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  Maury Fertig '85
  Maury Fertig '85
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Alumni Newsmakers: Maury Fertig '85

'Investor repent!' says Maury Fertig

Display a propensity for overweighting your retirement portfolio with small cap stocks or emerging market funds, lured by those double-digit gains of recent years? In this relentless pursuit of profit, do you ignore overall balance among investment choices?

If so, beware: You may be what Maury Fertig calls a "glutton" in his new book, The 7 Deadly Sins of Investing: How to Conquer Your Worst Impulses and Save Your Financial Future (Amacom, 2006).  Sooner rather than later, the market will punish this bad investment decision, one of several that Fertig links to classical human flaws.

"Gluttons go after every stock they can without considering their overall financial health," says Fertig '85, a former Salomon Brothers managing director. "Most investors tend to chase returns. They tend to buy things that have already done well, and they tend not to understand that the dynamics that have pushed a stock or sector to a higher level may not exist going forward."

Fertig isn't preaching market abstinence, just savings salvation. In two decades as an institutional investor, and now as co-founder of Relative Value Partners (with Bob Huffman, another Salomon veteran), the Kellogg grad says he's witnessed enough transgressions to, well, fill a book.

The 7 Deadly Sins offers insights and examples culled from actual investors who have fallen prey to temptation. Besides gluttony, the book considers other poor investments, such as those made under the influence of avarice, anger, sloth or envy.

It's not just the uninformed who fall into P/E perdition. Plenty of bright people do too.

Fertig recalls how the tech bubble turned otherwise sensible people foolish.  "If I asked somebody the particulars of a company that they just put $50,000 or $100,000 into, they had no clue about the price-to-sales, the P/E, the growth — other than maybe they knew what the product was. Although with some of the tech companies, they didn't even know that," he says.

So how does one keep to the righteous path? For starters, says Fertig, review the merits of modern portfolio theory, the strategy of diversification set forth by Nobel Prize-winning economist Harry Markowitz in 1952. Understand the fundamentals of what you are buying and hedge bets using investment options that tend to complement one another.

"Most people aren't that disciplined," admits Fertig, who says that he understands why people want to be in hot stocks. It's exciting. When taken to extremes, however, the inclination can emerge as "lust," another of the foibles outlined in his book.

Old sins die hard, though, and certain kinds crop up in certain markets.

"In a bearish market, you will see investor sloth, perhaps the most pervasive and dangerous sin," says Fertig.  "When investments are doing poorly, people tend to ignore their accounts until the market rebounds. When markets are ugly, another sin that emerges tends to be anger — to react very quickly either to buy or sell something."

Envy, greed and gluttony?  "Those tend to be more prevalent in a bull market," Fertig says. — Matt Golosinski

©2002 Kellogg School of Management, Northwestern University