Last week was a tough week for the tattered reputation of the world of finance. Legal and moral problems in some well known financial services firms have exposed parts of the industry, which is supposed to help clients make money for a better life, as little more than a scam that is self-serving for too many involved.
JP Morgan (NYSE: JPM ) , the financial behemoth who advises millions of clients and provides millions of people with products like mortgages, bank accounts, and credit cards, revealed that its trading loss has now reached $5.8 billion. This is up from a $2 billion estimate when the bank first announced the blunder and raises the question: Why does the company's chief investment office have a $323 billion portfolio in the first place?
Banks have losses, I get it, but a bank of JPMorgan's size instills responsibilities in shareholders, policy holders, depositors, regulators, and countless other stakeholders. How are the same people who benefited from a taxpayer bailout now back to betting on instruments they don't understand and racking up billions in losses that put the bank's future in jeopardy? Somehow at the end of the day I think it's not Jamie Dimon who will be left holding the bag.
More tragically, brokerage firm Peregrine Financial Group came unwound after the company's CEO and founder tried to commit suicide, regulators seized the broker's assets, and nearly 20 years of lying and fraud came to light. The company was supposed to be on the side of investors, not stealing from them. One of the company's front-page banners even says, "Good investing habits start early. What are you teaching?" This seems a little ironic considering the events that transpired over the last week.
To make matters worse, this is so similar to the collapse of MF Global, which was just a few months ago. How can the people we trust with our money be so reckless?
Finally, there's the story that hits home for me as an online analyst trying to dispense wise and useful information to the readers of this site. Lenny Dykstra, a former Major League Baseball center fielder turned writer and analyst on TheStreet.com, filed for bankruptcy in 2009 and last week pled guilty to bankruptcy fraud, concealment of assets, and money laundering, which only adds to his myriad legal troubles. Somehow, we were selling him as a financial "expert" online.
Sadly, these events happened in just the past week, piling on years of financial abuses by Bernie Madoff, Rajat Gupta, and Allen Stanford among others. We're somehow supposed to trust these people with our money and listen to their advice? What are retail investors to do when the very people we are supposed to trust turn out to be the biggest crooks of the financial world?
The Foolish approach -- the only record is a public record
Many of us have taken the responsibility onto our own shoulders for our financial performance and freedom, but even the most independent investor relies on the thoughts of others to formulate investment theses. So whose advice should we trust? This is a question each investor must answer herself. At The Motley Fool we've made an attempt to be more open and transparent to our readers about not only our financial interests, but also our track record. It's what founder David Gardner calls "Moneyballing the financial world."
For example, we clearly disclose what we own ourselves (click here for my current holdings) at any time, and, maybe more importantly for you, is that we track the stock calls that we make in our articles in an initiative we call CAPScalls. It's a way to build a track record of our public picks that should provide some level of confidence that we know what we're talking about. For example, you can track my picks in my CAPS portfolio here, or follow a portfolio of weekly picks I make with fellow Fools Alex Planes and Sean Williams here. Our newsletter service performance is also easy to see right on the front of fool.com.
I don't write this to be an advertisement but rather to point out that websites, advisors, and money managers should provide a level of honesty and open disclosure that has been lacking. Maybe these tracking methods aren't perfect, but they show that we're trying to be as honest and upfront as we can in our stock picks and advice because it means something to our readers.
The Foolish truth -- it's up to you
The sad part of these revelations is that more and more of the financial burden falls on your shoulders if the professionals can't be trusted.
Just remember that there's no such thing as too much disclosure from those whom you're trusting with your money, whether it be a financial advisor, a broker, or your favorite analyst online. In the financial world we are little more than our reputations, something that can only be built over a lifetime but can evaporate in an instant.
It's sad that those who had so many self-serving interests, rather than the success of clients, as priorities have upended the reputation of the industry as a whole. If the opposite were true maybe Wall Street and Main Street could form a more symbiotic relationship. Here's to building that reputation up again -- one article at a time.