“The Onion newspaper’s major competition is…wiki-leeks.” Ben Ziek
Big Doings in Ohio. It seems the Ohio Supreme Court has discovered that the Foghorn has been offering financial education classes there for a decade, and now wants him not to talk anymore. He’s been a little negative lately, as the title of his workshops suggest. So, Foggy slapped together a petition for rehearing of their decision to toss him as a Mandatory Continuing Legal Education provider. The following letter is a little long, and even if edited a bit, perhaps legally tedious (a legal redundancy). I’ve added the cartoons just for this blog letter.
In RE: Petition for Rehearing on Financial Foghorn’s Ohio Bar Classes
I gather from your MCLE Administrator in Columbus that you have decided not to allow me to present the following classes for MCLE approval:
Financial Planning for the Big Picture – 2 half-day seminars.
– The Financial Crash of 2014-15? How to Invest Prudently, Whether It Happens or Not – Morning
– Re-building a Successful Retirement in Spite of No Time, No Money and Almost No Planning – Afternoon
I’ve also gathered that the reason for your denial is that you don’t believe the above classes are sufficiently lawyerly. I’ve not actively practiced law since 1981, but I wish to make an argument, and petition for a rehearing.
Lawyers practice diligently with legal papers – complaints, answers and interrogatories. Then they take their earnings and come up against financial papers – stock certificates, IPO prospectuses, bond indentures, and limited partnership agreements. Are lawyers as qualified to handle those as they are pleadings? Do lawyers, as a group, understand securities investing? In short, lawyers as a group are ignorant (not stupid) about Wall Street, and therefore should be offered investing workshops.
Perhaps a couple of stories from my 18 year investment career and 35 year teaching career would help:
- Back in my brokerage days, upon request, I sold some shares from a muni bond money market fund for my client, the wife of a senior, name-on-the-door partner in a 50 person law firm. I got a phone call from said senior partner, who demanded to know why I’d sold his wife’s “government” bonds (referring to the wife’s individual Treasuries his wife also owned.) Even after I’d explained it, he didn’t fully grasp the difference between a muni bond money market fund and an individual treasury bond.
- Then there was the lawyer who wanted to know at what rate my firm would lend him money to fund his IRA, and what the IRA would “pay.” Brokerage firms don’t lend money except against assets. And he didn’t really know that an IRA stands for Individual Retirement Account. An IRA is a briefcase holding investments, not an investment per se.
- Then there was the real estate lawyer prospect who tried to convince me that he had managed to buy the Franklin California Tax Free Bond Fund without the standard Franklin Fund 4% “load” commission – from a Wells Fargo rep who flat out lied to him. Counsel failed to notice that he paid $10.40 for it, and could only sell it to Franklin for the $10 NAV, immediately thereafter.
- I’d gone to work for Dean Witter in June of 1982, just prior to the late great bull market that began in August of 1982. My lawyer friends accused me of “falling off my meds.” So they missed the early, easy bull market innings. In the summer of 1987, my lawyer friends sought me out for “stock tips,” five (5) years after they should have started investing in the bull market. They may have been lawyers, but they were still typical investors…late. E.g., Warren Buffett is not a guy who comes to the party late.
Nothing has changed with alleged “shark-like” lawyers and their failure to enter the bull market in precious metals…that’s been going on for the past 13 years. I ask at each of my workshops whether participants own any gold or silver for investment, during the biggest “funny money printing cycle” ever seen on planet earth. In 2013, in Columbus and Cleveland, gold owners constituted less than 10% of the room. Financial TV tells people not to buy PMs, so they don’t. Wall Street success is based on joining the usually early, intelligent value-investors, not the late-to-the-party frothy types.
Then, there are the late-stayer lawyers. I tried (unsuccessfully, mostly) to talk my lawyer and CPA students OUT of buying dotcoms in late 1999, and in June of 2000. I argued against buying real estate starting in 2007, pointing to the obvious signs of CDO bubbledom. If Wall Street were about numbers, mathematicians would have all the money. It’s tough going against the crowd, but sometimes the right decision is to enter an bull market; and sometimes to get out.
My stories of widespread Wall Street ignorance are not unique. The mutual fund company, Vanguard, does regular surveys discovering such things as most people know the difference between a quarterback and a halfback, but less than 12% of the population knows the difference between a load and a no load mutual fund. (I don’t know if lawyers were included in the survey.) Do you think your lawyer members are going to be able to retire successfully in a low interest rate environment without understanding equity investing?
As I said to a jury once, “How many witnesses does it take to convict in an armed robbery case like this? ONE if you believe him.” Let me ask you, have you had examples of professional malfeasance in your state? Would education have perhaps prevented a few bad decisions? How many examples of bad decisions would you need your Supreme Court pension committee to make before you rethink allowing qualified Wall Street classes to be presented to your membership?
My argument is that not only are my classes aimed at lawyers specifically, but that lawyers ESPECIALLY need help with investing, because the downside is usually so steep if they fail to help their clients, firms or families. There are more dollars to lose. Mistakes there can go a long way. My workbooks’ lack of legal bullet points is not as important as presenting sound investment principles in an understandable manner.
A Dean Witter manager said to me back in the 1980s, “Guys go in to Wall Street…to make enough money…to get OUT of Wall Street.” I have said in classes going back to the early 2000s, Wall Street is not working on investors’ behalf. As I’ve also said since then, MOST people invest very badly, and professionals have at least as much trouble as the general population, because they think getting an advanced degree gives them “spontaneous investment expertise.” They think they’re supposed to know about investing. So they fake it until they make it…maybe. With apologies to Donald Rumsfeld, the non-professional groups know they don’t know. The standard joke in my brokerage firm AND my trust departments was that yes, doctors are the worst investors, but lawyers are a close second. I once convinced a law firm pension committee that my portfolio results from 1990 (the invasion of Kuwait bear market year) should be compared to an East European equity index that I beat…instead of the S&P 500 that I didn’t beat. I tell that story in my section covering performance measurement of a portfolio against appropriate industry benchmarks.
My arguments about lack of investment knowledge by members of the general population, including lawyers, have been made by other voices out here in the wilderness with me:
- William Mackay back in 1852 in his book, Extraordinary Delusions and the Madness of Crowds (a book I luckily read at age 31)
- By Charlie Kindleberger in his book, Manias, Panics and Crashes, last updated in 1999, and which has been on my bibliography pages since 2003.
- Warren Buffett and Charlie Munger have hinted at their Omaha meetings that their success is due to rationality.
Lawyers do NOT learn investing in law school. The Securities class didn’t discuss bull or bear markets. Commercial Paper didn’t discuss whether the transferable security was a good “investment.” Constitutional Law never dug into the importance behind the Greenback cases in the 19th century or the gold clause cases in the 1930s that have done so much to destroy our financial system today. There was no digging into the origins of the Federal Reserve in any class. Face it, there is little professional financial education anywhere in our country, much less in law school. But, lawyers do need to know about those cases.
Lawyers should NOT stumble along until they pick up investing on a Perry Mason episode. They shouldn’t wait until they retire, and THEN take a community college class taught by some rookie stock broker trying to build a book. It’s too late then. The 70 year old broker who mentored me used to say, “To become a good investor takes 10 years or three bear markets, whichever comes first.” Lawyers need to know about investing, because they’re regularly asked, “What should I do with my money now,” by their partners, clients, and families.
If you agree that the subject is a worthy one, please tell me how lawyers are supposed to learn about investing? From heavily conflicted broker or brokerage seminars? Quips from CNBC journalists Joe Kernan, or Sue Herrera? From books or periodicals they’ve never heard of?
Adult education is defined by the American Society of Training and Development: Organize the subject matter, offer an overview, discuss important concepts and details, and provide resources for further study. Investing is a craft, like throwing a clay pot, learning to play golf, or lawyering. One learns principles, and then must practice. Finding good classes hastens the journey.
Subject matter mastery is like reading, if people do not recognize the basic words, they won’t push ahead and learn the big words, and fully grasp the subject matter. On the following page, I annex the workbook test from my Wall Street class. The quiz is a basic one from a Money magazine article in the 1980s, and was described as a quiz from a high school finance class. (As on of my professors said, “If I don’t cover material in class, at least I cover it on the exam.”)
If all the members of the Supreme Court can score 100% on this quiz, then indeed I’ve misjudged my audience, and I shall henceforth consider State of Ohio lawyers to be well prepared to provide wise investment counseling for their clients, firms and families. (The scores have averaged between 15 and 16 correct in all the years I’ve been offering the quiz. Answers provided in next week’s blog…)
But, given what I’ve witnessed in my career in lawyer investment classes generally (and young lawyers’ investment skills specifically), I ask that you not only approve my classes, but that you consider making them mandatory.
PS: The last time a government body of some kind tried to cancel my investing workshops was in the summer of 1987. Things didn’t turn out well that fall. I hope this little contretemps is not equally predictive. But if it is, Foghorn would suggest you put some bucks into some of that gold and silver stuff…coins, and then the Gabelli (GGN) or Global X Silver (SIL) funds. Do your own due diligence.
Here’s the quiz. Take it and see how you do. . .