Last Updated Feb 3, 2011 10:55 AM EST
Wilpon has become famous for his association with Ponzi-schemer Bernie Madoff, and it is costing him plenty. The Mets owner is now hoping to sell a 25% stake in his beloved baseball team to shore up his shredded finances.
Wilpon was a Madoff victim, though not the kind to make your eyes water. The Mets owner didn't lose money with Madoff. His problem is that he made so much -- and spent it -- that now he cannot pay back the most ravaged Madoff victims, as is being demanded. A lawsuit against Wilpon seeks some $300 million.
I don't know how much the Mets owner knew about Madoff's illegal activities, if anything. What I do know is that he made some fundamentally flawed money decisions along the way, and now his bad choices are coming back to haunt him. Here, then, is what we ordinary folks can learn from Wilpon's woes:
Â· When you get a windfall put some of it away. The latest details in this gripping story show that Wilpon reaped investment gains of 15% to 18% each and every year for many years, and that he cashed in much of that windfall. The prudent thing would have been to set aside a good chunk, further diversifying and thinking ahead to when such outsized returns might stop -- not spend like the devil.
Â· Cheaters get caught eventually. People who lie, cheat or steal almost always get caught in the end. I don't know where Wilpon fits on this scoundrel's continuum. He may be guilty only of looking the other way. But he tied his fortune to a bad player, and when the bad player got caught it cost him dearly.
Â· Shortcuts don't work on the way to wealth. Wilpon should have known the spectacular run he enjoyed with Madoff would blow up -- one way or the other. It takes time and discipline to grow money safely. Big returns usually mean big risks.
Â· Never risk money that you know you'll need. Wilpon was investing money with Madoff that he needed to meet payroll, squeezing out every last dime of return. This strategy is fraught with risk. If you know you'll have a big tax bill in April or tuition bill next August the money belongs in bank CDs or Treasury securities -- not the stock market.
Â· Never take anything on faith when it comes to Wall Street and most points of purchase. The markets are overrun with self-interested intermediaries. You should thoroughly vet any financial adviser or investment. The newest thinking in financial education circles is that Job One is simply teaching folks that in any financial transaction the other people at the table are there for their benefit -- not yours.
Â· Don't live on nonrecurring income. In the law-abiding world, periods of unusually high returns are followed by periods of unusually low returns. If you spend the big gains on fixed expenses, as Wilpon seems to have done, you'll have to sell something when more meager returns strike.
Â· If it sounds too good to be true, then it probably is. Naturally. But it's worth saying one more time.
Photo courtesy Flickr user keithallison
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