In the law, there is a prohibition against admitting hearsay evidence into trial proceedings. Hearsay is a sort of “he said she said she did” situation, where the witness testifies to what someone told him about someone or something else. It is two steps removed from the actual event or person at issue, so it’s generally inadmissible.
There are a great many exceptions to its inadmissibility, one of which is dying declarations. It is thought that deathbed declarations hold such potential for truth that testimony about them should be admissible. The Investment Answer, written by Gordon Murray, a former Goldman Sachs executive dying of brain cancer, is a dying declaration that carries the force of truth justifying the hearsay exception to its exclusion.
Mr. Murray essentially says that investing in actively managed investments is bunk. That no one without insider information can beat the markets, so they’d be better off with index investing. From the New York Times article reviewing the book:
But the mere fact that Mr. Murray felt compelled to write it is itself a remarkable story of an almost willful ignorance of the futility of active money management — and how he finally stumbled upon a better way of investing. Mr. Murray now stands as one the highest-ranking Wall Street veterans to take back much of what he and his colleagues worked for during their careers.
Mr. Murray grew up in Baltimore, about the farthest thing from a crusader that you could imagine. “I was the kid you didn’t want your daughter to date,” he said. “I stole baseball cards and cheated on Spanish tests and made fun of the fat kid in the corner with glasses.”
He got a lot of second chances thanks to an affluent background and basketball prowess. He eventually landed at Goldman Sachs, long before many people looked askance at anyone who worked there.
“Our word was our bond, and good ethics was good business,” he said of his Wall Street career. “That got replaced by liar loans and ‘I hope I’m gone by the time this thing blows up.’ ”
Like that last sentence? Sounds familiar to anyone that reads much of the investment and real estate blogs these days.
I have no pretense that I am qualified to offer investment advice to anyone. I can’t nor wouldn’t tell anyone what to do with their money. But. To me, Wall Street is nothing but a rigged casino. There is no way that an average Joe investor should be trying to play the market with anything other than Vegas money, i.e., money that you won’t miss if you lose. The only consistent winners on Wall Street are the ones in the business, and recent indictments by the FBI and others are perhaps beginning to reveal the reason why.
Markets in perfect competition require each participant have access to the same information. The stock and bond markets could hardly be considered markets in perfect competition. Information asymmetries between market insiders and everyone else make all the difference in the world. Index investing helps ameliorate some of the information asymmetries, mostly just through market-wide diversification. There can’t be asymmetric information across the entire breadth of the markets.
It’s a function of greed, with a good dose of hubris thrown in, that compels men to believe they can beat the house in Vegas or the insiders on Wall Street. The greed and hubris that drove the dot com markets to implosion is the same as that which drove the residential real estate markets to default. Humility and satisfaction are the antidote. At some point, enough really is enough, and no matter how clever we think we are, there are others that are just as clever that also have better access to information.
If even just a few folks heed Mr. Murray’s advice, his dying declaration will not have been in vain.