Recently, a lady friend told us about an acquaintance of hers who had lost everything in the Bernard Madoff scandal. I replied that it was astounding to me that anyone would invest all of his financial assets with only one manager, particularly one who refused to discuss his methodology, and who acted also as stockbroker, fund administrator, and custodian. The lady replied, "What's a custodian?" Therein lies the root of the problem. Many people who have accumulated wealth in fields other than finance and who now require management of their financial assets rarely have sufficient understanding of either the vocabulary of Wall Street or the workings of the investment management business. About a decade ago, we were given a summary explanation of Madoff's strategy by one of his investors, and we quickly concluded it would be impossible for this method to produce consistently positive returns regardless of prevailing financial market conditions. For so many investors to have accepted it on faith seemed incomprehensible.
