Real investing has moved away from Wall Street and into a new segment of America made of teams, people who connect business ideas through internet platforms, meet-ups, and group funding.
Prior to 2008 the stock market was a more refined investing resource. Today the markets seem to suffer from an abundance of passive advisers combined with passive clients who make deposits and hope for the best. It has become a depository bank to modern advisers and clients with reduced expectation of superior results. These investors are mostly alone with a team of only two, themselves and their adviser. They don’t really communicate with portfolio managers and there is no real team effort, no work to make decisions for opportunities. As my calculus professor used to say, “you have to crank the numbers to get the correct result!”
Yesterday I couldn’t help but notice the number of advisers patting each other on the back for making no decisions; the excuse is that you can’t time the market. They were of course touting the idea of buy and hold. One adviser even went on about how a client has at least 20 years to wait for market performance, as if age has anything to do with it. In 20 years, will the market be down 30% or even more, on the day this client wants/needs the money, and at the same time will eroding dollar value have cut buying power for an even greater loss? Who can tell? These advisers don’t know what will happen in 20 minutes and many don’t crank the numbers.
Investing isn’t in the HOPE of making a return, but instead it is in the EXPECTATION of making a return. Speculators buy high risk investments only with the hope of a winning result. They know there could be a complete loss but the risk, to them, is worth it. A real investor is more thoughtful about the risk, not willing to take a loss, and also expects to win. This kind of investor wants to participate in business and opportunity based on knowledge and cranking the numbers. If the investor is only marking time and not paying full attention to buying power, total return, quality of investments, and more, but simply holding on, then that investor is the same as a speculator but with an extended time horizon; takes a long time for the dice to land. Are you willing to speculate on your net worth in 20 years? There is a thing called diligence.
What has changed since the early 2000’s? Investment firms have found a way to get people to make deposits and leave them there, just like a bank, and let the firm trade with more leverage in their own separate accounts. More people have money to invest these days, so this platform makes sense to the firms. More people with more money equals more deposits. More people will also imply more complaints, especially in the news media, when the markets turn down and the need to blame someone rises. One thing that helps is the statement associated with buy and hold, “just hold on to your positions and stay invested, it will come back”. Law firms had their way with the big investment firms in the early 2000’s, the firms caved and became banks, advisers, and deposit oriented.
Market representatives have changed from Stockbrokers to Advisers. Stockbrokers stayed in business by being productive in both up and down markets, being creative, and cranking the numbers, and a need to perform for their clients. The team in investing used to be groups of investment bankers and stockbrokers pooling their knowledge. They represented opportunities for investment and worked to know about companies and how they were managed, where the new products and services were being developed, what the best startup opportunities were, and focused on making good to great returns. They were in the business of winning. Advisers have some of these abilities, but many just sit on the money and if you ask them what is in the portfolio, they are likely to email you a fund report or someone else’s managed list you may be participating in. They are in the business of holding your hand, keeping you calm, and keeping your deposit in place. This is not a complaint. There is a place for this kind of service and many people who just can’t be invested without it. This creates a more passive environment with less downside, and of course reduced upside as well, that’s the point, to flatten the market swings to appease depositors.
But I am speaking now to business professionals who want the correct result from cranking the numbers. So where have all the smart people who would have been investment bankers and stockbrokers gone to? Where have the clients gone that would have desired winning investments?
I contend that the smartest and most capable people used to be on Wall Street and working as investment bankers and stockbrokers. The US Navy believed so too, and they hired many from Wall Street in order to find good leaders to develop their bases into the Pacific during WWII. They needed people who could really crank the numbers, quickly, efficiently, and with a vision to win.
Today I see most of the leadership, that would have been in brokerage firms, now in startup companies for high tech, business development for engineering and construction, and many front line smart people are now cranking the numbers in real estate partnering groups, geospatial engineering and mapping, high tech services, outsourced management, medical fields, and more. They have moved on to better opportunities because that is what they enjoy, unlimited environments. There is a large segment of the population that enjoys a high challenge, rewards from opportunity, competitive fields, new tech, and cutting edge. In many of these places now exist some of the very best investment opportunities for “cranking” investors. Instead of Wall Street they now create their own investment teams, build their own businesses, and buy into the things they can enjoy having an impact on. Our strongest professionals are much more independent and diversified than ever, they trade privately and independently without the noise of the markets.
We have moved from corporate investment opportunity made available through Wall Street and investment firms, to internet-based, team oriented, private groups that are making things happen better than ever before. There has been a great increase in true capitalism and entrepreneurial spirit. Corporations depended on the productivity of workers, management, middle management, and investment bankers to bring larger opportunities to investors. Modern, independent teams provide efficiency in opportunity, outsourcing labor and management, leveraging services and technology, and better identifying the best talent to solve problems. And many individuals involved are the investors rather than just employees. Where corporations had the advantage in business opportunity, entrepreneurial teams keep on cranking the numbers.