Martin Kronicle

I would add at least 1 more salient point to Andrew Ross Sorkin’s NYT article “Where’s the Plan, Wall St?” I would completely do away with the Registered Representatives license, generally referred to as the “Series 7.” It’s outdated and banal. I have taught the material and even written several sample test questions in my day.

I can assure anyone reading that there is not one single question on how to make money nor on minimizing losses. Not one.  And it’s not the brokers’ fault either, frankly. They are poorly trained when it comes to handling risk. Should one get enough gumption to ask a manager for help, they are told for the most part to FOAG – “Focus on Asset Gathering,” and not worry about how to make money or minimize losses. “Let the managers do that.”

The overall NYSE Apprenticeship needs to be expanded from 120 days to 180 and training programs need to be rebuilt from the ground up – CFA style. Teach new hires about managing risk, how to keep losses small, and teach them alternatives to the ridiculous “buy and hold” and “quarterly rebalancing act.” Empower them to be in control and how to trade out of risk. Among other things I would teach are, how to use Stop orders, the dangers of dollar cost averaging, and understanding the correlation between asset classes.

You can’t say that equities have been the best assets class b/c it just isn’t so. Furthermore, it is not likely that we’ll have another 50 years like the last 50. Cash will always be king. It always seems so when you don’t have it anyway.

Why is this important? Your financial advisor is on the front lines. He or she is the one you’ll call. They truly want to do the best they can, but they need better direction from the top and they haven’t had that since EF Hutton spoke.

Risk and reward are linear. You need enough risk to get the gain you want. You can risk so little that you’ll never lose much, but you’ll never make anything either. Same is true for the emotions that you experience when you make investments/trades. On the flip side of every orgasmic, euphoric feeling is its polar opposite. You’ve got to take chances, but you don’t have to be stupid doing it. Here’s how a 2-sided emotional coin works:

Heads: “We’re with Bernie. He doesn’t accept new clients. You pretty much need to know someone to get your money with him. We’ve got all our money with him. His investors have a nickname for him: God.” Emotions: Pride, arrogance, laziness.

Tails: “F*** me on Sunday standing up. Madoff stole our money. He’s taken everything. There’s nothing left. We’re done. How much can we get for the condo.” Emotions: Shame, Destitution, despondency.

Jon Stewart is in the same business as Jim Cramer…they create TV ratings. Neither is on a higher moral ground than the other. Stewart’s genre is comedy, and Cramer’s is, at best, infotainment.

Stewart is misguided to think that Cramer is responsible for any of his viewers’ investment demise. Each investor is responsible for his or her own investments. What and when to buy or sell short is up to them, as well as when to offset a position. Putting it on Cramer is endowing him with too much importance. Ratings do not signify importance…they signify popularity. Putting it on Cramer gives away one’s power to be in control of their risk management.

Even if Cramer is winless in his stock picks, he is coming from a good place. IMHO, he is an educator deep down and he may be better suited in an Endowed Chair at a college or university. He’d be a good fundraiser no doubt.

The fact is, there just isn’t that much worth reporting when it comes to stocks – it’s trivial. Furthermore, if one is to follow CNBC’s ethos of “Buy and Hold” no one would need to watch the station day after day unless they were bored and wanted to be entertained. News that is deemed “Breaking News” today, scrolled at the bottom of the screen, loses its magnitude by the next day, nevermind years from now.

If one puts such importance on Cramer, his advice, and CNBC as a whole, it signifies the desparate level of financial literacy we’re at as a nation of investors.

“History is a chronicle of people clinging to erroneous ideas authenticated as religious or scientific truths. Max Planck (1858–1947), one of the greatest physicists of all time, observed: “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.””

I remember hearing everyone from my parents, to the neighbors, to the morons on TV saying, with a smirky shrug of the shoulders, “yeah, but you can’t time the market. Buy and hold the index and you’ll be fine.” (There’s really no “timing” of the market per se anyway, it’s “pricing the market” as far as I can see. The “time” part is incidental, but I digress…)

Not having a bona fide manner to exit positions is one way to deal with the uncertainty that goes with trading. It’s called “ignoring it” until a later date. “Buy and Hold” has become “Buy and Hope.” My guess is that if one was retiring right about now, they’d wished they’d timed the market a little…

I always prefer to look a little stupid trade after trade and be in cash, than to be really stupid and still be long names that might never come back. For example, CSCO – a great company – has never recovered from the highs of 2000. How long will it take Citi to come back?

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