% per year fee, billed quarterly. While my early education was in fundamentals, I've spent the last 5 years studying technical analysis, so it wasn’t rocket science to me when the markets broke a multi-year downtrend. I knew it was time to step aside.
As 2008 evolved, and markets declined, did I kill it on the short side, reaping incredible benefits for my clients via inverse ETFs such as ProShares Inverse QQQQ (QID) or Ultrashort Financials (SKF)? Nope, I sat idle for a majority of the year with my sole intent on keeping the gains I had made for clients the many years prior. In hindsight, no capitalizing on the initial trend break was one of my biggest all time misses, but I take refuge in the fact that at least I respected the break and stepped aside.
When all was said and done, my client accounts fared well in 2008, with my benchmark client account dropping 1.57%, or slightly more than my 1% management fee for the year. Did I knock the cover off the ball? Of course not, but in the world of passive investment advising, it was good enough to establish my firm as a real player.
Now, I'm sure many individual traders crushed this number. Heck, I work with over 100 a day in Tickerville who I'm sure easily beat this return. But when you manage separate accounts, it’s a different ball game - and the point of this piece is not at all to engage others in a discussion about performance.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.