For the aspiring investor, there’s no greater accomplishment than successfully timing the market. No nuance is too subtle, and the books and articles written on this subject would easily fill a library. Consistently picking the right moment to buy or sell a security is a talent that few persons master. It’s for this reason that when connivance is possible, human nature steps in. Let me explain.

During the past months we’ve witnessed the latest corporate exposé: evidence that over the years, large numbers of public companies have engaged in massive option backdating to improperly enrich their officials. The technique is simple. A firm’s Board of Directors grants to favored executives options to purchase company shares at a pre-designated price—a thoroughly reputable practice when authorized legitimately. However, as insiders who are able to game the system, the options are backdated, usually to a date when the value per share was low, enabling the recipient to exercise the option and dispose of the shares simultaneously, ensuring an instantaneous profit. As the contrivance is normally done in secrecy, all other stockholders are unaware that they have been shortchanged through share dilution.

What I’d now like to do is put this outrage in perspective. The practice of fraudulently backdating documents enjoys a long history. One common practice throughout the ages has been land ownership confirmed through deeds predated, in some cases, by centuries. Another often-employed procedure is conveyance of assets by last will and testament forged after a decedent’s death. One of the more notorious instances of backdating came to light in 1974 concerning a tax-deductible contribution of vice-presidential papers by President Richard Nixon. In an attempt to circumvent a July 25, 1969, cutoff date established by Congress for such deductions, the documents effecting the gift were backdated by a year. A suspicion of similar abuses by two other former vice presidents, Lyndon Johnson and Hubert Humphrey, demonstrate that backdating can occur at the highest level. The point I seek to make is that this sort of deception is neither new nor uncommon. Rather, it depicts an integral characteristic of the human psyche.

It’s not my intent to condone immoral or illegal practices. Neither do I advocate that anyone engage in such actions. My aim is merely to inject some reality into our consciousness. It’s only when you understand how mankind actually functions that you can take measures to protect yourself in this duplicitous world.

A concluding thought:
There is one characteristic basic to our species that must never be ignored: Human nature is such that insider abuses of any organizational system are, and always have been, integral to the system, not aberrations from it.

This title of a recent USA Today article attracted my attention: “You don’t have to be a millionaire to invest like one.” The article, by columnist John Waggoner, described sensible mutual fund investment, expounding on such matters as sales and load charges, annual Roth IRA limits, and automatic reinvestment programs. But search as I might, I found no information on how to invest like a millionaire.

It then occurred to me that the author of an article seldom selects its title. That’s assigned to a newspaper employee, not for describing the column’s contents, but for attracting attention. Apparently I was not about to discover secret investment techniques of the wealthy. Perhaps it’s just as well, for the mere possession of wealth is no basis for ensuring that its holder will invest wisely. Possibly that thought seems sacrilegious—the line from the Broadway musical Fiddler on the Roof sums it up for many persons: “When you’re rich, they think you really know.”

With that said, you’re entitled to a glimpse at how many millionaires actually invest. Consider no less a personage than TV celebrity Larry King who, in November 2007, filed suit against an insurance brokerage, claiming to be tricked in a sophisticated insurance sales transaction that proved financially catastrophic. Neither his wealth nor celebrity status prevented the misfortune.

You may add to the list of victims many sports personalities, such as NBA legend Jerry West and Dodgers third-baseman Nomar Garciaparra—whose assets are legendary—who accused their prominent Los Angeles investment advisor of gouging them out of millions of dollars in excessive commissions on bond trades. Admittedly, sports figures are notoriously naïve on monetary matters, but certainly their wealth did not protect them.

Even well-to-do individuals, astute in the ways of Wall Street, are not immune to a swindle. George L. Forbes, one-time President of the Cleveland City Council, who sat on the state commission overseeing hundreds of millions in assets, fell victim to a scam that bilked dozens of wealthy investors out of some $300 million. His financial prowess proved to be no defense.

This gets us to the nub of it all. Your possession of substantial net worth will not guarantee you favorable investment results. It’s your personal involvement and analysis of each opportunity that makes the difference. Remember that your most reliable investment advisor will be the face in the mirror.

On October 3, 2006, a momentous event occurred. The Dow Jones Industrial Average (DJIA) that had languished in the doldrums since the market collapse that began over six years ago finally surpassed its previous all-time high of 11,722.98 that it reached on January 14, 2000. With a final surge, amidst cheering at many of the brokerage houses, it closed the day at 11,727.34. From the media reports, nirvana was achieved.

At the risk of being stoned by the financial community, I’d like to put this happening into perspective. The first thing to understand is that the DJIA is an index representing a composite of thirty major public corporations. In an earlier time these were regarded as the fundamental underpinnings of America’s industrial community. Things have changed, and today this index is considered far too narrow to represent the nation’s enterprise. The Standard and Poor’s 500 Index (S&P 500) is of far greater significance, and it has yet to exceed the value it attained in early 2000.

To scrutinize matters even more intently, we must not forget that over the past 6-3/4 years it has taken for the DJIA to return to where it was, the dollar’s purchasing power is noticeably less. Irrespective of the government’s reported core inflation rate, over the past half-century a realistic increase in the cost of living has been about 6-1/2 percent annually. On this basis alone, the DJIA should now be more than 18,000, adjusted for inflation, simply to have gotten back to its previous high.

Consider the following statement that appeared in a prominent financial publication on October 4th: “The rebound restores faith in the durability of blue-chip stocks, delivers an emotional lift to investors and raises hopes that the broader stock market, still 12.7% below its 2000 record, will keep rallying and claw its way to a new high as well . . . it’s a psychological boost we can rally around.” I suggest that you consider the source while not forgetting that it is hyperbole that sells both stocks and newsprint.A concluding thought:
Let me remind you of a fundamental rule of thumb that helps to put the enthusiastic reports of a record DJIA in even greater perspective: The greater the amount of publicity that is bestowed by the media upon a subject, the less actual significance it has.

Let me remind you of a fundamental rule of thumb that helps to put the enthusiastic reports of a record DJIA in even greater perspective: