On demoralization...
What does it mean to be a fiduciary? How do I best serve my clients? Has the market become a giant game of financial musical chairs and are we down to the last few notes.. I am not demoralized, but as someone responsible for $2.6 billion of other people's money, I do lay in bed at night and worry.
I worry because, after fourteen years in the business, I see the stock market turning into some kind of video game played by day traders who know little or nothing about the securities that they are buying and selling. I worry because so many investors have bought into the dogma that stocks always go up, that all dips are buying opportunities and that "investing is easy...all you have to do is buy great companies". To date, such arrogance, ignorance and naivete has been handsomely rewarded. Yet, I know it is not that easy. In my career, I have bought excellent companies, with improving fundamentals, at eight times earnings and sixty cents on the dollar of book value, and watched them promptly trade still lower because nobody cared. I remember sitting on a Wall Street trading desk in October 1997, enjoying the market collapse because I was too poor to have any real dollars at risk--enjoying it, that is, until I saw the panic, horror and pain that was being inflicted on people who did have money at risk, who saw their livelihoods threatened and who were wondering how to explain the day's events to their families. I remember speaking to a well know portfolio manager who, while cursing under his breath, swore that he would never own another OTC stock--ever--because of "the illiquidity and the thieving market makers". How psychology has changed...
There is a very bright, very hard working, young, sell-side analyst that I have known for probably six or seven years. He is one of the level-headed, honest, smart, straight-shooters that gives you hope for the Street. Well, he called me this week to tell me about a meeting he had with a group of prominent portfolio managers (affiliated with name brand firms). Several of these PM's had chastised him for spending too much time worrying about "accounting nuances and corporate balance sheets". The argument continued that "nobody cares about the accounting, all that matters is the earnings comparison--that's what makes you money or losses you money". My first reaction was, of course, to proclaim these opinions to be "total bull feces". But when I thought about it, I realized that these PM's were running $30 billion or more, and that their opinion, right or wrong, mattered a whole lot more than mine. It also occurred to me that their behavior, which to my eye appears hideously dangerous, is a rational and effective response to the current investment climate. If, during this snapshot in time, the company's story matters more then its fundamentals, then managers who grasp this concept, and exploit it, will outperform those whose heads remain buried in the sand of another era.
I am saddened because I see my industry preaching the gospel of long-term investing to the retail public while cynically employing extremely risky, short-term oriented practices to deliver immediate gratification. I am scared because I know that the retail public has little or no appreciation for the risks that they are undertaking with their capital and thus with their economic future. We have all witnessed a horrific event--the economic self-immolation of Indonesia, South Korea, Thailand, Malayasia, Russia and even mighty Japan. Stock markets have collapsed by fifty, seventy even ninety percent; the life savings of a typical Indonesian, in dollars terms, has simply disappeared over night; and Japan, previously the world's economic juggernaut, stands at the precipice of economic collapse. Despite the evidence of what could, and has, happened, U.S. investors continue to celebrate our aging bull market, pouring money into silly-season stocks like Yahoo and Amazon etc. Maybe the U.S. economy is an impregnable fortress and hopefully the storm will pass us by. However, I see so much self-absorbed arrogance, that I cannot believe that we will escape totally unscathed.
Well, enough of my depressing ramblings..
Best regards to all,
Gregg |
