Dimon is another case of someone telling everyone else how to live and turning out to be a major sinner. The bottom line is Dimon had weak risk controls in place and has made himself a poster child for a chops-licking Congress to skewer.
But there is another more important message, IMHO, for the individual investor to contemplate, emphasized by Dan Solin in "The Hidden Message in JP Morgan's $2-Billion Loss." Consider that J.P. Morgan is one of the biggest trading entities in the world. Bruno Michel Iksil, aka "The Whale," is obviously brilliant - you don't get to aggressively trade the size he traded at J.P. Morgan unless you are pretty smart. He obviously had the very best resources including sophisticated value-at-risk models, the top graduates from the nation's business schools, etc., at his fingertips. And still - he lost billions!
The message for individuals to contemplate is whether the fast-talking rep from the mutual fund provider/wealth manager promoting their stock picking/market timing skills can really do what they say they can do. Dan Solin, author of The Smartest Money Book You'll Ever Read, says
The massive loss suffered by the bank is yet another indication of the inability of this huge institution (or anyone else) to predict the direction of the markets. Yet, the entire securities industry is premised on the false assumption that its members can add value by stock picking, market timing, and fund-manager picking.He further points out:
The real skill of these "wealth managers" lies in their ability to convince you they have an expertise that doesn't exist. This latest debacle is one more example demonstrating the irrefutable fact that these investment gurus are emperors with no clothes, representing a significant, little-understood peril to your financial security.
I know of only one person who has enough of a track record to to say he truly has skill-- and that is Warren Buffett. His performance has been rather average of late. "The Whale" reminds me of Bill Miller..... hot for years and then the bottom fell out.ReplyDelete