Add Yankee great, Jorge Posada to the long list of names of professional athletes who have been done in by their investment advisors. There are of course several accounts of this around the web but according to the NY Post he lost millions on a real estate deal and in a hedge fund run by his advisors. The Post implies he has not been totally wiped out but that Posada and his wife, who are referred to as naïve in the article, have taken a meaningful blow to their net worth.
For the past week I’ve had a post from Streettalk Live open in my browser titled 10 Legendary Rules From Legendary Investors that I planned to write about and I think I can marry that and the Posada story together in one post.
In past blog posts we have looked at how to keep investing simple and the extent to which I think the ‘legends’ of investing who can break it down into the simplest, plain English terms are the ones that most investors should try to learn from.
Included in with the rules was “the biggest investing errors come not from factors that are informational or analytical, but from those that are psychological” which came from Howard Marks of Oaktree Capital Management.
Often, the types investment products that did in Posada are sold in such a way as to appeal to vanity by way of exclusivity. The Post article cites comments from Posada’s attorney that his window for making an income was short and could have ended at any time and while that is not 100% accurate from the standpoint that contracts in baseball are guaranteed there is a bigger point made which is that a more suitable path would have been simpler investments that would have allowed the Posada to maintain their lifestyle when his playing days ended whether that meant no income or reduced income if he found work in broadcasting or coaching.
This is of course the same issue confronting most investors as a problem they will try to solve for themselves or that they will hire an advisor to help them solve.
It can’t be said enough, for most people this is solved with a simple portfolio constructed with funds and individual issues in a brokerage account. Further making the argument for simple is a point we bring up a lot which is that a simple indexed portfolio combined with an adequate savings rate can get the job done. Straying too far from that is what gets people into trouble like with Posada.