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Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments Hardcover – Mar 27 2012
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"I have long wanted to see a book that would teach ordinary investors how to avoid being cheated by those that create/sell financial products. If this book isn't it, the one that surpasses it will be astounding. If Wall Street is a show, this book gives you a peek behind the curtain." -- David Merkel "SeekingAlpha"
"I have long referred to the author of Backstage Wall Street as "Downtown" Josh Brown because he is no "Uptown Guy." Rather, he is irreverent, unorthodox and iconoclastic.The pages of his new book are filled with colorful exposes of misconduct in the way Wall Street presents and sells itself (and it's financial products offerings!).
Josh's anecdotes - like his description of the audience's reaction to Piper Jaffrey analyst Nicole Miller Regan's questions at a Jamba Juice's analyst day - are priceless.
(With apologies to Billy Joel) if you have "never met a backstreet guy..".. run, don't walk to read the Downtown Man's chronicles of deception from those wonderful folks on Wall Street that nearly bankrupted the world's financial system a few short years ago." -- Doug Kass "TheStreet.com"
From the Back Cover
Sure to be a revelation to even the savviest financial professional, "Backstage Wall Street" is a brutally honest look at the investment business from a veteran who s seen it all. Reformed Wall Street insider Joshua M. Brown offers clear and proven advice on how to navigate all the snares set by the lords of Wall Street."See all Product Description
Top Customer Reviews
Most Helpful Customer Reviews on Amazon.com (beta)
This book is really four mini-books in one:
1) How the author became a broker, and the ethical difficulties that were forced on him in the process.
2) The difficulties faced by do-it-yourself investors, and the benefits of exchange-traded funds [ETFs].
3) On Brokerages, and all their conflicts of interest, culminating in the straight line pitch.
4) Investments to avoid, and advice from the wise.
That it is four in one is not a weakness but a strength. Wall Street has many ways to skin investors, and each section provides insights that different people will benefit from. It is a more comprehensive book in its short 240 pages as a result.
The first part of the book describes Wall Street as it was and is, with all of the players and their motives. Josh spares no one; the tone of the book is cynical, but not unduly so, noting all of the problems with a profane sense of humor. Some of the funniest bits of the book are recollections of conversations with greedy parties seeing an edge.
There is a certain level of despair for young brokers as they "cold call," knowing that if they don't succeed, they will be let go, but driven by the possibility of riches should they succeed. Those who are successful gain money, prestige, bragging rights, and some level of freedom from tight control.
I have my own experience with this. though mostly on the institutional side where I told such brokers "Why would my client want that?!" It's astounding what level of deception those who sell investments will engage in, until they realize you can't be conned, and then they use your ideas to con others. (The institutional brokers only make money on transactions; if they know you are smart, they facilitate your ideas at the expense of those less talented. Ugly, I know, but I didn't invent this.)
Now, if you are a total "do-it-yourselfer" like I was in the '90s, where I researched and bought my own stocks for myself, with some success, this is not for you. This is for those who research and use mutual funds and ETFs. It goes into the history and development of asset management fund structures, explaining why they are how they are.
He also describes how the modern era came into existence with discount brokerages in the '70s, and how during the bull of the '90 it morphed into anyone can make tons of money, just buy stock! One thing Josh does not talk a lot about, but was significant, was how when fixed commisions ended, the real reason for maintaining research staffs died. And, when tick sizes moved from a eighth to a sixteenth to a penny, the reasons for having market makers and specialists dried up. But you can't cover everything.
One particularly funny part is page 110, with its real-life definitions of fund types. Josh is at his best in the section where goes after leveraged and inverse ETFs, where a lot of investors lose money because they are meant to track daily performance of indexes, and generally lose money for those that hold them long-term. He is similarly good when he criticizes the proliferation of ETFs that are too unique, and will never get a broad following.
Brokers position themselves as experts, when they are really order-takers. They hire analysts that are not that good on average, and issue more buy than sell opinions, which facilitate the investment banking and trading businesses. It talks about the stories that brokerages tell in order to captivate people and make them invest.
And then, Josh discloses the "Straight-Line Pitch," which has been used on many investors to make them invest with the brokerage. I have to admit, given some of the initial publicity on this point, and my own experience with brokers, I was dubious about this part of the book, and, Josh leaves it to the end -- this is the climax!
I was pleasantly surprised, and I would recommend that all investors read chapter 20. Why? To immunize yourself from the clever talk that boxes you in as they offer slick answers to your objections. That is a major reason why I read books on marketing: I can't be tricked! (But it does force me to do my own research.) If you don't want to be tricked by clever brokers, read chapter 20. It isn't necessarily the best chapter of the the book, that will depend on your own needs, but chapter 20 is unique.
Oh, and why have I not experienced this? Being a total do-it-yourselfer, I told brokers that I knew better than they did; it led to some weird conversations as they found I knew more about it than their talking points.
Investments to Avoid -- Advice from the Wise
Most bad investments are either volatile or illiquid. Why do brokers sell illiquid investments? Because they get high commissions. Same for insurance agents.
Then there are investments that sneak between the regulatory cracks, like Chinese reverse mergers, Special Purpose Acquisition Corporations, and anything with secondary guarantees, or the sale of options to enhance income.
Ask the broker this: who can I sell this to if I don't like it someday? Who makes an active market in this? Any pause on this, and don't buy. No pause, but an answer -- write it down, and check it out.
In one sense, part of the answer to the problems this book brings up is to realize there is no urgency. If it is a good idea today, it will be good a week from now, let me talk with smart friends and figure out if the idea makes sense.
As for advice from the wise, he invites about eight of his friends to opine on a variety of topics. Most of them are well-known, but at least a few of them are obscure, unless you are in the business. I found the counsel to be sound, aside from an obscure former actuary who writes on investments.
On page 118, he talks about how Vanguard would have been a natural for the ETF business, and how Bogle delayed them from getting in. This is true, but Bogle resigned in 1999; I was at a dinner for his retirement in 1998 in Philadelphia, and met him and Brennan, his successor. The first Vanguard ETF was created in 2001, VTI is the ticker. Vanguard did not play a large role in ETFs until 2005, but to say they weren't in the business is not correct.
Also, ETFs are not as good as they seem, because average investors in them trade them wrong, buying high and selling low. ETFs do not correct for bad investor timing, even if they are lower-cost.
Who would benefit from this book: If you aren't a total Do-it-Yourselfer in investments, you can benefit from this book, because it will teach you about the motivations of those who try to sell investments to you, and those who manage money for you.
When that was made clear, I was able to read the book objectively without wondering what it was going to do for me, and that made it a whole lot better. I began to appreciate Brown's insight into some of the inner workings of the "investment game" (my words) and how other people make money off of my money. I began to understand a lot of esoteric concepts related to fairly common things, such as IRA's, ETF's, 12b-1 fees, and so forth. Brown's experience and candor may not help you invest better, but what he has to say may still make you a better investor. How? By making you ask some questions - possibly of your broker, definitely of yourself - that will help you to have better investment judgment. It was certainly eye-opening seeing the world of stocks from a salesman/broker/sweat shop point of view, and the reading was, though not engrossing, at least enjoyable.
My two complaints about this book are minor. The first is that because Brown is a blogger, his writing for this book sounds a lot like a blog. That is, it is a bit disjointed and lacks a good flow and structure from chapter to chapter. He's at his best when he's writing jab-like sentences to make a short, right-to-the-heart-of-the-matter point, in other words, he's effective when he writes like a blogger. When he writes like a Wall Street insider telling a story, his prose breaks down a bit. Then again, maybe I expect too much from paper and ink and my perception was off. (Call it a feeling, in that case.) My other complaint is even more minor, and that is, in relating beefy, realistic Wall Street conversations and anecdotes, he likes to use asterisks instead of spelling "bad" words. We're all adults here. We know all the bad words there are to know. Nobody's protected by putting an asterisk between an `s', an `h', and a `t' in this type of book, so just write the words and don't apologize for them. (I wonder if the editor had anything to do with this?)
At various other points in reading this book, I felt it was a two, three, or four star work. I had just about decided it had earned four stars, when the book closes with a bit of a gratuitous section of famous Wall Street insiders echoing Mr. Brown's points and expressing their similar views to his, sort of lending an artificial scaffold of ideological support for his effort. That bumped it down to just above average, and into the three star range. Still a good book, and quite different from other books on Wall Street, it will appeal to anyone with even a passing interest in investing.
Continuing on the cinematic theme, I've only read a few books in my lifetime in one sitting. One was Alien. Another was Babson's Brad Perry's tome "Winning The Investment Marathon" and Jurassic Park was a pretty enthralling read also. I can now add Backstage Wall Street to the list. I'm not sure which one was the most frightening, when I finished Alien I didn't want to turn out the lights.
Backstage is equally unsettling and Josh lays a foundation and history as he describes the "evolution" of Wall Street and the grinding of sausage. I actually think Josh Brown is part of a potential re-awakening of investing as it once was (or was at least intended to be) ... a people's capitalism with a potential outcome that would make Sigourney Weaver proud.
A rudimentary return to principled capital markets ... a New Reformation is clearly in order. If you've been investing for some time but harbor reservations about the way things are, this might be Chapter One of a new day. If you find investing terrifying when it comes to your 401(k), you might find some relief that there are some advocates and champions for the way things ought to be.
Is there hope? I think so. And I think Dustin Hoffman probably plays Josh in the movie, not Vin Diesel. For the sake of Rene Russo and millions of afflicted investors and citizens out there, reform at will.
any investing. You get a real inside view of what you are up a against in trying to make intelligent investment decisions. This books is extremely timely, relevant and helpful.
I was sucked in by all the 5-star reviews. Don't you be.