Dubious Lessons from a Ponzi Victim
Although Michael Kubin is a financial writer, his op-ed piece in the NY Times of Dec. 11, 2010, “The Ponzi Scheme That Changed My Life,” was not standard dispassionate reporting. He was, you see, a victim of Bernard Madoff’s far-flung crimes. He described the searing pain of his loss, and he concluded with steps he now takes to avoid a repeat disaster. The obvious implication is that those steps might be prudent for others to follow.
While his advice was obviously well-intentioned, it could do more harm than good. For his current investments, he says, “before putting money into any deal, I have spent tedious hours vetting the managers, checking references and getting greasy and grimy crawling under the hood to understand how their business works.”
Tedious hours? Grimy crawling?
While I certainly empathize with Mr. Kubin, only a tiny minority of the investing public can make that kind of commitment. Strenuous sleuthing may work for someone with his background, but hardly makes sense for the vast majority of investors.
So what should you do?
My guess is that 95% or more of all Ponzi schemes would fall apart if investors followed my one simple rule: Invest only if your money will be held in your name in an account at a major brokerage firm (Fidelity, Schwab, TDAmeritrade, etc.).
And needless to say, investing in no-load mutual funds adds another layer of protection.
When it comes to juicy sounding investments, as the cliché says – if it sounds too good to be true, it probably is.
Except, remove probably.