PREFACE THE JOURNEY

MY FIRST EXPOSURE to the stock market was as a six-year-old child in 1960. My dad took me into a Merrill Lynch office near downtown Miami, Florida. I was wide-eyed and impressed with all of the activity going on in the office. There was a group of older men in the lobby area who would watch the screen and occasionally go over to the quote machine to check on a particular stock. One of the men showed me how the machine worked. I found it fascinating as he put letters in and it gave him numbers back.

The old men seemed like a generally grumpy bunch, and I came to understand that some of them spent the entire day in the office checking on their money. I remember feeling sad for them. It certainly would have been more fun to go to the beach, fish, and walk the dog, anything but be in an office all day.

The people who impressed me the most were those who called themselves stockbrokers. They were well dressed and important looking. They had a certain air about them that implied that they had lots of knowledge and intelligence. Some were constantly on the phone, making what I was sure were very important business deals.

After that first visit, I kept pestering my dad to take me back to Merrill Lynch so I could play with the quote machine. He took me a few more times, and I decided that when I grew up I wanted to be a stockbroker.

As I grew older I began to read everything I could about business and economics. I decided that a good stockbroker should be able to look at a balance sheet or income statement xand evaluate whether or not a particular company was a good investment. I went to college with the intention of becoming a stockbroker. I chose to major in accounting so that I would have a strong foundation to complement the degree in business administration. During my senior year of high school I worked as an accountant for a subsidiary of United Airlines and throughout college held various accounting jobs.

But I didn’t want to be an accountant. I wanted to be a stockbroker. In 1976, at the age of twenty-two, I took and passed all sections of the CPA exam on my first attempt. Although the stock market was still recovering from the huge drop of 1972 and 1973, I felt it was time to become a broker and realize my lifelong ambition. I began to interview with the large brokerage firms. After several interviews I had a sobering realization.

The interview I remember most vividly is the one that I had with Merrill Lynch. This was the firm that I was exposed to many years earlier and in my mind was the biggest, the most prestigious, and the best. Boy, was I in for a shock! In the interview I emphasized my knowledge and experience of accounting, financial analysis, and economics. The interviewer told me, “All that crap won’t do you any good here. We’re looking for salesmen. We tell you what to sell and train you in how to sell it. We’re looking for people with a basic background in sales whom we can mold into productive stockbrokers. Brokers are salespeople, period. We have other people in the firm that analyze stuff.”

I remember on my way out of the Merrill Lynch office I looked at the stockbrokers in their little cubicles and had a totally different perspective. I actually overheard a broker doing one of probably hundreds of cold calls. It went something like this: “Hello Mr. Smith. I’m Jim James with Merrill Lynch. I’m not trying to sell you anything. We have a research report on the auto industry that I’m sure you’d find valuable. I’d like to send you a copy at no charge and no obligation…”

Before becoming a broker with Merrill Lynch, Suze Orman, the best-selling financial author and TV personality, was a waitress for the Buttercup Bakery in Berkeley, California. Why would Merrill Lynch hire a waitress? According to Ms. Orman: “They weren’t hiring a waitress. What they saw in me was that I would be an excellent saleswoman.”

I decided to do some research and determine exactly how and where my training and talent could be valuable outside the accounting area. At the time, a relatively new concept was catching on called comprehensive financial planning. The theory was that individuals could meet with a financial planner who was educated in all aspects of individual financial decision making. This included not only investments but also tax planning, estate planning, retirement planning, and personal risk management. The planner could review an individual’s financial situation and give constructive recommendations as to the best course for achieving his or her objectives.

This made a lot of sense to me, so I began to broaden my knowledge beyond the accounting and tax matters that I felt comfortable with from my experience, college degree, and study for the CPA exam. Within about three years I became a Certified Financial Planner (CFP), Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Fellow in the Life Management Institute (FLMI) and an Associate in Risk Management (ARM). I also became a licensed securities broker, a life and health agent, and a property/casualty agent. There were lots of exams and lots of studying, but I felt it was all necessary to be a good financial planner.

I’ve been a financial advisor since 1982 and am well trained in all of the theoretical aspects of financial planning. However, I have always felt that there was something missing when it came to managing the risks of investing. There is just too much uncertainty in the world to feel with absolute confidence that stock-related investments should be the centerpiece of an individual’s investment plan. I was never really at ease with this xiiconcept, and my level of discomfort increased tremendously in the late 1990s as the market soared ever higher.

My attitude relating to investments has changed dramatically since those naïve visits to a brokerage firm as a child. I’ve developed a personal philosophy and have come to conclusions that are at odds with traditional investment management. My hope is that this book reaches people who are questioning the whole investment process and wondering if there is a better way. I believe there definitely is!

ACKNOWLEDGMENTS

I must first give special thanks to Laura Winslow, my wife and partner. Her love, support, and critical eye made the “wild idea” of writing an investment book that could make a difference become a reality.

Thanks to the professional staff at Berrett-Koehler and the hands-on editorial direction from founder and publisher Steven Piersanti. His enthusiasm for disseminating the message of the book was extremely encouraging and his help in constructing the book invaluable.

Chris Coccaro’s intimate knowledge of market-linked certificates of deposit was of tremendous value. Richard Torgerson’s comments and insights relating to the area of index-linked notes was of great significance.

The reviews of the initial manuscript were very helpful. Sandy Chase, Bob Coleman, Charles Dorris, Jon Naar, and “Tip” Parker all gave significant feedback that helped narrow my focus to the most important issues. Thanks also to Mike O’Brien for his candid remarks, Barbara Taylor for her insightful comments, and Dr. Dennis Glick for his comments and assistance with investor psychology.

I was impressed with the value added during the copyediting process thanks to Judith Brown. Kudos to Linda Jupiter for xiiiputting it all together and Donna Bettencourt for her unrelenting pursuit of the missed comma.

Vicki Robin, Ed Rochette, and Alisa Gravitz early on were strong supporters of the book, and I thank them for their endorsements. I also want to thank all my clients who encouraged me to help others by getting my views down in writing.

Edward Winslow
Jacksonville, Oregon
February 2003