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The Hippocratic Oath is taken by doctors and other healthcare professionals swearing to practice medicine ethically and promising not to do more harm than good when treating a patient.
It’s a shame there isn’t a similar oath taken by government leaders, bankers, brokers, traders, and regulators, among many others too. Clearly the financial markets are in need of a refresher course in the subject of ethics.
I’m in New York this week to consult with a law firm regarding the MF Global case. They hired me to help them analyze the situation and advise them. In my opinion what MF Global, and in turn the CME Group and Commodity Futures Trading Commission have done is a truly mind boggling betrayal of customer trust and fiduciary duty.
I’ve also had the opportunity to walk around Wall Street, where I chatted with the Occupy Wall Street folks, and really listened to their stories.
I talked to many people who have been deeply impacted by the poor decisions made by government and business leaders, reckless regulators, and corrupt banks.
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| Here is my NYSE badge for access to the trading floor on Monday. The poem was written by Chris and his wife Tenisha. They sell the poems for $1 each to get a hotel room for themselves and their three small children. |
A wide array of once-trusted and respected institutions have shown a general disregard for basic ethics and moral obligations, thereby undermining the public’s trust, and confidence. You reap what you sow.
Navigating the Moral Hazards
Many of the media reports say that the vast majority of Occupy Wall Street protestors are a lost generation of “hippies” out for free love and aimless protest. But from what I can see, that’s way off base. What we have are a lot of people who feel disenfranchised from the American Dream, which has now turned into the American nightmare for many.
The fact of the matter is that the protests may not be well organized. But the underlying distrust of financial and government institutions has spread to all levels of the socioeconomic scale, and the protests reflect that.
The “99 percent” as the protestors call themselves, are angry over foreclosures and lack of due diligence by banks, lack of a proper healthcare system by a broken government, and an almost nonexistent job market. The list goes on and on.
One young lady desperately said,
“I have no job and no dreams. This is slowly becoming a living nightmare. I had a minimum wage job, in another city, but I couldn’t support myself … I played by the rules. I got good grades, went to college, and got a degree.
“I graduated in 2009, to no prospects. Nothing for me. Fast food joints don’t even call me back. I feel HOPELESS. I’m already depressed, untreated. I often find myself thinking of suicide, because I see no future for me.”
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| We must hold government and corporate leaders to a higher standard and proceed with caution. |
Wall Street, Congress, banks and financial institutions must find their moral compass, so long buried, and use it to navigate out of this disaster and regain public respect and trust. Otherwise, America as we knew it may never be the same.
Having been in the trading and brokerage arena since 1988, I’ve seen many firms come and go. Often the biggest, most trusted firms are the ones most at risk. Names like Enron, Worldcom, Tyco, and MF Global come to mind, just to name a few.
So how do you protect yourself and your loved ones when even the biggest firms can implode?
One word is the key: Diversification.
The old saying “never put all your eggs in one basket” is an absolute cardinal principle for your money.
The Rule of Tens …
Your One-Up on Wall Street
As a general rule, I suggest a well diversified portfolio, never allocating more than 10 percent of your overall investing pie to any one sector or with any one financial institution. In other words, only 10 percent of your total portfolio goes into commodities, another 10 percent maximum to bonds, 10 percent to stocks, and on and on.
Of that 10 percent I also believe you should invest no more than 10 percent in any one particular sector. So in other words, of the 10 percent you allocate to commodities only put a maximum of 10 percent (of the overall 10 percent) into any one particular commodity (gold, oil, cocoa, etc.)
This rule of tens is my own personal guideline. Yours might look a little different based on your personal goals and risk tolerance.
As Wall Street and banks struggle with the systemic problem of ethics and moral hazards, use the tool of diversification to help avoid or diminish the risk. It’s the best medicine for the ailing markets and to protect your wealth.
Regards,
Kevin Kerr
P.S. For the commodities portion of your portfolio, you might consider our Global Resource Hunter. In each issue Sean Brodrick and I give you comprehensive research that is 100% free from conflicts of interest. Sit back, turn up your speakers and watch this video to learn more.
{ 7 comments… read them below or add one }
Kevin,
I couldn’t agree more with the basic premise. This is what I have been saying off and on since my stockbroker days in the “80s and continuously since the dot-com bust. We need an updated version of Glass-Steagall that can quickly respond to the ever changing games played on Wall Street and by the banks.
The problem I see is that we have a poorly educated public when it comes to financial cause and effect. I believe that there is still that underlying current that pulls the unaware and unsuspecting to believe that big, nanny government is the answer to their problems. We are in danger of falling into a sea of government entitlements and regulations that will take us further away from our pre-eminent position in the world. I see this as the result of a vacuum of leadership at every level public and private. The truly unfortunate side to this is that many “disenfranchised” individuals are taking out their frustrations on the few leaders who are trying to institute responsible change in government as we see in Wisconsin and Ohio. There is a huge oversimplification of the issues and the reality is we all have a part and a stake in the process and in the outcome.
from what I’ve seen, more and more these days everything seems to move together. Esp. in a metldown.
Great column, but I have one comment. You say that “…Wall Street, Congress, banks and financial institutions must find their moral compass.” Companies don’t have a moral compass. Their job is to make money for their shareholders, period. It is Congress’ job to have a moral compass, and to create rules for business so that they do not unjustly harm the rest of us or eachother in their pursuit of making money. That includes such things as reserve requirements to prevent banks from going insolvent and asking for handouts because their failure would hurt the rest of us. It includes regulations to prevent pollution of our air and water, and even regulations to prevent one company from taking unfair advantage of another company.
It is Congress that has lost its moral compass, and the reason for that is money. Politicians want to get reelected, and companies have money to help them do that. All the politician has to do is sacrifice his or her moral compass. Are the politicians to blame? Well, yes, and no. They are only responding to the choices before them. If we do not allow companies to make campaign donations we would weaken their power to influence the political process to their advantage, and perhaps Congress would get its moral compass back.
You aren’t seriously suggesting that people own more than 100 different investments; there are hedge funds w/ 100 employees that can’t track 100 investments as it typically requires at least 5 to review before you find ONE worth investing in;.. What is your list of 10 investment Sectors or Instsitutions?.. 1) Cash (how do you have 10 different ones; 10 country currencies? 10 bank savings accounts?); 2) Bonds (at least 10 different bonds?); 3) stocks 4) commodities; 5) Real Estate (10 different parcels????) 6) What are the rest of these types????; .. and if no more than 10% is in any investment in each sector then you have to have at least 11 or more investments in each.. HUH???.. 110+ investments?.. this is the most unrealistic article i’ve ever read; back to earth Kevin.. take a deep breath; .. time to rethink that one;.. Other than writing it here; have you really ever told someone before that they should have at least 110 different investments?
Thanks friend, My doubts answered.
I feel oen should learn to identify right pick. This could be in any sector. If I find 10 stocks worth investing, out of the 10 4 falls in one sector, I think I will go ahead and invest.
YES THERE A FEW PEOPLE IN WISCONSIN AND OHIO TRYING TO MAKE A CHANGE ….SCOTT WALKER AND PAUL RYAN ARE DOING THEIR BEST TO TURN THINGS AROUND IN WISCONSIN, they are trying their best to make wisconsin a better state , by lowering property taxes creating jobs through fiscal responsibility but the public employee unions there are doing everything in their power to undermine scott and paul through vicious lies and mistruths to breaking windows and vandalizing the state capital in madison wisconsin causing many million od dollars of property damage at the capital………. it seems in wisconsin the public employees unions are nothing but a noose around the taxpayers neck these public employees unions should be held responsible for the damage they have created why should the honest taxpayers of wisconsin have to pay the extra burden of many millions of dollars of damage at the state capital
I agree and get a little frustrated with those who say it’s just a bunch of socialists and whatever else that is against a free market system causing civil unrest. Sure you are going to have some of that in this type of public protest, but there are some honest people who were mentioned who played by the rules and have no future due to the twisted process that has come about due to government intervention instead of allowing the market to work freely with minimal regulations. It just frustrates me and I have a job. However, I got put on lay off twice and was in real danger of a similar fate. So I know what the frustration is as reported here.