FORBES BLOG: “Have Investors Become Reckless Rock Stars?”

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Nothing is more cliché than a reckless, irresponsible rock star. The most recent incident involved Wes Scantlin, lead singer of the rock group, ‘Puddle of Mudd’ who became involved in a high speed car chase through the streets of Minneapolis . Not surprising, the singer was highly intoxicated. And to make matters worse it wasn’t his first rodeo. Fortunately, this did not result in an injury or fatality.

I often ask myself what would compel people who seemingly have so much to live for to act so negligent? At the risk of oversimplifying the root causes of such behavior, I have found one common factor; the presence of what people in the entertainment industry call “handlers”. A “handler” is paid to whitewash problems and incidents. Basically, the script reads; an incident occurs and whatever means necessary are used to protect the artists from facing the consequences of their actions. Though, what many people don’t realize is it’s the cover up that causes these types of problems because by accepting reckless behavior without consequences you’re essentially rewarding the person. Rewarded behavior of any kind is perpetuated until it eventually bad behaviors, catch up to them and the consequences can no longer be avoided.

The situation and even its handling is all too reminiscent of the last market crash. Most people considered it to be the result of investors’ reckless behavior. One example being, ignoring the vulnerabilities caused by subprime lending in the banking system . Instead of dealing with the true consequences of the irresponsible behavior of financial institutions, the Fed decided to step in and use whatever means necessary to restore confidence in the market. They took a cue from the entertainment industry and decided to become the “handler” and chief enabler of the market. The goal was to stabilize the market and restore investor confidence. However the message that they conveyed was that if the market ever stumbles they will protect the declines using whatever means necessary. In the words of prior Fed chief Bernanke, the Fed “has many tools” to save the market and the economy. They also conveyed that through these “tools” they can determine whether we are in an asset bubble or not. Who could ever forget, after the surge of the market as people were starting to get concerned about valuations, Janet Yellen tapped her inner stock guru and stated “we are not in an asset bubble”. This and other such reckless proclamations by the Fed have led to the highest leverage and margin balances in history, greater than those of the 2008 market peak. Investors have become more willing to borrow to buy equities with the assurance that the Fed will catch the market when it falls. We have also seen a surge in speculative investments like junk Bonds and high-risk equities. After all, investors that anticipate they will never have to experience the consequences of their investment decisions when their enablers are on the job they are much more likely to take obscene risks.

I have observed one common characteristic of “handlers” and enablers of all kinds. Although many seem to have the best of intentions, their actions will almost always cause catastrophic harm to those they are attempting to help. Remember that the road to hell is often paved with good intentions. The only real solution is personal responsibility for our own lives and our own investment decisions. The risks we take should be the risks we can endure. At the final curtain, most people will find that nothing matters as much as the truth and those who care about you the most are never the ones who tell you what you want to hear.

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Jeffrey C. Sica is the President and Chief Investment Officer of Sica Wealth Management, LLC (“SWM”), an SEC registered investment adviser that maintains a principal place of business in the State of New Jersey. The information presented herein may not be suitable for all investors, and no portion of this commentary is to be construed as a solicitation to buy or sell a security, or the rendering of personalized investment, tax or legal advice. Past performance does not guarantee future results, as there can be no assurance the views and opinions expressed herein will come to pass. Investing involves risk, including the potential loss of principal. Please consult a financial professional prior to investing.