Billionaires Behaving Badly And The Clients Who Enable Them: Liability And Love

When people found out a Bloomberg reporter chose convicted securities fraudster Martin Shkreli over her job and husband, the dominant reaction was shock.

After all, Shkreli on paper is a loser who squandered a reported $70 million fortune on rare hip-hop albums, trading cards and crippling legal fees. Why would any sensible person get involved with that?

She says his intrinsic charm won her over. And the fact that he probably has a few million dollars squirreled away here and there isn’t likely to hurt.

But even the Pharma Bro is small stakes on Wall Street. Look at Bill Gross, who lost a legitimate $1.3 billion in his latest divorce and is currently embroiled in a yet another nasty neighborhood dispute.

Gross has real assets and real master-of-the-universe attitude. When you’re on his side, it looks like intrinsic charm, exciting and energizing.

He also has a new “life partner” (his words) only a few years older than his daughter. She seems like an avid participant in his post-retirement antics.

These two stories differ largely in terms of scale. And because they’re both Wall Street stories, it’s worth reflecting on the ramifications here.

A Talent For Sales

Gross was an OK investor in his prime. I recall a lot of excuses about lagging his benchmarks but it never really mattered.

His real gift was converting the often-opaque fixed income universe into a narrative that could support a little drama.

While he bought roughly the same anonymous bonds as everyone else, he sold hopes and dreams to the people who ultimately turned PIMCO into a market linchpin. That’s how you become the Bond King.

It’s all about sales. And that’s exactly how Martin Shkreli came out of nowhere to make millions, capturing a heart or two along the way.

His girlfriend says she fell for him when he started explaining all the spreadsheets that show how he raised shareholder funds to put his drug companies together. She got to see his sales process.

Even from a distance, she bought in. Like Gross, Shkreli has always sold himself and access to his world first. The pharma stocks and the bonds are just the instruments that monetize that transaction.

All advisors are selling something. I know this goes against the fee-only gospel, but no matter how you’re compensated, you still need to be able to communicate why investors need to join up with you and not someone else.

Maybe your argument revolves around why your particular slice of the market is the best solution for a given client . . . not just suitable but objectively better than all alternatives.

Or maybe what you’re selling is simply no worse than other things out there. You aren’t making any claims for perfection, but at least you don’t mean any overt harm.

Pushing Poison

Either way, I hope you’re making the argument in good faith. I think that’s what separates Gross types from Shkreli and his cohorts.

When Gross was in the market, he whipped up a mythology around an asset class that was fundamentally boring but almost never causes a lot of pain. Even in bad years, he rarely lost shareholders much money.

While the stakes might have been high, the risks were lower than anything short of cash. All he did to get people to fall in love with him was make that end of the efficient frontier feel more human.

Shkreli, on the other hand, managed to take the human factor out of an industry that normally operates on something like a utility basis. Big Pharma is boring when done right.

Baby Biotech can be a thrill but it can also be an extremely bitter pill when the trials don’t go the right way. And then there are cash grabs like the one Shkreli promoted, where leverage and hype rarely add up to good long-term outcomes.

Good drugs improve lives and are priced accordingly. Bad drugs get people killed. They’re often illegal for a reason.

Shkreli could have sold anything. He can sell himself from prison. He got greedy and sold a narrative that bent the rules and ultimately provoked a lot of regulatory complaints.

There’s always poison on the market, too. People are chasing yields up the risk curve into territory where the credit agencies expect 9-11% of all issuers to default in the coming year.

I have a feeling we’re going to see a lot of these enhanced products implode. No matter how talented or charismatic the people who sold them were, it doesn’t matter.

The people who bought them are going to be angry. Maybe they didn’t understand what they were getting into. Or maybe they just wanted the sales pitch to be true.

Poison products kill careers. Shkreli is in his 30s. He’s never going to work directly with Wall Street again.

Gross, on the other hand, is never going to work again either. There’s nothing wrong with bonds. It’s just that his personal reputation is too stretched for anyone to take him seriously now.

His dirty divorce tricks made him look erratic. Doubling down to spite his neighbors does nothing to rehabilitate his image as a sensible guy who knows how the world works.

Maybe he’s having fun. He looks like a brat. These are his choices.

I wonder what Shkreli’s girlfriend would think if she met Bill Gross. Would she be equally bowled over by his enthusiasm and energy?

Which would be the better match for her in the long run? We’ll just have to see. I suspect she’ll find happiness somewhere else in any event.

After all, the former Mrs. Bill Gross has $1.3 billion to play with and she’s dating a Finnish hockey player.


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