Guzzo the Contrarian

I just finished reading Harry Markopolos’s book, No One Would Listen: A True Financial Thriller. As promised, let me give you my thoughts about it.

For those unfamiliar with American financial hero, Harry Markopolos, he’s the mathematician, derivatives quant, and former securities industry executive turned whistleblower, whom uncovered Bernie Madoff’s $60 billion Ponzi scheme in it’s infancy, eight-years before the financial crisis eventually forced Madoff to turn himself in to authorities.

On five separate occasions, Markopolos and his team provided irrefutable evidence of Madoff’s Ponzi scheme to the SEC, but he was unbelievably dismissed on each and every occasion. Markopolos even tried reporting evidence of Madoff’s Ponzi scheme to other agencies and the financial media, but unfortunately, not one of them would listen either.

Appropriately titled, No One Would Listen is his account of how he and his team initially discovered Madoff’s Ponzi scheme, their ongoing investigation and documentation of his scheme, and how his heroism and persistence to do the right thing negatively-affected his personal life.

Here’s a short video of him describing his own book.

While it goes without saying that Harry Markopolos is a hero, and that we all owe him a debt of gratitude for uncovering the worthlessness of the SEC, but his book was a difficult read for me towards the end.

The first half of No One Would Listen went along smoothly while Markopolos detailed just how he and his team uncovered Madoff’s Ponzi scheme, how they gathered the evidence, and the numerous difficulties they encountered while trying to report Madoff’s scheme to others. Again, no one would listen.

The story further reveals just how powerful the quest for alpha is in the financial industry, and how it causes money managers look the other way, do things they wouldn’t ordinarily do, or to dismiss the obvious.

But as I progressed into the second half of the book, it became repetitive and boring. I had difficulty finishing it. The first half of the book already sold me on the SEC’s incompetence, ineptitude and possible corruption. There was no need to continually rehash the same topic over and over.

It also seemed to me that the second half of the book was written as a marketing tool for his new whistleblower business. There’s no doubt that Mr. Markopolos is honest, ethical, and an expert at uncovering fraud. There is no one that deserves to profit more than Mr. Markopolos for uncovering the fraud that steals our life savings. His success is our success.

But – using a metaphor that Mr. Markopolos might use – please, don’t blow smoke up my ass and call it incense.

I’m convinced that Mr. Markopolos believes the SEC to be a useless organization, designed to use taxpayer dollars for the purposes of serving the industry instead of protecting the American investing public – and I agree with him. I like his in-your-face honesty and bluntness in describing the SEC, they deserve it.

But in the second half of the book, it seems as though he’s ingratiating himself to Mary Schapiro and her colleagues in order to gain a foothold into any potential whistleblower consultant work from the government. It also seems as though he was lying about his feelings on a few occasions in order to be more politically-correct. I prefer his tell-it-like-it-is approach.

I can’t fault him though. I’m sure that he needs the income. His Madoff whistleblower investigation cost him dearly and he should be rewarded for doing the right thing, and after suffering for so long. I can also understand that he needs to keep his friends in the financial industry in order to help him with his investigations, so I can see why he would bite his tongue.

But, while I support his endeavors to catch white-collar criminal scum, I’m not a potential client. I’m not interested in, nor responsible for, implementing corporate fraud prevention. His advice for preventing future fraud is priceless, but I don’t need to know the minute details. So, I found the second half of the book boring and a bit self-serving. It was hard to stay interested.

I would have been more interested in reading about how these events personally affected his wife, his children, his family or the others on his team. IMO, his biggest debt of gratitude should be toward his wife, who supported him both emotionally and financially throughout the whole ordeal. I would have liked to read about her side of the story.

Regardless of the book’s shortcomings, I would still recommend reading it.

After reading No One Would Listen, most rational individual investors should be convinced that it’s in their own best interests to manage their own money, and to invest their long-term savings into a diversified, low-cost index fund portfolio through a reputable and insured investment firm, like The Vanguard Group.

Harry Markopolos even describes the success of this strategy himself on page 42 in his book -

“..We would buy the entire index, all the stocks, and what we had discovered over time was that this strategy gave us about two-thirds of the market’s return with one-third the risk”..