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Maury
Fertig '85 |
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Alumni
Newsmakers: Maury Fertig '85
'Investor
repent!' says Maury Fertig
Display
a propensity for overweighting your retirement portfolio with
small cap stocks or emerging market funds, lured by those
double-digit gains of recent years? In this relentless pursuit
of profit, do you ignore overall balance among investment
choices?
If
so, beware: You may be what Maury Fertig calls a "glutton"
in his new book, The 7 Deadly Sins of Investing: How to
Conquer Your Worst Impulses and Save Your Financial Future
(Amacom, 2006). Sooner
rather than later, the market will punish this bad investment
decision, one of several that Fertig links to classical human
flaws.
"Gluttons
go after every stock they can without considering their overall
financial health," says Fertig '85, a former Salomon
Brothers managing director. "Most investors tend to chase
returns. They tend to buy things that have already done well,
and they tend not to understand that the dynamics that have
pushed a stock or sector to a higher level may not exist going
forward."
Fertig
isn't preaching market abstinence, just savings salvation.
In two decades as an institutional investor, and now as co-founder
of Relative Value Partners (with Bob Huffman, another Salomon
veteran), the Kellogg grad says he's witnessed enough transgressions
to, well, fill a book.
The
7 Deadly Sins offers insights and examples culled from
actual investors who have fallen prey to temptation. Besides
gluttony, the book considers other poor investments, such
as those made under the influence of avarice, anger, sloth
or envy.
It's
not just the uninformed who fall into P/E perdition. Plenty
of bright people do too.
Fertig
recalls how the tech bubble turned otherwise sensible people
foolish. "If
I asked somebody the particulars of a company that they just
put $50,000 or $100,000 into, they had no clue about the price-to-sales,
the P/E, the growth — other than maybe they knew what
the product was. Although with some of the tech companies,
they didn't even know that," he says.
So
how does one keep to the righteous path? For starters, says
Fertig, review the merits of modern portfolio theory, the
strategy of diversification set forth by Nobel Prize-winning
economist Harry Markowitz in 1952. Understand the fundamentals
of what you are buying and hedge bets using investment options
that tend to complement one another.
"Most
people aren't that disciplined," admits Fertig, who says
that he understands why people want to be in hot stocks. It's
exciting. When taken to extremes, however, the inclination
can emerge as "lust," another of the foibles outlined
in his book.
Old
sins die hard, though, and certain kinds crop up in certain
markets.
"In
a bearish market, you will see investor sloth, perhaps the
most pervasive and dangerous sin," says Fertig. "When investments are doing poorly,
people tend to ignore their accounts until the market rebounds.
When markets are ugly, another sin that emerges tends to be
anger — to react very quickly either to buy or sell
something."
Envy,
greed and gluttony? "Those tend to be more prevalent in a bull market,"
Fertig says. — Matt Golosinski
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