Smarter Money: Don't Let Just Anybody Run Your Money

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Can anybody manage money? I often ask myself that when I look at the carnage in my mutual fund accounts and I think about the hedge fund world I live in.

Of course, I should have known all along that this business could be something that anybody could get into. I remember when I applied to be a Registered Investment Adviser in 1982, I was shocked that all I had to do was fill out a form. When a nice chap from the SEC's Boston office interviewed me and warned me about the business not soon after, I asked him what qualifications I really needed. He said that there were two issues. One was regulatory; I had to keep good records, understand the accounting and the law. But the other was more important. It was other peoples' money, he said, and with that came a responsibility, a real burden, and he wasn't sure I was ready for that.

I assured him that I lived and breathed the markets and that I had been investing for several years in a bear market and had done well personally. He said fine, and that was that. I walked out of the office and I said to myself, "Anybody can be a money manager." Of course we had just come through a multiyear bear market, so the issue was, "Why would anyone want to be a money manager."

My timing, it turns out, was darned good. Impeccable, even. Not long after, the bull market (the one we were in in until March 10 -- give or take a few crashes and minicrashes) began.

During this period I have seen trillions of dollars in wealth created. I have seen money managers run with the bulls and make fortunes. I have seen people look like geniuses even if they were fools. Now, though, all of that is in reverse. Now, everything has come unglued. And I think about that meeting I had with that nice SEC man 18 years ago. It got too easy to be a manager.

A couple of stark stories pop into my mind. My hometown paper, The Philadelphia Inquirer, recently led with a business story headlined: "Fund Collapse Worries Others Who Invested with 23-year-old." Seems that some young lad attracted $28 million from hard-working folks and lost a lot of it in the market and may have diverted other funds for personal use. The kid was simply in way over his head. He got money because, I guess, at one time, he may have had a hot hand. When I read through the articles about the kid, it occurred to me that he knew nothing.

The second cautionary one is the tale of Steve Harmon. You may remember this guy. He used to come on television and pump stocks and then watch them go up. He decided he could run a mutual fund, maybe because, when he got on TV and pumped a stock, it went up. No kidding. We were in a bull market. He had no formal training, but was a "respected Internet analyst," according to Business Week, which said that Harmon raised "10s of millions in assets." That was in June. The guy didn't even last until October, when he seems to have been terminated by his own company, Zero Gravity Internet Group.

Huh? Gone in less than a half-year? What gives? Oh, yeah, I forgot, anybody can run a fund these days.

Increasingly, as I have noted, I am appalled by what I see out there in the money business. As many of you are invested via others, and many others of you have decided it is too hard to do it yourself, or you needed help from a pro, I have become more involved in trying to figure out how to rate and grade managers. I think that is a more important calling for me than just writing about my trading. I don't think just anybody should be running your money. I want to do something about it. Stay tuned.

Random musings: TheStreet.com (TSCM) has made a commitment to help the Red Cross and I share that commitment wholeheartedly. So do our readers. One of our growing number, Joe Jones, sent me this note that I have to pass on with the interest of getting behind this extremely worthy cause:

There was a time, once, when I always was first in line to the Red Cross. Never had thought about it. But then I learned I had Hepatitis A and B and two people in my family have Hep C (father and brother) and another has A & B like myself. We were all in Vietnam (including two other brothers) -- an extremely patriotic family. We always gave blood, money, etc. Now no one is touchable in my family. The Red Cross just can't take a chance with anyone in my family because four of us have the disease. But we do what we can to promote the cause simply because it is extremely worthwhile.

War veterans know best. Thanks.

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