“Once in the dear dead days beyond recall” is the first line of the enduring popular tune, “Love’s Old Sweet Song,” by James Malloy back in 1884. And with that  bit of historical context, let’s flash forward to the present and consider why Schwed’s book is so relevant in today’s Wall Street war against Main Street. A couple years ago I was reminded of Schwed’s challenging question while flipping through Fortune magazine when my eyes locked on a photo of “Utopia,” the aptly-named new mega-yacht built for legendary fund manager Bill Miller.

So, where are all the customers’ yachts?

The truth is, “naïve” is an apt description for all investors all the time: It was appropriate in 1929, remained so in 1940, and still fits today. Actually more so today: Despite the flood of high-tech data, news sources, research and analytical tools now available, America’s 95 million investors becoming more and more vulnerable, gullible and naïve by the day. Schwed’s story perfectly captures the endless daily transfer of billions from the pockets of Main Street’s naïve customers, into the pockets of Wall Street’s insiders. In fact, every year more than $200 billion is siphoned off the top of the $10 trillion Main Streeters have invested in mutual funds alone.

And thanks to all the protection Wall Street gets from its friends in Congress, at the SEC and among the new behavioral finance geniuses, most of that $200 billion in fees, commissions and other payments will be quietly hidden in bank accounts, undisclosed, without clueless Main Street’s customers even aware of what’s happening to their money.

They love bragging about the yachts you bought for them

However, their egos frequently do get the best of Wall Street’s finest—they cannot resist flaunting their wealth on the world’s stage, an art collection, or a sports team, or yacht. Publicly bragging about your wealth may be a bit gauche, like the mounted trophies of wild animal heads displayed by big game hunters, but the urge is irresistible. So when the news breaks about their little public displays of wealth, we’re reminded once again of the “old sweet song” and yachts anchored off the Battery, as naïve customers and competing managers alike go gaga with admiration and envy—even though the Fortune photo of Miller’s yacht did little justice to his magnificent ocean-going vessel.

But, you ask, where did the money come from? Oh, that’s obvious. It was a “reward” for Miller’s winning streak as portfolio manager of the $11.5 billion Legg Mason Value Primary Fund, part of the powerful Legg Mason group of companies that was wheeling’n’dealing with Wall Street powerhouses like Citigroup, in a $3.7 billion swap of assets that helped one portfolio manager become this years latest example of Schwed’s dream.

“Greatest money manager of our time” needs a yacht

At the time every investor in America knew Miller was the only fund manager who had beaten the S&P 500 index every year for fifteen straight years, an incredible feat, given his extremely high 1.68 expense-ratio handicap. His performance was like being a multiple Oscar-winning leading man, which made mega-bucks for him for years along the way.

In fact, Fortune even jumped on the bandwagon calling Miller “the greatest money manager of our time.” And yet, they were hedging their bet in late 2006, which journalists often do late in the year. As Wall Street’s frantic race to the finish line heated up, Fortune asked the inevitable question that makes for exciting drama in financial journalism as well as in sports: “Will The Streak be broken?” The 15-year streak. The answer, said Fortune’s new managing editor, Andy Serwer, was not encouraging: “It’s likely to be a rather glum New Year’s Eve this time around for Legg Mason Capital Management. The Streak is probably over.”

Glum? It’s already his yacht, you can’t have it back!”

Not so fast, Andy, I’m still betting on Bill!” Every year-end we’d hear the same mock racetrack drama: “They’re rounding the final turn! Heading into the home stretch! Will Bill win again? The crowd roars! He’s closing on the outside rail, closer, closer …” But I’ve heard this breathless drama before. Miller had run this race so many times before, pulling ahead at the finish line, that I was certain he’d beat the odds again. How? Very simple, to mix metaphors, he was not racing some fleabag thoroughbred, he was racing his new “Utopia” super-yacht that year, which Fortune said he “plunked down tens of millions.” It has a heliport, a gym, twelve guest cabins and requires a crew of twenty. And anyone can charter it for around a half-million dollars a week.

Moreover, Utopia had to be such a powerful incentive, I was sure Miller would win again, even though he was about 10 points behind the S&P with just a month left. Besides, he was always a brilliant come-from-behind finisher. But even if ‘The Streak’ was broken (which it was, by the credit meltdown, and has yet to recover), it’d still be a great perk for insiders and institutional customers, and who knows, even some naive customers might get to work on the crew, while dreaming of their own utopian retirement.

Your nickels’n’dimes pay for “utopian” indulgences

Obviously Miller would disagree emphatically with financial consultant Laszlo Birinyi’s Forbes column: “Mutual Funds Stink,” which appeared about the same time as the Fortune story about Miller and Utopia. In contrast though, Birinyi was retelling Schwed’s “Ancient Story” from a more sophisticated customer’s point of view. Here’s why Birinyi says “funds stink:” You decide:

“As the recent scandals showed, some mutual fund managers count on sticking it to the small investor. The vast majority of mutual funds lag behind the S&P. Some are way, way behind. At a time when the S&P is showing double digits, large-cap growth funds are barely in the black.” Then Birinyi asks a rather harsh question: “What do you get for the fees you pay to your fund manager? Herd investing!” His solution: “You don’t have to pay a mutual fund manager a fee to follow the herd … Buy stocks on your own.”

So investors, do it yourself! True, Birinyi is a successful stock-picker. Doesn’t trust mutual fund portfolio managers. But any naïve investor can beat the S&P with a simple, well-diversified portfolio of low cost, no-load index funds. Birinyi’s indictment that “Mutual Funds Stink” is not news. Jack Bogle has been highly critical of the actively-managed fund for charging excessive fees for decades. And a few years ago Senator Peter Fitzgerald told Congress that the “mutual fund industry is now the world’s largest skimming operation, a $7 trillion trough from which fund managers, brokers and other insiders are steadily siphoning off an excessive slice” of America’s savings.

Nothing changes, this story never ends …

Schwed’s “Ancient Story” will be replayed over and over again till the end of time. Yes, we know history is a great teacher. But unfortunately, experience also tells us that naïve customers are in a plentiful and forever renewable supply—there is indeed a sucker born every minute, and they rarely learn from history, so they are doomed to repeat its lessons the hard way.

Schwed’s humor has drawn many laughs since 1940. But the humor is dark and the laughs nervous … because nothing changes. Efforts by Bogle, Fitzgerald and friends merely provoke and ultimately strengthen the opposition, forcing Wall Street and the fund industry to fight back harder, become more defensive, secretive and stronger. No, nothing changes. Wall Street controls the casino, plays with a stacked deck, and the playing field is never level. You play by their rules—or you don’t play. And in that is your salvation: Never, never play their game by their rules, to win you must play a new game—your game, your rules.

Can’t own a yacht? Rent for a day! Or join the crew!

The truth is, America’s naïve investors will never own yachts. They will always be left standing on the wharf, bewildered. Their portfolios average less than $100,000. Imagine any one of them “plunking down” their entire retirement nest egg to charter one day on a super-yacht like Utopia!

Of course you might be able to get a job on the twenty man crew as a summer job. That might be fun, and you’ll get back a little of the money your ship’s captain skimmed to build his yacht. More likely though, you, like the other 95 million American investors, will be left standing on the dock staring in awe, and with a childlike innocence, ask once more: “But where are all the customers’ yachts?”

Destiny, intelligent design and an infinite gene pool

Bottom line: Main Street is breeding an infinitely renewable gene pool of naïve customers who will forever be following along with the herd, throwing away billions in unnecessary fees and commissions while Wall Street’s insiders—bankers, hedge fund managers, fund owners, brokers and their fellow conspirators—siphon off billions to buy more yachts and art collections, sports franchises, Aspen villas and Bentleys.

Of course, all those Wall Street insiders definitely get the punch line in Schwed’s gallows humor … as they sail the high seas, laughing all the way, thankful and secure in knowing that each new generation will bring a whole new crop of “customers” as naïve and clueless as the last … customers who will never learn the lessons of history … who will always be ripe for the taking, courtesy of the growing army of new quant behavioral finance warriors working silently in Wall Street’s “engine rooms.” Yes, they will be forever thankful and secure in knowing there must be an intelligent design in the universe—one that has shaped the destiny of those who will own the yachts and those destined to pay for the yachts. A timeless destiny indeed.

“Believe nothing, no matter where you read it nor who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense.” Buddha 2,500 years ago

FirstPubDate: Nov’06

Faith plus action really works. So today, let’s you and me develop our own “Faith-Based Rules of Getting Rich.” I got five ideas. I’ll lay ‘em out, you refine ‘em, pick the ones that work for you. Nothing’s wrong with getting really rich on a little faith, especially when our leaders have screwed things up so badly. Faith’s a great way to start! I’m sparked about this message because lately I’ve been seeing a lot of “How to Get Rich” books, magazine stories and newspaper articles. US News even put out a special: “Secrets of the Super-Rich.” No surprise, publishers know we want escapism. A headline selling promises of a better future sell lots of copies during bear/recessions.

God Does Want You to Be Rich, But is Faith-Based Economics Destiny or Serendipity?

My files are loaded with them: But the one in Portfolio about Joel Osteen, “God Wants Me to Be Rich,” was especially inspiring. Not because he’s the author of 7 million copy bestsellers like Your Best Life Now and Become a Better You. Not because he’s the super-successful pastor of America’s biggest mega-church, grossing $75 million a year. And not because he encourages us to “focus on the positive and banish  negative thoughts.” What really touches me about Osteen is that he wasn’t prepared and besides, didn’t really want the job.

Then his father, who started the church in an abandoned feedstore over four decades ago, died suddenly. Fate, I identify with that. Unplanned, you may even have been actively avoiding it, even praying it wouldn’t happen. Faith isn’t what you think. A twist of fate, and suddenly faith, destiny and talent hit you. We all have Osteen’s kind of faith deep inside us, waiting for that moment. So let’s try to put our finger on it today, in the broad sense, with our “Five Faith-Based Rules for Getting Rich.”

Years ago I quoted the same message in economist Paul Zane Pilzer’s bestseller, God Wants You to Be Rich: The Theology of Economics: “God does want each of us to be rich,” says Pilzer, “in every possible way, health, love, and peace of mind, as well as material possessions. God wants this, however, not just for our own sake, but for the sake of all humankind … An increase in the wealth for an individual almost always represents an even larger increase in wealth for society at large.” Of course the message can get distorted, one-sided, super-selfish. And yes, that culture now runs Wall Street, Washington and Corporate America. But the principle is valid, a balanced pursuit, selfish and selfless, material and moral. This is one of those moments in history, a chance to shift our values back, get rich for ourselves and for a higher purpose.

First rule: Trust God … but not His “enemies”
Seriously, you know the old saying, “From your lips to God’s ears?” What if you call first? “If God phones, take the call!” says Brother Ty in God is My Broker. But what if it’s not Him? “How do I screen out Satan’s calls? Will Caller I.D. work? Is a telephone the only way God has of calling me? What if God calls collect?” Warning: Like Woody and Pilzer, Brother Ty knows God wants you to be rich. But he also knows God’s got some big-time “enemies” out to sabotage you. And like in The Omen and The Exorcist, they come in disguise, for example, politicians, bankers, brokers and CEOs.

But you already know there are so many of these little “devils” in the “unholy trinity” that can’t be trusted: Insiders all over Wall Street, Washington and Corporate America. They do not you to get rich. In fact, they are losing your money. They have the “greed-is-good” gene. They pray the gods will make them super-rich, at your expense. Get it? His “enemies” are obsessed about getting rich off your hard work and your retirement nest eggs. So the odds are high that you’re being manipulated, mislead, lied to and scammed.

Second rule: Wall Street won’t make you rich, they’re stealing yours
Never trust Wall Street, they got us into this mess. And setting us up for a new one, soon. In a recent Newsweek Dan Gross said Wall Street “self-immolated on a pyre of greed, incompetence and excessive optimism” repeating the 1930s. They’re super-selfish, with one goal: Get personally super-rich. You get leftovers. You are just collateral damage.

Why so darn blunt? Because this brutal truth obviously hasn’t sunk into Main Street. Remember, today’s Dow is below its March 2000 peak of 11,722. Wall Street’s a super-loser. If you put $10,000 in the market at the peak, you’d have less today than a decade ago. Yikes! Worse yet, inflation cuts your account in half, to about $5,000. Get it? Wall Street’s con-game lost a helluva lot of your money. Stick to a “Lazy Portfolio.” They’re all based on the Nobel prize-winning strategy of well-diversified no-load index funds. In the recent midyear updates, they consistently beat the S&P by as much as four percentage points, with no timing, no active trading.

Third rule: Stop working for Corporate America if you want to get rich
British publisher Felix Dennis has an amusing new bestseller: How to Get Rich: One of the World’s Greatest Entrepreneurs Shares His Secrets. Next time you’re in a bookstore scan it over coffee and a muffin. His bottom line: “You’ll never get rich working for your boss!” Familiar? Yep. Same message as in Thomas Stanley’s The Millionaire’s Mind, and Robert Kiyosaki’s Rich Dad, Poor Dad. Kiyosaki adds: “The problem with having a job is that it gets in the way of getting rich.” If the joy of working for yourself isn’t inspiring enough, Stanley tells us: Millionaires build wealth by living below their means and paying less taxes than the average taxpayer, 2% versus 12%: “I don’t think the government loves these people. The secret is to put money somewhere that it will grow without your having to pay taxes on it immediately.”

Fourth rule: Never trust Washington insiders to help you get rich
That is, unless you’re a lobbyist of politician. No matter which party’s in power, Washington no longer represents the American people. As a governing body, our 537 elected officials have lost their moral compass and answer only to the insatiable greed of 42,000 lobbyists with huge campaign donations. In a speech back in Chicago a year ago David Walker, former Comptroller General compared America to the Roman Empire, it “fell for many reasons, but three reasons are worth remembering: declining moral values and political civility at home, an overconfident and overextended military in foreign lands, and fiscal irresponsibility by the central government. Sound familiar?” Walker was a ‘voice crying in the wilderness’ as Washington sank ever deeper into a moral swamp the past decade.

Fifth rule: “Faith-based getting rich” means trusting the spirit within, “You Inc!” 
As much as I’m inspired by folks like Osteen, Stanley, Pilzer, Kiyosaki and Dennis, in the final analysis, I know that “faith-based getting rich” and “prosperity consciousness” are about neither money nor religion. “Faith-based getting rich” goes deeper, you’re in a very personal “deal” between you and your Higher Power, God, Tao, Yahweh, Allah, Gaia, Great Spirit, Universal Soul, Hero of a Thousand Faces, or whatever you call It. That “deal” was expressed in physicist’s Gary Zukav’s searching Seat of the Soul: “Each soul comes to the Earth with gifts … to contribute its specialness in specific ways … each soul agrees to perform certain tasks upon Earth. It enters into a sacred agreement with the Universe … all of the experiences of your life serve to awaken within you the memory of that contract, and to prepare you to fulfill it.”

In the final analysis, “faith-based getting rich” is double-barreled: God plus “You, Inc.” But you can’t wait for Him to call first. As 12-Step folks tell us: “I never just sit and do nothing. Rather I do whatever is in front of me, and leave the results up to Him; however it turns out, that’s God’s will for me.” That’s “faith-based getting rich” at its best, trust starts with action, your action: “Leap and the net will appear!”

Original: God Wants You To Be Rich: 5 faith-based rules.” Aug’08