More about Market Savviness
A month ago I blogged a bit about market savviness. For years, readers have noted my negative posture to the financial services industry, so in that blog I listed a single month’s headlines in the US that revealed the sordid affairs of a once trusted industry. I am quite certain some of you were surprised at the quality of the names and sizeable amounts involved in regulatory actions and private legal disputes.
I have been thinking about why the world of finance has become so dishonest. For starters, however, I have to state that I believe that a large majority of people in the industry are anything but crooks. They are fine and honorable folks who work diligently to serve their clients. The problem is primarily with the industry that employs them, an industry built squarely on the unsavory principle of conflict of interest. Eliminating these conflicts (i.e., the cause), instead of designing ever newer and increasingly sophisticated regulations (i.e., dealing with the effects) would quickly cure the problem and reduce the costs of government.
It is just that simple.
Of course, there are always reasons why problems are not solved. Typically, the reason is that what is a threat to us is an opportunity to others, those who hold the power over the decision-making process. I point you to the heads of JP Morgan and Goldman Sachs and their bought-and-paid-for lawmakers and regulators. Because those powerful organizations control the system, they manage to have us (the shareholders, creditors, customers and low-level employees) pay for their crimes against us.
The system is dysfunctional. Yes, but that is not what has been on my mind today. Today, I have been thinking about baseball and, in particular, the differences between the game of baseball as played in America versus Cuba, where I am presently enjoying the seasonal weather.
Fortunately, via Mexican TV, I was able to watch my Toronto Blue Jays in the championship series even though I did not like the result. My friends here were amused at the USA USA USA chants from the Kansas City Royals fans, knowing the nationalities of the players on both teams were almost alike. How silly would it be say for the fans of the Edmonton Oiler hockey team playing the Boston Bruins for the Stanley Cup to be shouting Canada Canada Canada! Would not happen.
That incident, however, bears little significance. To me, I saw the dynamics differently. I watched fans being entertained and entertaining themselves, both in Kansas City and in Toronto. The large-screen electronic displays dazzled them, and they laughed at the antics of mascots, booed the histrionics of the opposing manager, and screamed at the non-calls of the umpires. They painted their faces, removed their shirts to show jiggling beer-bellies, and danced in the aisles hysterically like zombies, all of them performers joining a street party – the one inside the stadium. “America’s pastime” is named The Big Show for good reason. It is not simply the game of baseball.
That famous line from Tom Hanks, “Crying. There is no crying in baseball!” Oh, but this is America.
This point only came to me while watching the televised games between the Cuban teams of Matanzas and Isla. The quality of the baseball was very good but more than anything, it was all about the sport and nothing of spectacle. A sparkling double play, a pick-off of a runner at first, a diving catch in the outfield, a timely hit to score an on-base runner to win the game. These were the only things that mattered to the highly appreciative fans. This was a game of sport. The drama involved only baseball players.
Then I thought that is what’s wrong with the market. Where is the gravitas?
Sadly, America’s financial services industry has turned the capital markets into an entertainment spectacle as well. Therein lies a problem because the business of wealth management is a serious matter, not entertaining theatre.
If you forego the study of market information, i.e., the economic results, the corporate fundamentals, the technical trading patterns and numerical data and the quantitative statistics, in favor of the entertaining talking heads, frolicking James Cramer (booyah!) or the inane Shark Tank, for example, you may be entertained by their song and dance, but also most likely a loser.
A few years ago, the editor-in-charge of a glossy investment magazine invited me to write about my portfolio management company. I told him that whatever I wrote would not be up to his entertainment standards, and I declined the offer. The capital market is clearly engaging, but it is mostly a serious grind for those who participate. Whereas the objective of entertainment is to appeal to and elicit emotion, our need as traders (yours and mine) is to suppress and control emotion. Enjoyment comes by reaching one’s goals.
Wealth management and entertainment are therefore in direct conflict. Well-informed traders understand that fact and deal with it.
This week, Cuba held their International Trade Fair. Ambassadors and trade commissioners joined with numerous trade exhibitors from many countries in 25 pavilions in a park setting about 15 miles outside Havana. Very impressive. My associates from Ecuador exhibited their consulting services for a sustainable economy (renewable energy, water, efficient building design). I am creating an investment fund in Bahamas linked to multiple investments made in Cuba by and through this Ecuadorian company. The opportunities and unfortunately the risks are high but, in baseball parlance, my associates appear to be hitting homeruns, which I will enjoy if, as and when they win their games.
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