Breaking the Black Box
Transparency is most essential economic virtue.
Well, we need to show our work in the investment process. Specifically, in choosing an investment advisor, it's not good enough to look at the bottom line. We need a pretty good understanding of how the person got there.
I think this is the biggest lesson of the Madoff disaster. For so many asset allocators -- particularly those who actively publicized their due-diligence processes -- to invest with Mr. Madoff simply because of his track record was unconscionable.
We often speak of curiosity as a beneficial attribute. Indeed, without getting overly political, one of the reasons the nation supported President-Elect Obama is because of his transparent desire to understand. For too long, we have forgotten the value of transparency, so focused were we on the bottom line.
It's time to remember that the journey is the reward - and that we're all linked together. A business-school professor of mine once said: If you can't explain any concept in 3 brief paragraphs to an intelligent layperson, it means you don't really understand it yourself.
As we try to fight back from our shared economic predicament, we owe it to one another to ask questions. We need to stop worrying about sounding stupid. In every question lies the potential for insight. In every explanation lies the possibility of improvement - of doing more, and better.
We need to start making market-related policies more about process and less about results. Part of this is extremely practical. Market prices have at least one severely misleading attribute: It's the paradox of summation, and it takes all kinds of forms.
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