In the fall of 2000 at the tail end of one of the greatest bull markets in the nation's history financial experts Dave Caruso and Bob Powell sat down to write a book that would explain, in plain English, the mysterious world of Wall Street.
Mr. Powell is currently the president of E3, a communication company, and is a former investment adviser and financial journalist. He's now also a published author. Nearly two years after starting the project, the authors have released "Decoding Wall Street." Recently, Powell shared his views on first-time investors, financial jargon, and more.
Your book is designed to help average Americans understand the financial world. What is the most difficult part of the Wall Street experience for laymen and first-time investors to understand?
It's very easy for inexperienced investors to get caught up in the news of the day, and they allow that to dictate how they invest. The first thing they should do instead is disregard the news of the day and not to use too much Wall Street speak focus on their own personal financial goals, their own time horizon and risk tolerance. Current events should be one of the last things people consider if they're actually serious about investing for the long term.
Can you talk a little bit about risk? It's one Wall Street term that people are using a lot these days.
One of the problems we often see is that most laymen tend to equate the word risk only with volatility. So the average investor who's not acquainted with different types and levels of risk will say to their broker, "I want to put my money in something that produces a high return and that's not risky." And a financial adviser then has to tell them that it's really impossible to avoid risk, and instead talk about the investor's risk tolerance what kind of risk they are averse to.
Just for fun, can you rattle off and then decode a sentence that's in pure Wall Street jargon?
Try this one: "The traditional spread between CPI and the long-term bond is three percentage points." It would be Greek to most people, but it's a common phrase that an adviser might utter to their client. Now when you decode it, you find out that CPI is consumer price index, essentially the code word for the rate of inflation, and the spread is the difference between the rate of inflation and the current yield of a bond that might mature in 30 years. New investors shouldn't be afraid to ask.
How well informed do you think the average investor really is?
This nation is facing a financial literacy crisis, and we won't know how bad things are until the baby boom generation starts to retire or find that they are unable to retire because they didn't save enough. Our parents' generation had defined-benefit pension plans, so it really didn't matter how much they knew about money because they were going to have a steady stream of income in retirement. As baby boomers, we are a generation that has been left to our own devices in terms of financial planning.
So do you feel investors are getting the information they need?
I don't think there's any shortage of information. There are plenty of sources out there, but the financial world hasn't done a good job of delivering the information in a fun and interesting way, and that's one of the real hopes of "Decoding Wall Street."
Overall, what's the niche for your book? Who will it benefit?
I think one of the appeals of the book is that it doesn't promise to help you handle a bear market or get rich quick. Instead I call it a get smart quick book. It's a resource that can really help investors understand all of the financial information that is floating around out there.