The Big Short and The Prudent Man

If you want to lose even more faith in the big banks on Wall Street then see the movie The Big Short. It’s an excellent portrayal of what ignited the Great Recession based on Michael Lewis’ book of the same title. It never ceases to amaze me how little we learn from history—one that’s littered with financial disasters. If you want to make money and keep it then you would be wise to focus your attention on the prudent man rule.

Bevis Longstreth writes in the footnotes of Modern Investment Management and the Prudent Man Rule:

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Of course, it was early recognized that market manipulators could do harm to even the safest investment. In March 1792, when the stock market was in its first major decline, Thomas Jefferson wrote to a friend: “…the credit and fate of the nation seem to hang on the desperate throws and plunges of gambling scoundrels.” As explained by Senator Thomas H. Kuchel in hearings on S.510 (which became the Williams Act) before the Subcommittee on Securities of the Senate Committee on Banking and Currency on March 21, 1967 […]:

Jefferson was referring to a small organization of investors of that day—”The Six Per Cent Club”—that had carelessly speculated on debt securities issued by the Federal Government and had operated with great mystery behind the scenes. They had overextended themselves in the expectation of sharply rising prices and were left with obligations that could not be met. Neither the Government nor the market was prepared to deal with the situation.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.