A fool and his money are soon parted

The LAT has a front page piece today about a couple who invested $600,000 with Bernard Madoff, indirectly. It grew to $1.2 million on paper, then zero. The fellow they invested with directly, Stanley Chais of Beverly Hills, and who in turn invested with Madoff, was unlicensed.

The couple said it seemed like a safe bet. Chais was a wealthy investment advisor and trusted family friend who produced strong returns for relatives for two decades. The couple enjoyed consistent returns of about 15 percent per year. Chais took about 4 percent for his services.

Quarterly statements provided to the couple by Chais were vague. The couple couldn't tell from the statements what trades were made, how they were made or by whom. The whole thing was hush-hush.

There are all kinds of alarms here. Chais was unlicensed. The investors didn't know how the funds were being invested, by whom or in what. Reporting was vague. Returns were excessive for conservative investments. The advisor took too much. Trades were being made by someone other than the investors. 

Learning a little about investing wouldn't have taken the couple much time and would have saved them much grief. Reading a book such as "A Random Walk Down Wall Street" by Princeton professor Burton Malkiel would have given them an understanding of the relationship between risk and reward and might have led them to understand the dangers in what they chose to do. 

There's a tendency to want to bail out people like this couple. As sad as their situation is, that would be a mistake. People must take responsibility for their own affairs, financial and otherwise.