The Truth of the Funds

[From: Richard L. Peterson (2007). Inside the Investor's Brain: The Power of Mind Over Money (p.77-78). Hoboken: John Wiley & Sons Inc.]

Sometimes at social events, if I mention my occupation as "investment psychology," people are curious. Often, their questions are market related ("Where do you see the market in 12 months?"), and sometimes they are personal ("Why is my spouse so hopeless with a budget?").

In early 2006, when Jodie heard my profession at a dinner, she asked me defensively, "Did someone send you to talk to me?"

"Uh, no," I answered.

"Are you sure?" She said, eyeing me sideways.

"Er, yeah." I was perplexed.

"Come over here. I need to talk to you." She motioned me to a quiet corner of the room.

"Um, okay," I said.

After some pleasant conversation, Jodie opened up. She told me that she'd been having nightmares about poor old people living under bridges. In many dreams she herself was destitute. When she saw commercials on TV about happy older couples in retirement, tears would come to her eyes. This had been happening for about a year, and she didn't really understand it, but she thought she might have a clue.

"What clue is that?" I asked.

"Well, I used to work at a major investment bank as a broker in the late 1990s. We were responsible for getting retirees to buy recommended investments in their private accounts. When I started in mid-1998, everyone wanted to buy Internet stocks. We'd call clients, offer a few shares in an IPO [initial public offering,] and recommend some other stocks as well. They'd usually follow our advice without questioning, and they'd be better off for it. In late 1999, we started offering these Internet mutual funds, and we would charge two points on the buy, in addition to our regular commissions."

"Wow, that's huge," I muttered.

"Yeah, my boss told us that we'd be fired if we couldn't sell the fund to 80 percent of our client accounts. It was my job to persuade dozens of mostly older retirees to buy shares in the Internet fund. Some of them wanted to put all their money in it, and I let them."

"What happened?"

"I left in early 2001, when clients were calling me wondering why their accounts were shrinking. I told them to hold on, that things would recover..." She paused. "I feel so rotten now. People really trusted me." Jodie took a sip of her drink and her eyes inspected the faces in the room, as if looking for someone else to talk to.

It didn't seem like a fitting end for her story. "Then what?" I persisted.

"I got my real estate license, and now I'm a real estate agent."

"No, I mean what happened with the clients and the funds?"

"I don't know, I imagine the department was shut down. I think some of the clients told me that he was going to have to postpone retirement 10 years based on what I'd sold him." She studied her shoes.