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The classic rock song Blinded By The Light highlights a stupid investment trick: buying into the mystique of the white-shoe firms of Wall Street. These firms present themselves as the steady hands of the global economy, but history tells a story of “Madman drummers and bummers” leading the parade.
- Goldman Sachs received almost $23 billion in two government bailouts for its missteps during the financial crisis.
- Venerable Lehman Brothers, the "smartest guys in the room," were so smart they over-leveraged themselves into bankruptcy.
- Wells Fargo paid a $175 million settlement for discriminating against minority borrowers, specifically charging higher fees and rates to 30,000 African American and Hispanic borrowers compared to white borrowers with similar credit profiles.
- J.P. Morgan was part of a $25 billion settlement —the second largest ever—for "robo-signing" thousands of its customers into foreclosure on their homes.
Among the largest, most respected names in finance, we find more than just abusive practices; we find epic management failure. The example of Lehman Brothers is particularly perverse: their own research analysts would have flagged over-leverage as a "Strong Sell" on any other company. Lehman knew better, yet they “wrapped up like a deuce” in their own bad bets and headed for a crash.
And These People Manage Money for Others?
Therein lies the "Stupid Investment Trick": believing that if a product comes from a Goldman, a Merrill, or a UBS, it is inherently sound. We assume their prestige equals protection.
Now, top-flight firms don’t have a lock on bad behavior. Firms of every size offer flawed or even criminal advice. But it’s different with the white-shoe names; they trade on their reputation. When a high-powered advisor keeps calling you with a "can’t-miss" opportunity, remember the lyrics:
“I’ll turn you on to something strong / Play with the healthy, speak with the hungry.”
They are hungry for your assets, and that “something strong” is often just a high-commission product that serves their bottom line, not your legacy. If these firms truly had it all figured out, they wouldn’t be cold-calling you to share the secret.
The Savvy Investment Trick is to have a plan that maps out your financial future. Not a canned, "silicon" plan that pops out of a software program, but a living, breathing strategy that you and your advisor review and update frequently.
Remember, “Mama always told me not to look into the sights of the sun,” which is what you are doing without a point of reference. When the white-shoe firms come calling with their “flashy” presentations and complex derivatives, you need a plan to evaluate them. Does it fit your blueprint, or is it just a “calliope” of noise?
If you don’t have a plan, and you’re listening to the smartest guys in the room, you aren’t just investing—you are likely to be blinded by the light.
