The Hidden Side of Wall Street’s “Mischief”

AdamWall Street gets a bad rap. Much of it is deserved, but not necessarily for the reasons you might expect.

You see, to many, Wall Street’s suit-clad warriors appear to be nothing more than money-sucking leeches… draining the pockets of Americans’ hard-earned dollars through their fees, commissions and kick-backs.

Whether this is a fair characterization or not, Wall Street’s worst give haters plenty of ammo.

About this time last year, the United States Justice Department vowed to fine Wall Street banks something like $5.8 billion for rigging currency and interest rate markets.

A long scroll of instant message conversations confirmed that many Wall Street insiders were coordinating this mischief. The most arrogant of the bunch even went so far to pontificate:

“If you ain’t cheating, you ain’t trying.”

This is the “worst of the worst” of Wall Street’s notoriously bad actors. This is why people view Wall Street as permanently rife with scandal.

But there’s another aspect to this story, one that’s less overtly sinister…

Dan Ariely, Ph.D. is a Professor of Psychology and Behavioral Economics at Duke University. His extensive research on dishonesty provided the framework for a documentary titled Dishonesty: The Truth About Lies.

Basically, Dr. Ariely concluded that “dishonesty is almost always caused by a conflict of interest.”

People act rather predictably when we find ourselves in the middle of a conflict of interest. We want to tell the truth… but we don’t want to disappoint anyone either. So while the right thing to do is to respond with complete honesty, the natural response for many is to lie… to tell both parties: “There’s no conflict here.”

I can even think back to my time as a financial advisor, when I was expected to toe the company line, even though I knew of better strategies. Between doing right by my clients and serving my firm… I was caught in a conflict of interest.

As I see it, conflicts of interest explain most of the oft-cited disconnects between “Wall Street” and “Main Street” — outside of Wall Street’s most purposeful and villainous cheats.

You see, I actually believe that a majority of individuals who work in the Wall Street machine are good people.

They’re ambitious and hard-working… analytical and detail-oriented. They’re problem-solvers!

These traits, in and of themselves, are good things. And when focused toward a respectable goal, they can produce great, meaningful results.

The problem comes when Wall Street’s goal is not well-aligned with investors’ goal… a la conflicts of interest.

Arguably, regulators have tried their hardest to properly align the interests of investors and Wall Street.

For instance, Registered Investment Advisors (RIAs) are held to a higher standard than brokerage firms, in that they have a fiduciary duty to their clients. This means they must act solely in their client’s best interest.

Fiduciary duty prevents these advisors from putting clients into a high-fee product, when a low-fee product will suit them better.

That’s a great start… but I believe investors need to take one additional step to ensure they’re in a “no conflicts” relationship with their investments.

To be frank, this final step requires a fair amount of trial-and-error… and a great deal of work and determination.

Simply put: As an investor, you have to “find yourself.”

Are you aggressive or conservative?

Are you looking for income or capital appreciation?

Do you believe in diversification, or concentrated investments?

How do you react to losses? Do you have discipline, or are you quick to panic?

How much time can you make available to actively manage your portfolio?

There are dozens of questions like this. The point is, only YOU can decide what will work for YOU.

Personally, this is a journey I’ve been trekking for years…

I’ve learned I’m more successful operating “systematic” strategies than discretionary ones.

I’ve learned I’m better as an active trader than a passive investor.

I’ve learned I get better results when I’m able to quantify my probability of success, rather than assume my subjective feelings are a reliable gauge.

All told, I’ve learned — through the process of trial-and-error — what works for me (and what doesn’t).

To bring this home, my message today is simple: take ownership of your investment strategy.

Make the commitment to figure out what works for YOU, because only you can determine that.

Wall Street — whether villain or saint, biased or unbiased — can’t tell us the investment strategy best suited to you.

And in many ways… that is the ethos of Dent Research.

Our goal is to offer you a wide variety of unique investment strategies. We do this because we know that not every investment strategy will be a “perfect fit” for every investor. And they don’t have to be.

If we can provide an environment in which you can explore a number of approaches, allowing you to ultimately settle on a few that are well-suited for YOUR needs… then we’ve met our goal.

And I promise you this… once you’ve found an investment approach that fits you like a glove, you’ll be too successful to bother worrying about Wall Street.

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Adam O’Dell, CMT

Chief Investment Strategist, Dent Research

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Categories: Investing

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.