FOREWORD 

We asked for it.

We put lots of cowardly people in charge of our money. Then we gave them incentives to copy one another.

That’s right, cowardly. People often say that Wall Street is all about the interplay between greed and fear. The conventional wisdom is that greed caused the financial crisis. While it played a role, I argue that, in fact, fear was at least as important and probably more so. For while Wall Street has no shortage of people motivated by greed, far more employees of the industry have tried to protect their lucrative, but not headline-making, salaries by performing indistinguishably from one another.

Predictably, these cowardly people have failed you, the individual investor. Fortunately, you don’t need them. In fact, you can take advantage of them. I am going to show you how to make good investment decisions for yourself, by yourself.

When I started writing this book in August 2008, I had just been laid off from my job as a convertible bond trader at Goldman Sachs. I had always intended to shift careers sometime in my midforties from Wall Street to teaching, so I figured the time had come. I set out to write a book about how the individual investor can take advantage of Wall Street’s self-imposed folly. As we find ourselves in the midst of a historic credit debacle, I feel that way more than ever.

I turn to the great diplomat, businessperson, and writer Chester Bowles. “Government,” he said, “is too big and too important to be left to the politicians.” Taking the liberty of paraphrasing, I believe your investments are too important to be left to the professionals. Bowles also said, “There can be no real individual freedom in the presence of economic insecurity.” Your best chance of maintaining your own financial security is recognizing that you are the only person who can look out for yourself.

Instead of blindly and hopefully giving your money over to the professionals, I want you to learn to let them work for you, but not the way they have in mind. Listen to their chatter, but only to sift out the good stuff. Recognize their panic and do the opposite. Let them worry about what is going to happen in the next hour and next week to see whether they still have jobs—your money is there to work for you over years and decades.

I will teach you about their codes and their foibles. Everything you need to make use of them is already in your mind. I just need to convince you of that. Fortunately, we’ll have fun while I’m doing it.

The point is to get you thinking about some of the really important things. If the book’s structure comes at you from surprising and unexpected angles, frankly, it’s probably going to help you all the more. If anything can be said about today’s markets, it’s that you need to draw from all the experience you have, and you need to be able to react to events nobody saw coming.

I’m reminded of when I was a teaching assistant for undergraduates while getting my graduate business degree. The question I got the most—and hated the most—was this one: “Do we need to know this for the test?” I always came back with the same answer, a bit snide perhaps, but very much to the point. “Your job here,” I would tell them, “is to figure out what you need to know for the test. Most of you are looking to go into fields where you will regularly be pitching your high-priced services to prospective clients. If you’re doing it right, you will make it your business to know before the meeting what the client is likely to ask you. So imagine that, as the test giver, I am your client, and prepare accordingly.”

The biggest problems I see with Wall Street do not lend themselves to a lot of new rules. But they do lend themselves to education. We need to get rid of the idea that, because something has worked recently, it will continue to work, even as its value and profile changes.

We need to get rid of the industry shibboleth that you cannot get fired for buying something historically viewed as a safe, blue chip investment. And we need to get rid of the idea that doing nothing means taking no risk. As long as we follow the old mind-set, we are encouraging lazy, like-minded “investors” to crowd into the same old trades, with predictably violent results when the trades go wrong. 

We’re all facing a test now, a test for which the only preparation is our own experience and common sense. I hope this book helps show you how to use these together to beat Wall Street at its own game. You can do it. Let’s work together to rebuild our financial world, to undo the cowardice that has stealthily undone our markets.