What was your earliest impression of the investment industry? Can you remember it? I think I was on the living room floor, a young man amused at the sight of my uncle. He was across the room, contorting his face over a newspaper, which lay draped over a cheese and sausage plate on a TV dinner tray. He was hovering over the small print of the financial section with clownish indignation and grumbling about “all the luck” and “what are the chances of that!” I grew more curious: What's he looking at? And then he said the name of a department store I knew, and something clicked.
Until that moment, I didn't know an investment industry existed, so when I realized what my uncle was doing — jestingly “feeling the pain” of a multimillion- dollar company — my mind quickly formed a string of assumptions. From this one scene, I gathered that I could pick a company I liked — Coca-Cola or, better yet, Disney — and I could use my money to stand in their corner. It seemed to be very much about taste, about the dignity of putting money down on your way of seeing things, and, most immediately, it was about the thrill of the educated guess.
LIKE YOUR EARLY MEMORIES?
The way a kid conceptualizes the investment industry, of course, is relevant if you put any stock in behavioral economics, with its gadfly-like insistence on the importance of human nature in the study of markets. A kid's mind processes investor behavior by simply discarding the information it can't process, in favor of the information it can. But even an investor of Warren Buffett's stature can be accused of thinking like a child when he advises that people
invest in what they know and shows a preference for a classic household name like Heinz over Facebook and other tech stocks. This, presumably, tells us something about markets that we can't learn from a balance sheet.
My uncle's stock had taken an unexpected dip, and he was shouting, but what my kid-brain noticed was that the man was enjoying himself. Why else would he be holding onto that wry half-smile as he shouted like a play-actor so his wife could hear in the next room? Since then, of course, the inflation nightmare of the 1970s and '80s happened, and the collapse of 2008 happened, among many, many other things; and now, I'd wager to say, we're enjoying ourselves less.
Some may argue that certain enclaves of the population are still having fun, buzzing on the thrill of eking out some obscure, undiscovered alpha. But I suspect the “returns” are diminishing even there, as the opportunistic investment game devolves into a technological arms race.
A MORE HOSPITABLE MARKET
Am I nostalgic for a return to the golden age of equity ownership when a trade was a trade and a share of a company was a matter of personal pride? Actually, no. Advances in technology, the refinement of portfolio theory, and the historic development of mutual fund and alternatives investing have all made the market a more hospitable place for individual investors. I do think, however, that the element of raw instinct that we equate with post-war investing and, in general, with the mind of a child, is something that we need more of today — if only to improve our grasp of the resources we now have at our fingertips.
My uncle's charade that afternoon was a measure of his personal identification with the company whose stock he owned. Is this level of connection still possible in the age of mutual funds and exchange-traded funds? Can investors turn to advisers and fund providers and find genuine alliances? Will they find people and organizations that awaken their sense of pride in the money they have and the impact their financial choices have on the market? I sure hope so.
Mike West is senior partner and chief executive of BPV Capital Management.
