A Stockbrokers' Education in Money Management

It is always a curious phenomenon to see brokers become experts after catastrophe strikes one of their recommendations. The days of gathering assets and getting paid for placement of money are nearing an end. The survivors of this bear market will be stockbrokers who can effectively manage money themselves. A stockbroker reading this is already "above average," as he or she belongs to a community that is premised upon becoming a better investor.

The process and the journey to become a money manager is exciting, fun and highly competitive. When I decided in the mid-1990s to focus more on returns than on overall assets gathered as a broker, I felt that the best place to start was to look at who has made the most on Wall Street. The search led me immediately to Warren Buffett. My first exposure to Buffett was in Roger Lowenstein's book The Making of an American Capitalist. This book painted a picture of a highly rational Wall Street player who simultaneously made himself and his investors rich.

It seemed as if a light went on in my head. I immediately ordered all of Warren Buffett's annual reports and read them cover to cover. (This was before the Internet.) Soon I was reading about Benjamin Graham and discovering his writings. I felt I was becoming competitive and very helpful to customers as a retail stockbroker. Interestingly, my enthusiasm for strict value investing was tempered when I learned that Graham, Buffett's teacher, had lost all his money and his customers' money by 1932.

At that time, the Dow had fallen from 380 to 100, and Graham apparently felt stocks were cheap. According to the story I read, he moved into the market in a big way, using margin. Subsequently the stock market fell from 100 to 40, and he lost virtually everything.

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At the time of publication, Horlbeck had no positions in securitied mentioned.

Todd Horlbeck is president and founder of Horlbeck Capital Management, which he founded in 2002. Horlbeck was previously an investment broker at AG Edwards & Sons for 11 years. He is a graduate of the University of Wisconsin-Madison and lives in St. Charles, Ill.