What I Learned From Covering Wall Street
Weidner: Some lessons from 15 years observing the industry.
A fter covering the tobacco industry for three years in North Carolina, I moved to New York in 1997 to cover a really dirty business: Wall Street.
Fifteen years after I made that switch, I'm moving on again. More on that in a moment.
Wall Street, like just about everything else, including me, has changed a lot in that time. Also, it hasn't changed a bit. What follows are 15 takeaways from my time living in New York and covering the financial industry and the markets.
Simple is better : For 60 years, a 37-page document kept the financial system relatively safe. It was called Glass-Steagall. In the 13 years since it was repealed in the name of modernization, we've seen a tech bubble and the greatest financial crisis since the stock-market crash of 1929.
You can't time the market : Also, technical analysis is phooey. Momentum plays are foolish. Anyone who wants to sell you a plan to beat the market is full of baloney. Investing schemes are exactly that. As I've written before, some people will tell you that you can hedge your bets. But insuring trades has never made sense to me. If you have to spend money to hedge a bet, it probably means you can't afford to invest the money.
When it comes to markets, what can go wrong, will, and bubbles happen. The problem is we never know which is which until it's too late.
Timing is everything : Market journalism should be written in two ways. The first would give you the trader's perspective. The second would be for the long-term, buy-and-hold investor. Too often, we're caught up in the daily fluctuations in our portfolios. What really matters is what the investments are worth when we need them.
Pay is the problem on Wall Street : Why is it that we know the names of Kweku Adoboli, Jerome Kerviel, Ina Drew, Bruno Iksil and Nick Leeson but not the names of all of the "rogue" traders who pulled off massive gains on their speculative bets? The answer, obviously, is that winners get promoted. Only losers are hung out to dry.
Too cozy for comfort : It's less of a problem since the financial crisis, but the business media are still too cozy with the powerful on Wall Street to do their jobs correctly. The media still fawned over Wall Street stars such as Jamie Dimon at J.P. Morgan Chase & Co. ( JPM : 35.38 , 0.76 , 2.20% ) ; Eliot Spitzer, former New York governor and attorney general, and Jimmy Cayne of Bear Stearns. Why? They all dished tips or dirt on their rivals. Access journalism still dominates the landscape, and you -- the reader -- suffer for it.
Mutual funds are a waste of time : The fund industry was my first beat in New York. Here's how it was explained to me: You buy a fund. The fund trails its index but you pay a management fee and other fees that are usually diminishing returns. You will pay a fee to buy the fund, or exit it, or both. Index and exchange-traded funds are the best thing to happen to investors since cash.
Donald Trump :Living in New York, we get a warped sense of how regular people view big finance. Most Americans, when they think of the rich and powerful of Wall Street, don't think about Lloyd Blankfein, the CEO of Goldman Sachs Group Inc. ( GS : 96.37 , 2.74 , 2.93% ), or Steven A. Cohen of SAC Capital, one of the most powerful hedge funds in the world. They think of Donald Trump, a reality-TV star of questionable wealth who's had several business failures and bankruptcies and is generally considered a credit risk to bankers on Wall Street. Sophisticated investors? They think of Warren Buffett.
Break up and make up : Mergers and acquisitions are a necessary evil in the modern corporate world. That said, most of these deals are put together for the wrong reasons. CEOs and top managers get huge payouts. Investment bankers get huge fees. Shareholders get paid off. On the flip side, these deals eliminate competition, are used to pad or obfuscate financial results. They almost always cost jobs, disrupt business, make customers miserable. And studies consistently show, their biggest selling point, "efficiencies," almost never pan out.
My favorite places to meet for interviews : Harry's at Hanover Square, Ulysses, 21, Four Seasons, Pershing Square, Rue 57, Gabriel's, Gramercy Tavern, Bouley, Margon, Del Frisco's and Cafe Metro. And that's just the few I thought of this morning. I know I'm leaving some out.
Jamie Dimon : He is the smartest guy on Wall Street -- and the most arrogant.
'He was like a father to me ... he would do anything for money' : This is what I was told by a close "friend," "colleague" and understudy to a big-shot investment banker to the financial industry (he advised banks on mergers). This Mr. X was rumored to be leaving for a rival bank for a significant amount of money. The first part of the quote illustrated to me the bizarre but nurturing environment between bankers. There was a lot of loyalty. The second part of the quote showed the only thing that was more important than anything else.
Best of the rest : Consistently the best reporters and commentators on Wall Street outside of the Dow Jones empire, which includes MarketWatch and The Wall Street Journal: Josh Brown of the Reformed Broker, Mark Gongloff at the Huffington Post, Barry Ritholtz of the Big Picture, John Gapper and Martin Wolf at the Financial Times.
What's it worth? Investments are always priced at their worth. Forget price-to-earnings ratios, return on equity, value relative to peers and that other stuff the guys on Wall Street uses to rationalize a trade they want you to make. If a stock is $10, it's worth $10, because that's what someone is willing to pay for it, and that-- not the underlying company's prospects or some other metric -- is what matters.
Amazing when you think about it : For all of its problems -- and, honestly, I've probably complained too much (and at times unfairly) -- Wall Street and the business of high finance and banking are vital to the country. After all, from the first continental railroad to the first computer to Facebook Inc., a brokerage or bank made it possible by taking a risk. Has the industry been rife for abuse? Absolutely. But few of our great entrepreneurial success stories don't involve a traditional bank or brokerage. And it's not just the big stories. Banks play a role in our first homes, our new cars, our school loans, our small businesses.
You can argue that the system is out of whack, rewards thieves and has paid off and controls the political system. It's true that in the financial crisis of 2008, the system broke down and banks stopped providing the services for which we paid.
But we need Wall Street as much as Wall Street needs us. Which is why we need to ...
Pay attention : Following the scandals, the controversies and the issues on Wall Street can be infuriating, boring and discouraging. Working to change the system may seem impossible. But if you've read this far, you obviously are at least curious. Or a glutton for punishment. You have what it takes.
And though I will be gone for a couple of weeks, when I return, my columns will come from San Francisco, where I'll be taking a different angle on finance.
Until then, remember: Greed is good, but good is better.
