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Wealth Corollary; Folks in $2,000 Suits rarely are good money managers! January 28, 2009

Posted by shaferfinancial in Finance.
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The psychology of folks who get others to invest their money is truly interesting.  I had a conversation with a gentleman that ran smack into one of the oldest psychological tricks out there.  Sales people have known for a long time that if you appear to be successful, then people will be more likely to hand their money over.  But let’s take a look at that assumption, shall we!

What do Merrill Lynch,  Bear Sterns, Lehman Brothers, CountryWide Mortgage and Wachovia Bank all have in common?  Fancy offices, well dressed employees, and Wall Street connections.  Also, thousands of clients much poorer than before they became clients and a failure to manage their investment capital without losing it.

What do Bernard Madoff (New York), Lou Perlman (Orlando), Kenneth Lay (Houston) and Arthur Nadal (Sarasota) all have in common?  Yep, really nice offices, nice clothes, expensive cars, airplanes, etc.  Oh, and they fraudulently stole hundreds of millions of dollars from their investors.

What do Ed Seykoya,  Bill Dunn, and Warren Buffett have in common?  They live away from Wall Street; Nevada, Florida and Nebraska respectively.  They dress casually, they have very spartan offices and they either started out in small nondescript offices or home offices.  Oh, and one other thing, they have made billions of dollars for their clients and personally are among the wealthiest people in the world.  In fact, if you would have given any of these men $25,000 twenty years ago, you would be a millionaire now.  Now they use very different investment methods to get their returns, but their results are all public and verifiable.  These three men, and there are many more out there, have made thousands of millionaires by their investment acumen.  And if you met any of these men, you would not know their net worth by any visual clues because they live very frugal lives, not attempting to impress with their clothes or offices.

So, when I tell people I work out of my home office, I feel I am in good company!  People will continue to give their money to folks who wear nice suits and have fancy offices, although the evidence demonstrates this is a very risky strategy.  Maybe people should look at the actual evidence of performance, forget about whether the person asking for their money is working from a luxury office suite or wears expensive clothes or drives an expensive car.  Now, I am not a money manager, so I only invest for my own account, but when I coach clients, I always ask them to look beyond the visual cues and delve deep into who they trust with their money.  Being an active investor doesn’t mean not using professionals, but it does mean use your head.  After all, those folks running around in $2,000 suits are wearing them for a reason, and I bet its not because they really like to dress in suits!    

The Millionaire Next Door Series told the story of average appearing folks who were millionaires.  Recent events tell us the story of well dressed folks who were poor investors or outright fraudsters.

Getting back to my conversation yesterday.  It was very pleasant and the man told me he had a history of being a client of Merrill Lynch and was unhappy with their money management.  But, he also felt uncomfortable dealing with someone that worked out of his home office and had an admittedly amateur video on his website.  I understood and bid him good luck in finding a money manager for his money (something I don’t do) .  But, I did ask him what he expected as far as an office.  As he described his expectation, I couldn’t help noting that it sounded exactly like a typical Merrill Lynch office.  So, I blurted out (I couldn’t help myself!) just like a Merrill office.  He answered, YES!  Somehow I don’t think he saw the irony of his answer.

Wealth Corollary;  Investment success is not correlated with niceness of office or dress! 



1. Vince Delmonte - April 15, 2009

If you want to read a reader’s feedback 🙂 , I rate this post for four from five. Decent info, but I just have to go to that damn yahoo to find the missed pieces. Thank you, anyway!

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