Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Money Managers Need to Get Real With Clients


Hiding inevitable losses is a cynical way of doing business.

In my forthcoming book, The Undoing of Cowardice, I discuss how too many "professional investors" are happy to focus on the bottom line without seeming to care how the results were obtained. The gold medalist in this event, of course, was Bernie Madoff. But there's plenty more where he came from.

I cite the case of Amaranth Advisors, which collapsed under the weight of massive losing natural-gas trades a few years ago. I argue that asset allocators who had clamored to get into Amaranth should have clearly seen the warning signs -- monthly volatility wholly inconsistent with the capital-preserving strategies Amaranth claimed to follow. Because Amaranth's historic performance had been good, and because it was a badge of honor among asset allocators to be admitted to the Amaranth club, too many of them stuck with the fund when it was clear that the managers had drifted far afield from what they were supposed to be doing.

Now, I have no problem with volatility of returns. Indeed, I think they're a fact of life, and we should embrace them rather than deny their existence.

But professional money managers don't look at it that way. They want to avoid losses at all costs. It's really a very cynical way of doing business. Rather than explain to clients why the losses occurred, as part of a long-term strategy bound to have ups and downs, they try to find ways to say that the losses never really happened. Or, in the case of public companies, if the business didn't actually "make the quarter," the financial-reporting people will find ways to make the quarter.

This has been going on for years, of course, so in a way it's a bit unfair to single out General Electric (GE), which copped a plea bargain yesterday for accounting shenanigans. But I'll single it out anyway, because, as it's been pointed out, the company is a standard-bearer for the economy and has the resources and responsibility to do things the right way.

When it turns out that the company was shading its books to make its numbers in order to preserve a fictitious streak of predictable success, we need to blow a loud whistle. The $50 million fine for a company with a $150 billion market capitalization doesn't do the trick. The company is trying to play it off as a result of deficient systems that have been improved.

Don't believe it.
No positions in stocks mentioned.

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.








Featured Videos