Book review: Backstage Wall Street by Josh Brown

They say that everyone has one book in them: this is Josh Brown’s book. Backstage Wall Street is part autobiography, part financial advice, part a sarcastic, sober assessment of “Wall Street” for individual investors, part history, part financial product details, part uncovering of marketing schemes, part catharsis. The trademarked snarky humor is recognizable throughout the piece: I laughed out several times. Unlike many textbook-ish and stuffy finance investment books, this book is conversational, humble and non-assuming. At the same time, it does not always flow very well from chapter to chapter, in part because of the switch between anecdotes and theory. People looking for a fool-proof “system”, a Suze Orman diet vanilla coke read, or a data-heavy CFA curriculum-type handbook will be disappointed. This book might well be the equivalent of Monkey Business, a classic that covers the lives of junior investment bankers with the added bonus of useful advice.

Josh- widely known via his blog The Reformed Broker- had started out in the traditional brokerage world, something virtually unknown to young people: people calling you on the phone to sell you stocks, Bud Fox-style. The high-pressure sales environment, the churn, the conflicts are all described in painful detail. He even lays out the “straightline”: a widely used pitch to overcoming objections by the person at the other end of the line. But you would not buy a car designed by the salesman with the gaudy tie, should you buy “advice” from a telemarketer? Probably not in this day and age, hence the industry is on its way out. Josh is now an independent RIA whose interests are much better aligned with those of the clients.

The problem- with or without brokers calling you- is that most people are bad individual investors, and make suboptimal choices. This is similar to the issues faced with the wider retirement system: the decline of the defined benefit plans has “empowered” individuals with 401(k)s, and, for the most part, the experiment has not been a success. Josh lays out in detail the pricey marketing machinations employed by mutual funds and the brokers that sell them, and how the mutuals are getting replaced by ETFs. Josh also discusses the often grotesque ascent of the discount online brokerages, and the double-edged sword they are for non-professionals. He also covers the “research” controversy from the dot-com boom to the big settlement, and the general disservice it has been providing.

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