How Are You Doing This Month? - 06/28/10

This question is short-sighted, bad for our country, bad for our investment performance and bad for our lives.

 

"There was this kid I grew up with; he was younger than me. Sorta looked up to me, you know. We did our first work together, worked our way out of the street. Things were good; we made the most of it. During Prohibition, we ran molasses into Canada, made a fortune. Your father, too. As much as anyone, I loved him and trusted him. Later on he had an idea to build a city out of a desert stopover for GI's on the way to the West Coast. That kid's name was Moe Greene, and the city he invented was Las Vegas. This was a great man, a man of vision and guts. And there isn't even a plaque, or a signpost or a statue of him in that town! Someone put a bullet through his eye. No one knows who gave the order. When I heard it, I wasn't angry; I knew Moe, I knew he was headstrong, talking loud, saying stupid things. So when he turned up dead, I let it go. And I said to myself, this is the business we've chosen; I didn't ask who gave the order, because it had nothing to do with business!"

-- Hyman Roth (Lee Strasberg), The Godfather: Part II

This morning's opening missive is not a great revelation, but it is a statement I wanted to make -- namely, that we all suffer from a remarkable degree of impatience. We live in a world of sound bites and the sense of instant gratification permeates every corner of our society.

In my chosen field of money management, the expression "long term" is an endangered species, similar to the flightless Raphus cucullatus (the "Dodo Bird").

Consider public policy, executive compensation, the manner in which we communicate and the investment business.

  • Public policy: Hard, thoughtful political decisions are discarded in favor of short-term and popular decisions. In the end, these decisions are usually more costly.

     

  • Executive compensation: Many of our business and investment managers have gotten away with a "heads I win, tails you lose" mentality over the past decade, and it nearly destroyed our financial system.

     

  • Communication: In our social lives and in the way we communicate, convenience, expediency and haste rule the day. Speed dating and texting have replaced romance and conversation. Even texts are abbreviated as we now tweet. (Literacy and SAT English scores must be on the descent!)

    Investment business: Demands on short-term investment performance have intensified and have never been greater. Short-term decision making and trading (what I describe as worshiping at the altar of momentum) has increasingly trumped intelligent, analytical and thoughtful long-term investing.

In the business media, the staccato pace of CNBC's prime time "Fast Money" and "Mad Money" shows make them so popular, as do their Fast Messages and Lightning Rounds. ("Slow Money" and "Sane Money" would not make money for CNBC in today's world.)

Investors in mutual and hedge funds have become ever more conscious of short-term performance. As a result, few money managers have the luxury of "forever" as Warren Buffett's Berkshire Hathaway (BRK.B) investor base grants him. Indeed our investors' capital is now almost "call" money, as multiyear hedge fund lockups have morphed into monthly and quarterly redemption privileges for their investors.

"Slow down, you move too fast.
You got to make the morning last.
Just kicking down the cobble stones.
Looking for fun and feelin' groovy."

-- Simon and Garfunkel, "The 59th Street Bridge Song (Feelin' Groovy)"

In the final analysis, the question -- how are you doing this month? -- is short-sighted and is bad for our country, our investment performance and our lives (and can put us in a pickle).

But, as Hyman Roth once said, "this is the business we've chosen."