By Ben Stein on 10.26.09 @ 6:08AM
There are good reasons to ignore Arthur Levitt's advice.
A few weeks ago, I found myself at the magnificent Broadmoor
resort in Colorado Springs. I was moderating a panel of three
former SEC chairmen about the economy. It was a fascinating
session, as you would expect it would be. But one comment in
particular caught me up short.
An audience member asked the men their investment advice. Arthur
Levitt, longest serving Chair of the SEC, and an honored graduate
of Williams College, said simply, "Fire your broker and just go
with index funds."
Now, I, your humble servant, am completely on board with Chairman
Levitt about index funds. I have long since abandoned hope of
beating the market. On those rare occasions when I try, the
results are usually bad. The reason is simple: everything I can
find out about a stock is already in the price and the only
things I do not know -- namely the whole future of the market,
the economy, and the stock -- can just as readily hurt me as help
me. So, I just float with the boat -- which also has its limits
because the index is made up of stocks as to which everything is
also already known.
But I do have brokers and I am not going to get rid of them and I
will tell you why. I have a broker at Merrill Lynch named Kevin
Hanley, who works with another broker named Jerry Au. Then, at
Fidelity, I have a broker named Phil DeMuth, who is also a very
close friend. (His nephew, Chris DeMuth, Jr., runs a hedge fund
in which I am also a small investor.)
Why do I have brokers, especially when the fees to the brokers at
Merrill are not negligible?
First, because money is a scary subject even for me, who has been
at it for a long time. I do not want to be alone out there. I
want to have someone to discuss things with, to cry on his
shoulder, and to exult when things go well. I am extremely
certain by now that they do not know much more than I do, but I
am also certain that I need company.
Second, I am the world's slobbiest human about record keeping. I
count on Kevin, Jerry, and Phil to keep my records much better
than I can. When income tax time rolls around -- truly a
non-negligible expense -- I find I need for them to find data on
interest, dividends, and capital transactions that I could not
lay hands on in a million years.
Third, and this is especially true now that Merrill is part of
Bank of America, I find that my brokers there can get things done
for me that I cannot get done elsewhere.
Example: I am buying yet another condo in North Idaho. It is
tough to get mortgages these days and I mean really tough. Banks
give me the run around and waste my time if I just stroll in the
door and fill out forms.
But my guys at ML stay on the case and get things done. They
don't take "no" for an answer. They work and work and call in
favors until they can get the darned thing done. I could not do
that with an automated system. I bank at a small private bank
that does not do home loans. So my peeps at Merrill are really my
guys to make sure I get that condo.
Another big thing.... When I die, as I surely must, I know I can
count on them and Phil to help my wife and son with the immense
amount of paperwork that will be involved. In a word, I need them
to make sense of a cluttered and crowded and finite life. In a
world where I have fewer friends every year, they are friends
indeed. Maybe Chairman Levitt is well organized enough to get by
without a broker, but he probably has a family office, which I
don't. (Or if I do, the people who work in it don't know an ETF
from a toaster.) For a guy like me, a broker is essential.
topics:
Stocks, Index Funds, Arthur Levitt
