Last year, when Slate asked me to cover the Martha Stewart trial, I was worried that the magazine would need a whole server farm to handle the barrage of incoming hate mail. Given the place I had recently occupied in the headlines—Chief Executive Sleazebag—I figured that the assignment would trigger some outrage, and it did. As the trial progressed, the feedback improved (thank you!), but I imagine that this new assignment—a Wall Street self-defense manual—might encourage similar vitriol, at least initially. In any case, as with the Martha Stewart coverage, there are numerous issues and concerns that readers should be aware of.
First, on this topic, I am not a neutral third party. I worked on Wall Street for eight years, in corporate finance and equity research, and before that, I worked briefly in business journalism (CNN, incompetent production assistant). As a result, I am familiar with the inside of the brokerage industrial complex. This experience, I hope, has given me some insight into the often subtle ways in which the interests of sellers, buyers, and commentators diverge, as well as into some common misunderstandings about Wall Street. It has also, however, left me unable to view or treat Wall Street as the Evil Empire (often a profitable and popular perspective for a commentator, especially in a bear market). The vast majority of my colleagues were dedicated, ethical professionals of absolute integrity.
Second, my Wall Street career was not uneventful. On the positive side, I was for several years a well-regarded research analyst, ranked at or near the top of my sector (Internet) by Institutional Investor, the Wall Street Journal, and others. On the negative side—and it is jarringly negative—after I left Wall Street, in the context of an industry-wide regulatory investigation into the relationship between the research and banking divisions of brokerage firms, I was charged with civil securities fraud. Specifically, regulators alleged that my firm and I published reports that were inconsistent with comments my research team and I made in e-mails. Along with the numerous other parties in the regulators' research suits, I settled the charges without admitting or denying the allegations, paid a humongous "disgorgement" and penalty, and agreed to a permanent prohibition against working in the securities industry. For more information, please click here to see the Securities and Exchange Commission's complaint.
As a result of my settlement, I can no longer work for a brokerage firm or investment adviser, and I can't get paid to provide personalized investment guidance ("Having studied your particular goals, risk-tolerance, time horizon, and portfolio, I recommend that you buy this stock and sell that one," etc.). In this series, I will offer opinions about markets and business and investment practices, but I will not give personalized investment advice. Because I am writing for Slate, I will also operate within the "publisher's exemption" of the Investment Advisers Act, which allows journalists and other commentators to pontificate and make general recommendations without acting as investment advisers (the "tests" of this exemption include whether the pontification and/or advice is generic—i.e., not tailored to any particular paying client—and whether it is delivered via a "bona-fide publication"). To honor the letter and spirit of this exemption, I unfortunately won't be able to respond directly to readers, as this might be construed as giving "personalized advice." Instead, I will have to address questions, feedback, etc., in future pieces.
I can't get paid to act as an investment adviser, but, happily, I can get paid to write this series. On this score, I am making more per piece than billions of people on this planet make per month (hundreds of dollars). To mitigate the concern that I will be warped by greed, I should add that, on an annualized basis, I am making less than the average Wall Street secretary (much less). I am also not getting benefits the average Wall Street secretary gets: health insurance, vacation, overtime, and bonus (I got those benefits when I worked on Wall Street, and, boy, do I miss them—especially the bonus). I am getting one perk, however: Because my 2-year-old daughter thinks that "daddy is writing" means that "daddy is staying home all day to be a human entertainment center and jungle gym," Slate has offered to let me use a vacant cubicle once in a while.
Lastly, market pundits are often accused of blowing hot air just to puff up the value of their holdings, so here are my holdings: money-market funds, bond funds, stock funds, and a handful of individual stocks (I will not update this list if it changes). I own 80 shares of Microsoft, for example, the parent of Slate. I own some Merrill Lynch, one of the firms I used to work for. I own Yahoo!, Amazon, and, unfortunately, Time Warner (which, when I bought it, was AOL). From 1996-2002, I invested approximately $75,000 in the latter three stocks. At the end of 2000, these investments were worth about $300,000. Two years later, they were worth about $20,000. (Now, thanks to the recovery of the Internet sector and additional investment, they are worth about $175,000.) I also own a few other stocks and, sadly, the remnants of several Internet and technology funds that I greedily shoveled $700,000 into in February and March of 2000, minutes before the bubble burst. Most of these funds have essentially gone to zero. I would love to say I lost this money because I was swindled. Alas, I lost it because, in hindsight, I was a moron.
Actually, that's a cop-out. Any decision that rapidly incinerates the cost of half-a-dozen college educations has moronic qualities, but, in this case, the idiocy is magnified by what psychologists call "hindsight bias." When one looks at a historical stock chart, it is almost impossible to imagine that what is obvious in hindsight (everything) was not also obvious in foresight. What isn't visible in the chart, however, is the logic and information that prevailed at the time, when the future was uncertain. My now-agonizing decision was based in part on promising fundamentals, in part on optimism fueled by years of mind-boggling stock performance, and in part on the perception that Internet companies might continue to steal value from traditional companies and that one way to hedge this was to invest in a basket of them. I had no illusions about the downside (total). I decided, however, that, for an aggressive investor, the risk of not being invested in the Internet approached the risk of being invested in it and that I would rather invest and lose than not invest at all.