Here's part 2 of my interview with Dan Reingold, author of Confessions of a Wall Street Analyst. I liked the book -- giving it 7 stars -- and as such I wanted to talk to Dan a bit about it. He was kind enough to allow me a few questions. Today, we'll discuss some of Dan's thoughts on the financial services industry and individual investing. Here goes:
Free Money Finance (FMF): In many ways, your book is critical (warns investors) of the financial services industry. Can you briefly tell Free Money Finance readers what they should be on the lookout for when dealing with professionals from the "money industry"?
Dan Reingold (DR): Be on the lookout for people who purport to give you honest and objective advice. We all know this, of course, but for some reason we came to expect and believe that money and investment-related advice wouldn't be so tainted.
FMF: Knowing what you know as a Wall Street insider, if you could give people just a few money management tips, what would your top suggestions be and why?
DR: My experience tells me that the stock markets offer a very unlevel playing field to investors, both individuals and most professionals. This is because far too much confidential information, aka "inside information," is getting out to select "in-the-know" players in the market and they are making big dollars for little effort. The result, of course, is that the rest of the investor community is being cheated, because they are buying or selling AFTER those select few have made their money and stock or bond prices have already moved to reflect the inside information. Unfortunately the Spitzer and SEC investigations didn't even touch this subject and the Wall Street reforms, including the seemingly huge (but actually quite small) $1.4 billion global analyst settlement, did not reform practices or increase enforcement of insider trading laws.
My advice in this context? Individuals should not try to pick individual stocks. We cannot outsmart a market in which highly material information is flowing very unevenly, often illegally. Instead, we should be investing in broad-based index funds or highly-diversified, low cost mutual funds that do not try to outsmart the market by picking individual securities. It's an odd recommendation, I know, from a guy who spent a career as a stock picker but it is the only defensible advice I can give given my experiences and what I observed.
FMF: My understanding is that you're now working with Columbia University -- is that correct?
DR: I am the Project Director for Telecom Finance at the Columbia Institute for Tele-Information (CITI). CITI is a research unit housed within the Graduate School of Business at Columbia University. We work on various research projects, organize numerous conferences and teach courses in the telecom and media fields. I do some guest lecturing to MBA classes on the subjects of telecom finance, Wall Street ethics and corporate fraud. I am also increasingly involved in some charitable efforts and trying to get back into physical shape, after spending more than 24 years working 14 hour days, eating airplane food and hardly exercising.
FMF: As a follow-up, I'd like to know why you're working. It appears from the book that you probably made enough money to retire -- why do you choose to continue working?
DR: I work for no compensation and all of my proceeds from the book are being donated to charity -- for a list of charities thus far see http://wallstreetconfessions.com/content/charities.asp. I am doing this because I love to interact with students, especially to sensitize them to the ethical issues they will inevitably encounter when they enter the business world. I also want to stay attuned to the policy issues in the telecom industry and Columbia is a great place for that as well. I am also enjoying speaking to investor groups, financial analyst organizations and university business students. In fact, I have numerous such engagements on the calendar which are listed at the book's website http://wallstreetconfessions.com/content/speaking.asp.
FMF: Is there anything else you’d like to tell readers of Free Money Finance about managing their money or about Confessions of a Wall Street Analyst?
DR: I'd love to hear readers' reactions to the book--the good, the bad and the ugly! Thank you in advance.
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A few thoughts from me:
1. People accuse me of having a bias against financial advisors and professionals because I warn of the dangers associated with unethical people in this field. Here's a person who was an insider in this industry saying the same thing I've been saying. So, is he biased too?
2. He recommends broad-based index funds, huh? Just another reason I like index funds.
3. Dan seems to be a very charitable person to me and I commend him for donating all his book's proceeds to helping others.
4. Anyone else out there read this book? What are your thoughts? Leave them in the comments section below.
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