Many people, including this blogger, have lived off trashing Wall Street since the financial crisis erupted 5½ years ago.
Given what many experienced, it was justifiable. The investor’s relationship with Wall Street was badly violated. Many people lost a lot money. Retirements were wrecked, and advisors and brokers were blamed for the carnage.
Many investors have not gotten over the trauma. They remain out the market. BlackRock’s most recent Investor Pulse found that investors “are stuck in cash.”
Holding a grudge over the market’s previous transgressions has cost investors dearly: The market has gained 20+plus percent in 2013 thus far and over 120% since the March 2009 low.
Time To Move On
Relationships can be difficult, including the often tortured one with Wall Street.
Relationships require trust and forgiveness, but human frailty sometimes gets the best of even the virtuous. That’s why therapists and wealth advisors are always in demand: They help us maintain equilibrium with the things that matter most: parents, spouses, kids and money.
Despite the broken trust with Wall Street, it’s now time to move on, not only for our mental health, but for our portfolio’s as well.
In the spirit of turning the page, it’s worth examining where it all went awry. To do that, consider that the “relationship” with an elite Wall Street firm is like the hottie (male or female) you dated in high school or college.
Hotties are fun. You can show them off to your friends. They signal to all that you’re sporting some serious mojo. Hotties make you feel better, if only temporarily.
But we shouldn’t be surprised by the behavior of a hottie – or elite Wall Street firms for that matter.
The hottie is always looking for a better version of you – more money, more connections, more good looks. Wall Street behaves as predictably – professionals are greatly influenced by their comp plan.
What makes the financial crisis sting even more is the daily reminder from articles in the financial press and the blogosphere that Wall Street’s comp plans motivated behavior was more about them than it was about investors.
Many had long suspected that Wall Street was way overcompensated, but the financial crisis proved firsthand that Wall Street’s perceived value-add didn’t match up with reality.
Learning From The Past
Difficult as that may be to swallow, there’s only one way forward now: Get over it. Or, you will repeat the mistakes of the last generation.
Depression-era investors never recovered from the psychological trauma of the 1929 stock market crash. Many swore off the financial markets and they paid dearly, too. They missed the greatest bull market in history and had to live with the daily regret of missing it.
Instead of railing against the past, we might do well to follow the lead of nature, which recovers from a catastrophe much faster than ordinary humans. Nature doesn’t have any emotions, so it quietly figures out a way to rejuvenate itself and move on.
We all need to forgive, but we should never forget the lessons of the financial crisis. We need to find new partners who will treat us with respect.
Put another way, it’s still okay to revel in past glories about the hotties we dated, but now is the time to be focused on a healthy future with people we can trust.