Last week, Scott Bell posted this hilarious 2010 rant by Howard Stern — NSFW audio after the jump — it is a stream of a profanities about the casino that is the stock market, brokers who never sell, and all sorts of other fascinating commentary.

Howard Stern may have more dough than you, but his rant is instructive in what most individuals — not just HNW, but anyone — needs to learn to protect themselves from the wolves of Wall Street.

Most of these apply to anyone, a few are specific to Howard.

 

Advice for Working with Financial Advisors (for both HNW or not)

1. Societies, Economies and Markets Move in Long Cycles: Investors have to understand long cycles — and that half of them are not good:

Think about the post WW2 era — GI Bill sent millions of returning soldiers to school, the building out of suburbia, rise of the car culture, construction interstate highway system, civilian air service, broad electronics development — its no coincidence that 1946-66 was a long term secular bull market (good) for stocks. This investors paradise was followed by an ugly period: 1966-82 had VietNam, Watergate, Oil Embargo, Inflation, etc. In 1966 the Dow was 1000 and in 1982 it was still 1000 — 16 years, no gains (not good). The next good run was the 1982-2000 period that saw the rise of the PC, chips, software, internet, mobile, networks, storage etc. Another golden era for investing. (good). Do I need to explain 2000-2012 and counting? (not good).

If you don’t understand these cycles, you will not be a successful investor.

2. Long term doesn’t matter if you are in the middle of a bear market: Like we are today. I cannot tell you when it will end, but history suggests sometime before the next 5 years are over.

During these secular bear markets, your job is to reduce risk, carry more cash and bonds, and wait for better times. Tactical adjustments are what get you through these periods — not sitting fully invested in equities and getting shellacked. (See number 1 above)

3. Ignore pretty charts in Marketing Materials: Whatever you are shown in glossy brochures is nonsense sales bullshit. Never make any decision based on the old couple walking down the path, or a picture of boats. Its junk advertising — and amazingly, it is an effective way to capture the suckers.

Howard called it “bullshit” in the audio — and it still ensnared him. That’s how effective it is.

4. Your advisor should help to Educate you.. More than just managing your money, your advisor should help you understand what is occurring financially in the world.

They should have a working knowledge about valuation, trends, economy, sentiment and market internals. They should be able to tell you what is working and what is not and why. A good advisor can contextualize the headlines, not merely read them to you. They should be able to answer all of your questions, and when they cannot, they should honestly tell you so — and then go find the answer for you.

5. Buy & Hold is for Secular Bull, Not Bear Markets. Buy & Hold is folly during secular bear markets like 1966-82 or 2000-to-today. Simply stated, it is against human nature and therefor will not work. People get tired, annoyed and angry. Human nature is such that no one wants to lose money for 15 years. This ultimately leads to frustration and bad decision making.

Secular bear markets like the one we are in right now is not when you want to work with a buy & hold advisor (like Howard’s).

6. Caution When Too Much Wealth is Tied Up in One Stock: You would think that this lesson would have been learned after Worldcom, Enron, Lucent, Lehman Brothers and soon Facebook, but apparently not.

Anyone with a substantial amount of their personal net worth tied up in a single company needs to diversify that holding as soon as possible. We can argue if 40% or 75% is too much, but the short answer is if you are even debating it, you need to diversify your risk away from that one holding. PERIOD.

7. Build a Bond Ladder 7-15 Years Out: Ladders are bond portfolios of differing maturities (rungs) designed to capitalize on falling or rising yields. Higher yields means you build a longer ladder (15-20 years); low rates like today means you keep it shorter duration. HNW investors should have a substantial income stream from a diversified portfolio of Treasuries, A-rated Munis and investment-grade Corporates. With rates this low, the bond ladder should be no longer than 7 years.

8.  Rising Bond Prices = Lock in Yield: This has been a 30 year bull market for bonds. Anyone who is HNW should have been advised to ladder a portfolio decades ago, up to as recently as 2005-06.

You can still build  a bond ladder today — just don’t expect too much in way of returns. Expect higher or more normalized rates in the future.

9. Collars (XM Sirius):  There are occasions when great concentrations of stock wealth cannot be sold immediately. These are what the costless stock collar was invented for. It uses stock options to lock in a range of prices, and dramatically reduce the downside risk.

Let’s say hypothetically, if you owned 400 million worth of Apple, and were getting nervous. They could sell the January 2014 600 calls for $92, use the proceeds to buy January 2014 535 puts for $89. Upside is limited to $600, but the downside is capped at $535.

This is what should have been done for Howard back when SIRI stock had some value.

10. Covered Calls: Lacking a collar, the SIRI stock is now under $2. Depending on the stock holding, income can be generated writing covered calls — selling out of the money options to pick up revenue. This is only done if the writer is happy to sell and does not believe the stock has much upside.

 

That’s my 10 suggestions. Each one should make you money — or at least keep you out of trouble.

As for Howard . . . He needs to get himself educated, and find some better advice — quickly.

 

 

 

 

Not Safe for Work

 

Category: Apprenticed Investor, Cycles, Investing, Markets, Rules

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “WhoTF Is Giving Howard Stern Financial Advice?”

  1. machinehead says:

    ‘You can still build a bond ladder today — just don’t expect too much in way of returns.’

    Indeed, expect negative real returns, unless sustained deflation arrives (possible, but still an outlier event).

  2. BennyProfane says:

    Barry, I smell an enormous opportunity here – advisor to the Shock Jock! Think of the publicity, as he sits you on the couch next to some fake breasted porn star and some poor fool he found on the street to be made fun of. Hell, has to be more fun than CNBC.

    Oh, and, you forgot one important bit of advice for him. Don’t get divorced to the woman you have been married to for years as you built your career from nothing to very wealthy and famous. Talk about a financial loss.

  3. I suspect I lack the patience for a high maintenance client like that . . .

  4. ToNYC says:

    4. Your advisor should help you to Educate you.. More than just managing your money, your advisor should help you understand what is occurring financially in the world.

    The successful advisor is the one who indeed Educates you into using their latest tools while he or she helps you Imagine your money. It’s all about the imagination; the rest just happens, but the dream they get right.

  5. Yahoo Finance says:

    His advisor is Baba Booey!

  6. Anton says:

    Outstanding post, Barry.

    Now if you could just mention a few advisors (by name) who fit your description, many of us would be eternally grateful. I’ve been through a couple, and the trial and error of discovery is very painful. And expensive.

    Thanks in advance.

  7. PeterR says:

    Hilarious, especially the rant at the beginning!

    This should be posted in every elevator at Wall Street, where everyone is trapped for a minute of two.

    Crank up the volume, and watch them squirm!

  8. DarthBeta says:

    Arrange your finances so tax code works for you not against you

  9. VennData says:

    “Buy and Hold” is …fill -in-the-blank perjorative … is a distraction perpetuated by people who want to charge you fees.
    It is Buy, Hold and Rebalance. Set an asset allocation of equity and bond index funds. Say 35% Total US stock market, 35% Total international market, and 30% Total US bond market. Use cheap index funds like Vanguard’s. Then as those original percentages move with the markets REBALANCE back to your original asset allocation. You can do it once a year. In a bear market you will be buying the things that dropped, and in the bull market selling the things that went up. That’s what you want to do, right? Forget all the nonsense about charts and fundementals and watching the tape.

  10. DHM says:

    As per VennData’s comment, Buy and Hold (and rebalanced) does works, but only if you stick with the buy and hold for the long haul…and not, as BR says, freak out and revert to timing.

  11. kek says:

    Buy and hold works well if you mind valuations. 2000-oct ’02 meltdown was built on the back running out of greater fools paying 40x for GE, PFE, and worshiping at the Church of the New Paradigm.

    From 10/02 to the present, S&P 500 returned 67% not including dividends.

    Many superior businesses during this time have been selling at 10-15x, establishing great global franchises, and raising their dividend payouts by 5% per year.

    I agree, buy and forget is bad if you don’t know why you bought it in the first place other than it is going up in price. Valuation, homework, time horizon and discipline matter.

  12. [...] Ten lessons in investing for Howard Stern.  (Big Picture) [...]

  13. cognos says:

    I recommend a large concentrated holding in AAPL.

    There are 100 families with over $100mln that are rich because they knew Warren Buffett and AVOIDED that rule. PERIOD.

    Risk aversion is only 50% smart. After 2008 happen there were dozens of 10X return stocks. Concentrating into them was powerful. Again, PERIOD.

    Writing covered calls. Bonds ladders to get what… 1%? Thats kinda dumb advice.

  14. cognos says:

    I would actually add that the PROBLEM IS THE CLIENT!

    This is actually really simple. I see it all the time, almost everything with rich (entrepreneurial) friends.

    THEY GET WHAT THEY WANT.

    And what the want is to FEEL GOOD. FEEL SMART. So they will get a guy, like the guy who wrote this post. He will “educate them”. He will sell covered calls. He will ladder bonds. IF things are positive, He will get 3-8% ann (and the he takes 1-2%, then taxes take 30-50% pf the remainder).

    But then the #s come around. And one looks at the statements after 5 years and feels poor like Howard.

    They should’ve looked around for the right guy. He might gouge you on fees like SAC. Or never return your calls (much less educate you). But its ALL ABOUT RETURNS. Unless you – the client – want to “be educated”. Thats not what I would pay for…

  15. JayMarx says:

    Perhaps Howard would have enjoyed the advice of someone who never disagreed with him, and ALWAYS made him money. I think I remember just such a felllow, his name escapes me ….Oh, wait! Now I remember! it’s right here in my file.. Madoff,…… here it is Bernard Madoff, you should call him, very pleasant gentlemen, well spoken of….
    I know it’s ten years out of date, and AFTER the merger, but XM never responded to my Marketing Suggestion in the wake of the ‘KOAM’ signing with Sirius …..”Have Kids??? Get XM!.. we GUARANTEE, you’ll NEVER catch them listening to Howard Stern, EVEN BY ACCIDENT!!”…. Oh well, their loss……

  16. The Unknown Broker says:

    <>

    I’ll take the account. However I will need to add a couple of extra zeros to our normal minimum account size . Howard would, as you note, probably drive an advisor freakin’ nuts. If I’m going to deal with the pain, I might as well make it worth the time.

    RF

  17. [...] I didn’t get to finish a post for this morning, so I will redirect you to yesterday’s post WhoTF Is Giving Howard Stern Financial Advice? [...]

  18. denim says:

    Thanks for the priceless advice…to me.

  19. AHodge says:

    howards just baring his soul on losses and his own stupid shit
    ask if you helped? tape it.
    seriously strap it on dude, you can take a skinning and gutting about your profession and brokers cant you?
    its mostly good advice,
    except its damn hard to pull the ripcord on a bond ladder

  20. [...] "Whatever you are shown in glossy brochures is nonsense sales bullshit."  (TBP) [...]