The Tycoon Report

The Most Dangerous Three-Letter Word on Wall Street

Wednesday, October 31, 2007 | Dylan Jovine

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IT'S DESTROYED MORE CAREERS ON WALL STREET THAN ALL FINANCIAL PANICS COMBINED.

In the past decade alone, it's been responsible for more financial ruin than 1,000 subprime debacles put together.

It's so devastating that most of its victims don't even see it coming until it's far too late.

No matter how hard you try - or how clever you think you are - unless you're on the lookout, this silent killer ALWAYS gets you in the end.

What am I talking about? I'm talking about the most dangerous three-letter word in finance - EGO.

And when the history books are written on this sad ending to the Stan O'Neal chapter in Merrill Lynch's (SYM: MER) history, it's going to all come down to the word EGO.

Stan, ego is the only thing I can think of that made you do the WORST TWO THINGS YOU CAN EVER DO AT A WALL STREET BROKERAGE FIRM:

1) You thought you were clever enough to understand the risks (ego) you were taking in the subprime market (but in reality you chased the housing market higher like a 20-year old newly married rookie, and you know it) and;

2) You were so afraid of looking like a fool (ego) that you REALLY played yourself by asking (begging, rather, from what I hear) Wachovia (SYM: WB) to buy Merrill Lynch.

Yup, your own ego blinded you to the fact that Merrill Lynch is NOT Goldman Sachs (SYM: GS) and never will be.

By surrounding yourself with "Yes-men", you perverted the exact same Goldman culture of meritocracy that you were trying to copy.

But even worse than that - far worse in my book - is that your pride (ego) made you get on your hands and knees and beg Wachovia to buy you to cover up your $8.4 Billion or so loss.

And from my point of view, that's disgusting.

How dare you take a proud firm - a proud culture - like Merrill Lynch and approach Wachovia (SYM: WB) like that?

I know you didn't grow up on Wall Street, but I heard you grew up in a rough and tumble neighborhood on the streets - you should have known better than to get on your knees like that.

So in an effort to try to hide your mistake, you put one of the proudest names on Wall Street - MERRILL LYNCH - on its knees in front of the entire world to see.

On Wall Street, that doesn't just mean you should get fired - you should pay a far steeper penalty.

Now, I'm not saying that everything you did at Merrill Lynch was bad. We both know better than that.

You did a great job making "Mother Merrill" more efficient. We all know that Daniel Tully's vision of "Mother Merrill" is as outdated as he is.

And your move to buy a 49% stake in Blackrock was as clever as any move made on Wall Street in recent years.

But your ego really blinded you to the fact that you could not re-make Merrill in Goldman's image. You should know by now that Goldman has an honest risk-analysis CULTURE built from the ground up over years and years and years.

And yet you tried to copy that culture by surrounding yourself with a bunch "Yes-men"? You must have thought you were just smarter than the average bear (ego).

Now, Mr. O'Neal, I'm going to give you a piece of advice because I'm quite sure you'll land on your feet. I can speak to this subject with some authority because I have some DIRECT experience on this one:

When you're putting your capital at risk - as you did with the subprime debacle - the worst person on earth you can have answering questions for you is a "Yes-man".

You need somebody who is brutally honest, and who has lived through SEVERAL market cycles, sitting on your trading desk trading your money.

Because there is one rule you have on Wall Street if you don't want to wake up one morning and find out that you violated your NET CAPITAL requirements because of some stupid decision: NO SURPRISES!

"Yes-men" are well-known for their inability to speak truth to power. And that AUTOMATICALLY DISQUALIFIES THEM FOR THE JOB, PERIOD.

Yes, when the history books are written on your chapter at Merrill Lynch, it will come down to one word - EGO.

I just hope that you take this lesson to heart and learn something good from it.

Speaking from my own experience, looking in the mirror and pondering my own EGO-based mistakes was among the hardest life-long journeys I ever had to begin. (It took me about two years to even get my courage up enough to START looking in the mirror!)

But I'm a lot better off for it, and you will be, too, if you ever get a chance to manage a broker-dealer ever again (which may be difficult, given that stupid Wachovia move you made, but who knows - memories are very short on Wall Street).

Good Luck With the Mirror,

Dylan Jovine
Battle-Hardened Street Scrapper from Queens and Life-Long Wall Street Veteran

PS -- To all you investors out there, the same lesson applies: if you are so blinded by your ego that you won't admit your mistakes, you will never get better at your job. LOOK IN THE MIRROR, MY PRETTIES - IT'S THE ONLY WAY TO REAL LONG-TERM SUCCESS!

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Dylan Jovine
Chief Investment Officer
The Tycoon Report

28 Comments

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Heinz (1 year ago) Is this Spam?

Dear Dylan,

I do hope that all readers will take your "post scriptum" at heart. Well done, Sir! I love your straight forward comments.

Cheers

Heinz58

Roy (1 year ago) Is this Spam?

Dylan' That was awesome and yes that was pathetic what he did with Wachovia and yes I believe merrill was always chasing goldman. As to ego it will rear it's ugly face and get in the way of success every time it is only a matter of when

frank w (1 year ago) Is this Spam?

Old saying in Hollywood, " You're in good shape until you begin beliving your own publicity.

And, prepare for random events that have nothing to do with experience or intelligence. Reminds one of the same mentality as Long Term Capital

Management - - BIG EGO. And O'neal is getting away with millions. That's punishment ? ? ? - - for world class stupidity and ego.

anthony (1 year ago) Is this Spam?

Exelente artle.

Kevin (1 year ago) Is this Spam?

Hi Dylan, that article was the bollocks. Which in English terms means extremely inspiring!

Ego, sometimes makes me think we are our own worst enemies. A wrong investment decision seems to render us incapable of making further decisions!

Kevin

PS if you want to understand the real meaning of the "bollocks" give me a bell (+44 7771 572 587)

Alexander H (1 year ago) Is this Spam?

Good article. I like the way you are not keeping your mouth shut and tell things the way they are. Keep it up, Dylan.

Alex

Germany

scott...harman (1 year ago) Is this Spam?

GOOD..JOB

jester112358 (1 year ago) Is this Spam?

The real truth is that a strong ego is an important aspect of investment success as it allows one to stay with ones investment hypothesis when the less confident herd is bailing out. Your little diatribe will be of little use to anyone. Everyone likes risk when things are going well and is risk adverse when they've taken large losses as you've evidently done in the past.

GS also suffered from poor investment decisions which were overcome by their good (and perhaps lucky) trading strategies.

Dylan (1 year ago) Is this Spam?

Um...who is Justin?

DYLAN JOVINE

John M (1 year ago) Is this Spam?

Good Morning Justin,

While you're counting up the seven deadly sins of Wall Street, Ego is only one of them. It isn't even the number one of those sins.

The number one sin, any Wall Street-er knows in the dark corners of his restless mind, is worthless FED fiat currency constantly debased by Congressional and Presidential irrational exhuberant spending.

Without worthless currency flooding the market since the days of Reuben and later Greenspan, there would never, in the wildest perverted sharkie wet dreams of such CEOs have been cash to leverage with Merril. You know and everyone playing with this Monopoly money knows that is the number one deadly sin.

We are all impressed with exponents! We like big numbers and fast up/down ticks. Like kids on a roller coaster, it's a tummy tickle to see the crest coming before the coast down. What thrill big numbers are! Purchasing power? Wads dat?

None of the present troubles plaguing the market could have happened from the turn of the Century to the present day without a permissive FED policy, too much easy credit, and the other six deadly sins of Wall Street.

Continuing in the present system of FED fiat currency, the only way out is WAR or TIME. Let us have a WAR of global proportions and pray Nukes don't find there way to the shores of America or you wait out a recession which will last fifty years at minimum. The seven deadly sins of Wall Street have brought this about, not just one individual's sin's. Yes, Mr. O'Neil pulled the blooper of all time. He isn't the only one. Enron anyone? And with a track record like that, has a great shot at filling the next open chair on the FED Open Market Committee.

The Seven Deadly Sins of Wall Street are: Ego,

Easy Credit,Hermetic Accounting,Employment of Sycophants,Giving Ear to Insiders in the FED, Believing Bankers. Buying Anything Traded in FED Fiat Currency is the invitation to the destruction of any economy.

You have heard me say no one should buy gold. Why? No one should buy gold because it is only another commodity traded in FED paper. That is also true of everything traded. Until the FED is gone, Wall Street-ers are always going to face MORAL HAZARD! Had currency been backed by gold instead of FIAT it would have been so dear the housing bubble and the stock market run up of 2000 couldn't have happened.

Investors shouldn't own gold, but money should be valued by it as the Constitution specifies; "make anything but gold and silver coin a tender in payment of debts". The lesson was learned long before Rome burned. Our Founding Fathers listened and bequeathed the discipline of gold backed currency to us in the Constitution until it was decided they were old fogies and the discipline of gold was amended away by the sixteenth amendment.

On the advice of a foreigner, John M. Keens we backed fiat currency with debt. Taxing unborn generations of future tribute slaves is the bowl of porridge we sop daily as we make our fortunes on the backs of those whom we tax without representation or enumeration, drunk with how many zeros we can put behind a significant digit; never wondering what can be bought with such moonbeam currency.

And when the house of cards blows away with the winds of time we chide and back bite each other instead of uniting against the one reason it happened in the first place. We are all fallacious

human beings, Mr. Jovine. You are right to call Mr. O'Neil on the carpet. But that noble gesture will not prevent it happening again. Nor, will chastising him restore purchasing power to the USD in your wallet or credit cards.

The greatest good that can come of our times is the abolition of the FED and a return to the discipline of gold backed currency.

If Wall Street-ers continue in the way we are going, full of ourselves, street wise punks who are self made men, we better have bomb shelters and lots of food. Because, its WAR or WAIT. Do you have fifty years to wait Mr. Jovine?

I beg everyone to read at the following two web sites to get a grasp on the subject matter here.

http://www.billcara.com/archives/2007/04/a_sad_picture_of_americas_purc.html

http://www.mises.org/

There's no doubt Mr. O'Neil is a sinner of the first water, but we are also. Given his situation, the easy credit, and the seven deadly sins of Wall Street, let him without sin cast the first stone.

John Mahler

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