http://www.timesonline.co.uk/tol/mon...cle5374674.ece
What is the difference between Bernard Madoff and Anthony Bolton?
I ask because clients of Madoff, a New York stockbroker and fund manager, have been accused of crass gullibility after losses totalling £32 billion have been uncovered after many years of above-average returns that now seem to have been fiction.
In London, Bramdean Asset Management and its boss, Nicola Horlick, have been highly embarrassed because of investments in Madoff’s fund. HSBC and Royal Bank of Scotland were sucked in, too.
Again we are being told, “If it seems too good to be true, it probably is”, but I don’t think it is as simple as that in this case. The reasons open an intriguing insight into how we should or shouldn’t make investment decisions.
It’s easy enough now to distinguish between Madoff and Bolton: one is probably a crook and the other is the most brilliant fund manager of his generation. But it would not have been so easy if you had been asked 15 or 20 years ago.
Bolton was then in the early stages of his stellar career with Fidelity — in which he, too, produced consistently above-average returns for a staggeringly long period.
Madoff began in 1960, and by 1990 was a pillar of Wall Street and one of the leading lights behind the Nasdaq stock market.
Bolton has always been transparent, ready to explain his success by describing his unglamorous approach of slogging his way through the accounts of dozens of small and medium-sized companies, interviewing the management of as many as five a day — reassuringly unmagical.
Madoff explained his methods as well. They involved buying shares and then buying or selling options in those shares, with a whiff of insider trading. More smoke-and-mirrors than Bolton’s approach, certainly, but not impossible to grasp.
Fidelity encouraged extensive media coverage of Bolton, as that helped its sales. If he had shunned interviews, though, or refused to set out his investment strategy for fear a rival would steal it, maybe his results would have seemed “too good to be true”.
Wary investors might then have steered clear of Bolton’s fund — as some are now boasting they did with Madoff — but they would have missed out on the UK’s best (and completely legitimate) long-term investment performance.
Madoff has always run his own business, and analysts did not like the way he disguised his investments in public filings. Bolton, running regular funds for Fidelity, never had that opportunity.
My point is that Madoff’s clients were, like those of Equitable Life in Britain, by and large intelligent investors. Horlick’s Superwoman label is tarnished, but she is not stupid.
Professional investors, or those with top-quality advice, do not say: “This seems too good to be true, let’s get in on it.” They might put money into something they know is risky, like a gold mine, but that is a different matter.
Without the benefit of hindsight, Madoff seemed as able an asset manager as Bolton.
We can see now that Madoff’s clients did not look into his methods closely enough. They took their friends’ word for it that he was okay: every day we take a remarkable amount on trust.
I know a youngish man in the financial world who, with a large chunk of money in AIG, thought he would never have to work again. Instead he is back running a company and lucky to have a job.
When Equitable collapsed in 2000, the retirement funds of thousands of senior City people vanished. Many had fallen for the fantasy that they were in on one of the Square Mile’s best-kept secrets, that the Equitable managers had some special knowledge about with-profits policies. They didn’t.
When an investment strategy really works, it can soon spark a feeling close to religious fervour as people rush to join. I attended shareholders’ meetings of Foreign & Colonial Investment Trust in its 1980s hey-day. You could almost touch the expectant atmosphere, because the firm was making the money that bought the cars, holidays, houses and school fees of its disciples.
Like Bolton, F&C was and is completely straight. Madoff and Equitable weren’t.
I wish I could give you a simple rule of thumb to spot the googlies. If an ill-spelt e-mail offers you a 10% fee for taking care of £20m and please forward bank details, you will smell a rat. After that, it gets tougher. I could tell you to keep asking questions until you are satisfied you know what you are getting into, but that depends on your diligence, on understanding the answers and on how hard you are to please.
The only safeguard is diversification. Don’t put more than a tenth of your savings in any one investment, then at least you can afford to sprinkle a little equanimity on your losses.
What is the difference between Bernard Madoff and Anthony Bolton?
I ask because clients of Madoff, a New York stockbroker and fund manager, have been accused of crass gullibility after losses totalling £32 billion have been uncovered after many years of above-average returns that now seem to have been fiction.
In London, Bramdean Asset Management and its boss, Nicola Horlick, have been highly embarrassed because of investments in Madoff’s fund. HSBC and Royal Bank of Scotland were sucked in, too.
Again we are being told, “If it seems too good to be true, it probably is”, but I don’t think it is as simple as that in this case. The reasons open an intriguing insight into how we should or shouldn’t make investment decisions.
It’s easy enough now to distinguish between Madoff and Bolton: one is probably a crook and the other is the most brilliant fund manager of his generation. But it would not have been so easy if you had been asked 15 or 20 years ago.
Bolton was then in the early stages of his stellar career with Fidelity — in which he, too, produced consistently above-average returns for a staggeringly long period.
Madoff began in 1960, and by 1990 was a pillar of Wall Street and one of the leading lights behind the Nasdaq stock market.
Bolton has always been transparent, ready to explain his success by describing his unglamorous approach of slogging his way through the accounts of dozens of small and medium-sized companies, interviewing the management of as many as five a day — reassuringly unmagical.
Madoff explained his methods as well. They involved buying shares and then buying or selling options in those shares, with a whiff of insider trading. More smoke-and-mirrors than Bolton’s approach, certainly, but not impossible to grasp.
Fidelity encouraged extensive media coverage of Bolton, as that helped its sales. If he had shunned interviews, though, or refused to set out his investment strategy for fear a rival would steal it, maybe his results would have seemed “too good to be true”.
Wary investors might then have steered clear of Bolton’s fund — as some are now boasting they did with Madoff — but they would have missed out on the UK’s best (and completely legitimate) long-term investment performance.
Madoff has always run his own business, and analysts did not like the way he disguised his investments in public filings. Bolton, running regular funds for Fidelity, never had that opportunity.
My point is that Madoff’s clients were, like those of Equitable Life in Britain, by and large intelligent investors. Horlick’s Superwoman label is tarnished, but she is not stupid.
Professional investors, or those with top-quality advice, do not say: “This seems too good to be true, let’s get in on it.” They might put money into something they know is risky, like a gold mine, but that is a different matter.
Without the benefit of hindsight, Madoff seemed as able an asset manager as Bolton.
We can see now that Madoff’s clients did not look into his methods closely enough. They took their friends’ word for it that he was okay: every day we take a remarkable amount on trust.
I know a youngish man in the financial world who, with a large chunk of money in AIG, thought he would never have to work again. Instead he is back running a company and lucky to have a job.
When Equitable collapsed in 2000, the retirement funds of thousands of senior City people vanished. Many had fallen for the fantasy that they were in on one of the Square Mile’s best-kept secrets, that the Equitable managers had some special knowledge about with-profits policies. They didn’t.
When an investment strategy really works, it can soon spark a feeling close to religious fervour as people rush to join. I attended shareholders’ meetings of Foreign & Colonial Investment Trust in its 1980s hey-day. You could almost touch the expectant atmosphere, because the firm was making the money that bought the cars, holidays, houses and school fees of its disciples.
Like Bolton, F&C was and is completely straight. Madoff and Equitable weren’t.
I wish I could give you a simple rule of thumb to spot the googlies. If an ill-spelt e-mail offers you a 10% fee for taking care of £20m and please forward bank details, you will smell a rat. After that, it gets tougher. I could tell you to keep asking questions until you are satisfied you know what you are getting into, but that depends on your diligence, on understanding the answers and on how hard you are to please.
The only safeguard is diversification. Don’t put more than a tenth of your savings in any one investment, then at least you can afford to sprinkle a little equanimity on your losses.
Comment