The Flexible Investing Playbook: Asset Allocation Strategies for Long-Term Success

Chapter 5. Wall Street's Bull

Here is what I feel is the standard chronology for a Wall Street disaster:

• A good product idea is developed.

• That product idea starts to get popular with financial advisors.

• Product companies begin mass-producing the product, each trying to "one-up" the others.

• Increasingly innovative but more complex varieties of the product become available.

• The media starts to poke holes in the now-ubiquitous product.

• Product producers and users insist the media and other detractors are wrong (and this gets less press coverage than the stories that show the product in a positive light—that is, a star is born, but the star's flaws are downplayed).

• Most of the investing public (including advisors) either don't know about the potential pitfalls of the product or ignore those risks.

• The risks are eventually realized, and massive losses of money and "face" occur.

• Investors and their advisors vow never to be fooled like this again.

Past examples include 1970's oil and gas partnerships, junk bonds in the 1980s, and, more recently, collateralized debt obligations (CDOs), mortgage-backed securities (MBSs), and other leveraged investments. Despite the long history of investor disappointment, the Wall Street firms keep cranking out products and ideas that investors fall for, just like Charlie Brown trying to kick that football while Lucy holds it—until she pulls it away at the last minute. Rather than simply walking around feeling that Wall Street is a casino run by a bunch of greedy ...