Madoff Behind Bars

I watched the new CNBC special on Bernie Madoff last night.  Make no mistake - he's a criminal and he probably deserves a harsher punishment than the cushy federal prison where he's currently incarcerated.  But, what amazed me the most was the incredible naivete of the investors that were ripped off by his Ponzi scheme.

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When did anyone ever think that a 1% per month return with virtually no volatility was a realistic possibility in the real world of capital market behavior?  It isn't.  It never was.  It never will be.  What was absolutely amazing to me was watching a woman who had been a stock broker tell how she and her family (who invested with Madoff at her suggestion) lost everything.  Don't get me wrong - I'm sorry that it happened to them.  But, she should have known better! 

If Madoff and company had tried to convince me or my firm that they could deliver this kind of return without volatility, we would have known in an instant that it was a fraud.  How could someone with many years of experience in the brokerage industry not see that?  I'll tell you how.  They don't have a clue about how capital markets really work.  They are product pushing salesmen (and women).  They know so little that they can't even protect themselves.  Do you trust their advice?  Don't.