Posted on 08/31/2002 10:55:16 AM PDT by shrinkermd
We are terribly sorry to say our prediction of April 2000 of 50-70% of stockbrokers and stock brokerage firms going under before the bear market is over is sadly coming true. Broker commissions are off 80% and payout has been dropped to 23-35%. We hear many stories of alcohol and drug abuse, and suicide and many of these young men and women, who found transitory fame in their 20’s smashed on the financial rocks.
The cool bachelor pads of the 1990’s have given way to one-room studios in the suburbs. They now struggle through life in menial jobs trying to get their lives and futures together again. Needless to say many have totally lost hope in the system. You might say what goes around comes around. No one ever told these poor souls what goes up must come down and usually does so when you least expect it. 29 months of a bear market has certainly taken its toll.
We figure that if the Plunge Protection Team hadn’t been manipulating the market the Dow would now be near 5500-6000. It is stupefying to review all the scandals, bankruptcies and poor earnings and try to understand why the Dow isn’t 3000 points lower. We guess we’ll have to wait for the real estate, credit and derivative bubbles to break. As we have seen, deregulation has been a nightmare particularly since the Glass-Steagal Act was terminated. Wall Street brokerage firms, investment banking firms and banks have simply run amok. Its no wonder brokers have depression rates over four times the national average.
Its no wonder since brokers who made $100,000 to $3 million a year are out of work. Those left are making 20-35% of what they took home just three short years ago. It now seems like a lifetime ago. We see thousands of arbitrations and lawsuits. Strategists, analysts and bankers have been completely discredited. Worse yet, those of this group who warned of the impending problems have been shuffled into the background or fired. Wall Street and the banking community have fled under fire and are still fleeing and the battle of truth is only 1/3 of the way to being fully discovered. We can tell you that Wall Street won’t be the same again for many years to come.
This has been the case for many years. After all, how much do you think the typical mutual fund or pension fund pays to trade? Most of the volume has been institutional for many years, done at pennies a share.
Do they compliment me on my wit, my good looks, my charm or my money?
Bingo! My wife's CPA firm predominantly caters to high-net-worth individuals and family groups. They have a couple people in a related firm (under the same roof) that do fee-based financial planning, no commissions or brokerage fees involved.
You get what you pay for. They do excellent work.
Exactly, which is why his sorrowful words -- terribly sorry to say our prediction ... is sadly coming true -- rang so comically false.
Let us bow our heads and recite the Goldbugs' Prayer:
"Dear Lord, please send us war, famine, pestilence and death, so thy Sacred Metal may rise above $800."
It used to be about fine dining, buff bodies and a fistful of dollars - but now it's a few beers, a knotted stomach and lots of frowns for the formerly high-flying traders of Wall Street.
In bars and restaurants across the Financial District, the scene is the same.
As the stock market plunged in recent weeks, the drinking sessions immediately after the four o'clock bell suddenly were no longer "happy" hours for the men and women whose lifeblood is tapped out by the ticker.
"I used to go straight to the gym every day after work, and now I'm drinking every night," said trader Kevin Cooke, 30, of Manhattan. "Work sucks, the money sucks, everything is just horrible right now, and I want to get drunk faster."
Cooke last week was drowning his sorrows with workmates at Fraunces Tavern - a popular hangout for those who trade on the stock- exchange floors.
The traders and brokers reminisced about last summer, when average bonuses were healthy six-figures, and sometimes more.
With a seemingly endless well of cash, they partied in the Hamptons, purchased flashy cars and tried to outdo each other with new Palm Pilots.
Sept. 11 and the corporate crisis of recent months changed all that.
Last Thursday, Cooke and his pals, whose company cannot be named for professional reasons, were coming to grips with how the money they had made that day had disappeared in the final half-hour when the market plunged.
The same story was being told down the road at Beckett's Bar & Grill, another popular watering hole for financial-types.
"My money's shrunk to a fraction of it's original worth," said Joe Bowler, 39. "And now I'm worried about my job."
At Fraunces, George Fernandez, 33, of Yorktown, said the market plunge had prompted him to curtail his wife Ellen's shopping sprees.
"I've told my wife to cut the spending," he said. "She buys anything and everything - armoires, furniture, clothes. It's out of control."
In the days when money was plentiful, Fernandez and fellow broker Sam Nifkin, 32, teamed to form a musical band called G-5. But what used to be a fun hobby has turned into necessary activity to help them relax, they said.
"I've become more aware of my musical talents - there's more important things in life than money," Fernandez said.
They are doing remarkably well, considering.
First, I truly am a financial planner. That is, I determine what my clients’ objectives are and the resources they have. I then determine how to achieve their objectives with the lowest risk. If someone comes to me with impossible objectives (e.g. “make me a lot of money with no risk.”) I refer them to someone else.
I generally deal with my clients’ “serious money.” My clients typically are either retired or planning to retire. So we determine their retirement income needs and the sources of that income (pension, social security, interest, dividends, annuities, etc.). It is almost always possible to assure their income requirements without speculating in the stock market.
That is not to say that I don’t invest in stocks. However, I don’t gamble. It’s like going to Las Vegas. You can choose to be the gambler or you can choose to be the “house.” I choose to be the house.
I counseled my clients to stay out of the technology bubble during the 1990s. Some listened and some didn’t. I have to admit that I bought some of the tech stocks after they were off by 50% or more. They went down more. The ironic thing was that the Blue Chip stocks that I favor for the equity portion of my portfolios did relatively poorly during 1997-2000 because everyone was dumping International Paper and Philip Morris to buy Yahoo and Lucent. That being said, I’m doing better than the broad averages, but still down for the last 2 years.
So the question each client must answer for himself is: is an advisor who keeps me out of serious trouble during the worst Bear market since World War 2 worth keeping? Is it worthwhile to have a trusted advisor around if I should die and my wife is faced with the challenge of making the serious financial decisions, when I’ve done it for all of our married lives? Most of my clients have answered in the affirmative.
Different people in the investment business are paid differently. The people you are reading about in the NY Post article get paid a base salary, but most of their annual income is in the form of a bonus, usually determined by the profitability of their department, or their particular contribution. Bonuses the last years have been way down.
But notice something, Fraunces Tavern is not some neighborhood dive that serves boilermakers for $1 a pop. To go there to get loaded requires some serious cash. So we’re not talking about people with minimum wage jobs here. And, yes, the yuppies in the article were probably living on the edge of their incomes and speculating in the dot.coms. Young people do foolish things. My own 24 year old son has dropped a few thousand in learning the lesson that speculation is for fools. But I let him, because you only really learn by making mistakes. The time to make mistakes is when you’re young and you have plenty of time. That’s how you become wise.
On the other hand, if they were telling all of those investors who trusted them to put their money in stocks, and did something saner with their money, that would've been really, really hypocritical.
The stock analysts deserve an awful lot of the blame. They are the ones who collected the big bucks to dig into companies and find things that diminished the value of these stocks. I don't want to see them commit suicide or become drug addicts or anything, but time spent at some menial job might give them a clue of the damage they've done to the financial security of others.
Thank you. My most valuable asset is the credibility I have built with the clients I have had for over a decade. I consider it an honor when I get a call from the widow of a client who says “Joe passed away, but he told me to go to you for advice if anything happened to him. Can we sit down and talk?”
Regarding your comments: picking stocks one at a time is an almost impossible job. That is why I rarely do it (although I have soft spot for companies like Kraft and Smuckers). Portfolio management requires the understanding that you can’t be right all the time, so you use tried and true strategies that have worked over the long term, and you diversify risk away.
I hate to say it, because I belong to a big brokerage firm with hundreds of analysts, but I rarely use equity research as a way of picking stocks. I will use analyst’s reports to get historical data and look at consensus estimates, but I feel more comfortable being a contrarian than being in the mainstream.
For alternative strategies, I use outside money management firms or mutual funds. But in hiring outside managers, I have learned to temper my enthusiasm and not to expect miracles.
Both. What you have to remember is that there are two factors at work there. The first (and most common) is that these "experts" on CNN, CNBC, MSNBC, etc., work for investment houses. Many of the stocks being touted are those of their clients (IPOs, etc.)
The second factor is, even if they have no clue, they don't to say "Gosh, Katie, I have no idea what's going to happen in the markets today" in front of 10 million Americans. Vanity, thy name is "television commentator."
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