. . . What if the next time you found yourself saying, “I can’t afford _X_,” you stopped and said instead, “I choose not to afford_X_, because I value _Y_ more … ?”
. . . What if the next time you said, “I don’t have time for _X_,” you said instead, “I choose not to make time for _X_, because _Y_ is more important?”
What are your X’s and Y’s?
How do your priorities align with your values?
Where do you find yourself nodding in agreement?
Where are you getting defensive?
What if you accepted full control over how you spend your resources and your time?
What if you radically owned your own choices, past to present to future?
What if you realized that it has always been up to you, and it still is?
“And so God made the world and stocks and bonds.” —Geoff Dodd, my hilarious and competent Series 7 instructor.
What is Wall Street? What’s the difference between a stock and a bond? Why do we even have a stock market?
You are not alone if you have made it to adulthood and you don’t know these things. I’m going to help you out via an eight-minute read, hopefully in a way that sticks.
A lot of smart people, even with advanced degrees in law or medicine, get fuzzy brained on this stuff.
It’s never formally taught to anyone outside of business, and even people with masters degrees in business need further studying to pass a licensing exam to work in the financial markets.
In fact, much of the media that reports on this stuff doesn’t really understand it. I know because I’ve been a financial journalist and then, as an analyst, have helped journalists at financial publications get up to speed.
You probably know that there is a such thing as a stock market and that you’re supposed to be involved in it to win at life, but maybe then it kind of falls apart for you. And yet, everything about Wall Street is so ubiquitous that nobody is allowed to admit that they don’t know anything about it.
If that last paragraph resonates, then this post is for you. Seriously, no worries.
Here’s a Q&A based on real conversations with friends over the years.
What is Wall Street?
Wall Street is literally a street in the lower Manhattan section of New York city. The New York Stock Exchange is based there.
Wall Street is figuratively a term used to describe the ecosystem of high finance. That includes the broader financial community, hedge funds and mutual funds, brokerages, investment banks, and everything having to do with the capital markets.
In late 2011, when the Occupy Wall Street movement took up space at a lower Manhattan park about two blocks off of the literal Wall Street, a lot of people who work on figurative Wall Street kind of, well, laughed. Because everyone knows the real money is managed out of midtown. And besides, it wasn’t stocks that caused the global financial crisis of 2007-2009. It was bonds. Duh.
What are the capital markets?
A bright and creative English major asked me this once. Great question!
So, capital is a fancy word for money. In general, you wouldn’t use it to describe the cash in your pocket but rather amounts so large that it would be silly to call it “money” anymore, and so we call it “capital.” Capital is synonymous with large sums of wealth or assets.
Capital is fuel for growth. A great idea that would enrich people’s lives at scale would go nowhere without capital.
When someone says, “I need startup capital,” they are referring to the money they need to get their business running — to buy equipment or hire people. When an individual says he hopes to “capitalize” on something, in a literal sense, he means he wants to make money off of it or use it to his advantage in some way. When an investment bank says it wants to capitalize something, it means to fund it, or provide capital for it.
The term capital markets primarily refers to the stock and bond markets.
What are the stock and bond markets?
The best way to answer this question is to first answer the question that you are not asking. Knowing the purpose of a thing can help you to better understand it. Ask me what’s the purpose.
Ok. What is the point of the stock and bond markets?
Yay!
Every business is a glorified lemonade stand. So let’s start there.
Off to a good start. (Photo credit: Rebecca Schley, Flickr, Creative Commons license)
You open your first lemonade stand. It’s popular, people love it. You want to expand. All businesses need money to grow. You calculate that you’ll need $70,000 to open a physical store on Main Street.
To generate this $70,000, you could use your own money. But maybe you don’t have $70,000 laying around (because if you did you might be smarter than going into the lemonade business?) Anyway, to raise the money, you could go to a local retail bank* or credit union.
Ok, so you go to the bank and the friendly loan officer gives you a bank loan and you use it to open your lemonade stand.
Now let’s say your lemonade stand is awesome and you decide to expand nationwide. What do you do next**?
If you need a tens of millions of dollars, you might raise what’s called venture capital. Venture capital, or VC money, comes from wealthy people called venture capitalists who run their own companies, aka VC firms, that take big risks on startups in hopes of making more money later.
But what if you wanted to raise hundreds of millions of dollars?
Well, then you would turn to the capital markets: Wall Street.
Organizing funding so that companies can grow is exactly what Wall Street is for***.
If you need hundreds of millions of dollars to make your dream a reality, no retail bank is going to lend it to you. To raise large sums, you need an investment bank, the ten largest of which are JPMorgan Chase, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley, Citigroup, Deutsche Bank, Credit Suisse, Barclays, UBS and Wells Fargo.
In sum, there are two primary ways to raise a lot of money:
If you sell stocks, then you are selling equity. Another way to say this is that you are raising equity, that is, selling shares of ownership of your company. Others buy a little piece of your company, or a share of your company, and you get the shareholders’ money. In return, you no longer own 100% of your business. When a corporation sells stock to the public for the first time, that is known as an initial public offering, or IPO.
What is cool about raising money by selling stock in your company is that you never have to pay that money back. What sucks is that your profit forevermore belongs to the shareholders in proportion to their ownership percentage. The only way to get back ownership is to buy back your own stock. Once you sell equity, it is sold, no matter how big your company gets.
In sum: Stocks are equity and equity means ownership. The holder of the stock is an owner of the company.
If you sell bonds, then you are selling debt. In other words, you are borrowing money that you eventually have to pay back with interest. On the other hand, the ownership structure is maintained. After bond holders are paid back with interest, they have no claim on the company. Your company could grow to the moon and all that profit is yours so long as you own 100%.
In sum: Bonds are borrowing and borrowing means debt. The holder of the bond is a lender to the company.
That’s the point of view of the company that needs capital.
On the flip side of all that is the investor — the person who lends or gives money to the company that needs it. If you’re reading this blog, you are probably an investor in some form. Investors are anyone with an individual retirement account, anyone counting on a pension, anyone who puts money into a 401(k), and all the people on up the money management chain who guide an individual’s money into a proper portfolio of investments.
Wall Street’s basic function is to allow money to flow to where it is most needed. This flow makes modern life possible.
In the case of bonds, entities borrow from future earnings to make that future better in some way. In the case of stocks, entities democratize their future earnings by allowing people to take a risk and invest, and hopefully gain wealth without expending effort.
Ok, so the point is to get money from the people who want to invest and give it to the people who need it. I still don’t get the New York Stock Exchange. What are the stock and bond markets?
Ok so let’s say Jill buys shares in Tom’s lemonade stand company. Jill buys $2,000 worth of stock in Tom’s company. Tom got his money, good for him. Jill now gets a share of Tom’s profits, no matter how small. Is Jill stuck with that investment for life? No. Jill can turn around and sell her shares to someone else. But she needs a market to do that.
After a corporation (or government entity) has raised money by selling stocks or bonds, the stock holders and bond holders can sell their holdings to other people. This is called trading**** and it happens in what’s known as the secondary market.
When you think of the stock market, you are thinking about the secondary market, which is the trading, or buying and selling, of shares of corporations. The initial purpose of raising money for the company has been met, and now the shares trade. The value at which shares trade depends on how buyers and sellers view that company’s future prospects. By value, I mean stock price.
As opposed to bonds, stocks are the easiest to understand and the easiest for media to report on. That’s because the stock exchanges are highly regulated and public. Some of the largest are the New York Stock Exchange (NYSE), the NASDAQ, the London Stock Exchange Group (LSE), and the Japan Exchange Group (JPX). The stock markets have a definite opening time each morning, a closing time, and an after-markets trading time.
Stocks are cool because you can know a given stock price at any time. Tesla shares closed at $222.93 today, which Google told me, here.
The stock market is bold, beautiful and open. There’s glamour to it. The media loves it. Many people understand it.
The bond market is more, uh, dark. And confusing. And it’s way way way bigger than the equity market. Remember the subprime lending crisis that caused the Great Recession of 2007-2009? Yeah, that happened in the bond market.
The mainstream press rarely writes about the bond market. It’s a snoozer of a topic, the prices aren’t public, and bonds are way confusing.
If you want to check the price of a bond, you have to call your broker. And he’d find out the price by calling someone else. I think. And check his Bloomberg screen. Or something.
If you specialize in debt structures or bonds in this lifetime, you can make a killing.
Is there anything else I should know?
There’s a lot more to all this, but you now know enough to make people avoid you at parties.
Know that the word security refers to any type of financial instrument, including stocks, bonds, some types of insurance, and options. And that there are lots of different types of securities to invest in — basically products created by the financial world.
Also, know that I used the term bonds loosely here and that other debt instruments include notes and bills.
Finally, I used corporations as an example here. Know that beyond corporations, governments are huge participants in the debt markets. As of this writing, the US government has $19,443,266,164,413.41 in debt outstanding. In English, that’s nineteen trillion, four-hundred-and-forty-three billion, two-hundred-and-sixty-six-million, one-hundred-and-sixty-four thousand, four hundred and thirteen dollars and forty one cents. All of that debt is held by individuals, institutions and other governments in the form of bonds, notes and bills.
Commodities are super fun and also have markets. Commodities include hogs, corn, currencies, wheat, oil, rice and so on. I’ve toured the Chicago Board of Trade in Chicago where everything is traded from corn to hogs to cattle, done in trading pits of men yelling at each other. Incredible to watch.
Footnotes:
*You could also do a Kickstarter or open a GoFundMe account to collect from people. I believe that it’s a bit disingenuous to ask other people to fund your dream without giving those people a return, but there’s a market for it and it seems to work for some. Here’s my unofficial simplified hierarchy of raising capital, by amount needed:
family and friends
kickstarter / crowd funding
community / retail / commercial bank loan
venture capital series A round
venture capital series B round
venture capital series C-F round
private equity raise
Initial Public Offering (IPO) / Debt offering
Secondary offering / Debt offering / Convert / Line of Credit, etc.
***In May 2015, I wrote to investor clients a partially tongue-in-cheek e-mail about concerns about Tesla’s cash burn. My e-mail was later quoted by Bloomberg News. Notice how much Wall Street looks at cash, capital, and access to capital. Excerpt from my e-mail:
I saw some hand-wringing this morning in other’s published research about Tesla’s cash burn. I think this is missing the point – the current cash burn rate is not a solid-set-in-stone line. Tesla has the option of drawing down further on its warehouse line and opening new lines to recoup the cash off of its leased vehicles. Also, deliveries in Q4 will be roughly 2x what they were in Q1, whereas expenses will only grow ~15% in that amount of time. And, in Q1, Tesla’s SG&A (recurring cash burn) actually ticked down sequentially, so they are to be commended for that – good cost control in Q1.
Finally, it turns out that Wall Street has some great solutions for companies in need of capital. In fact, funding rapid growth and sea change through companies such as Tesla is exactly what Wall Street is for. Worst case, a straight-up equity raise (and Tesla likely has even more favorable options) at the current level would raise more than $1b with about 3% dilution. As far as bear arguments go, the cash burn one misses the mark.
****I have yet to meet a stock trader I didn’t like. Traders are the blue collar Wall Street folks — usually pretty colorful and inappropriate. They’re forced to live in the moment as they enact trades and try to get the best price for clients. It’s almost like playing a sport.
Let’s take a second to analyze the division of labor within a family unit.
There are three main jobs when it comes to running house and home with kids.
Sales: Full-time work that pays the bills and brings in income for necessities, including food, healthcare and shelter. Basically, this is like the “sales” function as it is the outward facing function that brings in the revenue.
Operations: Full time child care includes watching and caring for the children, managing their education and their welfare. This is the primary caregiver function, a combination of human resources and operations.
Back office: Home maintenance, bill paying, grocery shopping, and house keeping. This includes janitorial work, some operations-type activities, and back office administration.
I’ve always been a working mom, since my newborn was five days old. And in doing so, I’ve analyzed the family unit and this is my conclusion:
The stay-at-home parents of young children do not have time to clean the house properly. They’re too busy taking care of the kids.
I know this because I have always outsourced week day child care to au pairs. It’s my job to manage the child care and decide what to outsource. Here is what I have outsourced to au pairs during my work hours:
administering to the child’s every need
dressing the child, doing her hair
entertaining the child
preventing the child from destroying our house
making sure the child does not kill or gravely injure herself
washing the child’s laundry
neatening up the child’s room
preparing two healthy meals per day for the child and cleaning up after those meals
taking the child to the park, playground, zoo, aquarium, public library, and museums
(censored: bathroom related)
reading to the child
The au pair also helps keeps the kitchen neat, as we all do, and must find time in that 9-hour workday to feed herself.
Nowhere in that full-time work schedule is there time to vacuum underneath the sofa, mop the floors, toothbrush the grout, or scrub the toilets. And yet, I have stay-at-home-mom friends who do all that plus all the cleaning.
Somewhere along the line, child care and housework became synonymous and inseparable. They are not.
If you’re a family with children, presumably part of your raison d’être is the successful raising of children. So if you’re the working parent expecting the stay at home parent to do all of the cleaning, consider this: Just as Google doesn’t task its engineers with janitorial duties, the stay at home parent’s primary task is not cleaning. Similarly, with factory work, the workers who operate the machines or make the widgets are not the same as the ones who clean.
In sum, housework is a third task and it is separate from child care.
You either have to outsource this third and part-time task — I highly recommend giving up something else in some other area of life to do this — or come up with a separate plan for how both parents* will split that duty.
The house work plan — insourced or outsourced — is separate from the child care plan.
(*This analogy is a two-parent family unit analogy, with apologies to the single parents out there slaying it every day and handling the sales, operations and human resources functions all on their own. Hats off to you.)
Something fascinating is going on with negative interest rate policy: It’s having the opposite of its intended effect.
A negative interest rate is a simple concept — it means that money in a bank account shrinks over time, rather than grows. It takes the time value of money and heightens it by penalizing saving.
The concept started in 2014 in Europe and since, Japan has also followed suit. Negative interest rates are applied to reserves held by commercial banks, meaning that no small time individual is going to lose the nominal value of the money in his bank account. The policy trickles out to create negative yields on government bonds — meaning that if you put 100 units of currency into a bond, you won’t get all 100 back at maturity — and onto large institutional savers — meaning that entities with large sums of money sometimes have to pay the bank to store their money.
The US does not have negative interest rates, but because other countries do, the US has to hold interest rates low to keep the dollar competitive. (A strong local currency is not always a good thing because it makes your exports more expensive.) See the chart below? If you know what you’re looking at, that interest rate chart tells you nearly everything you need to know about access to wealth, success, income inequality, and the post-Great Recession economic recovery.
How does this affect you? Well, it means that you aren’t going to get a lot of return on your savings account any time soon. It means that home values are going to continue to rise quickly in economic hot beds, as access to capital remains cheap. And, in theory, it should make you want to invest your money in stocks, in new business ventures, or in consumption of goods.
But, does it?
Low interest rates seem to have worked. But negative interest rates are still untested.
The purpose of negative interest rates is to encourage financial activity, lending, and inflation. A negative interest rate is a “use it or lose it” policy — it encourages commercial banks to lend money rather than to save it. It is supposed to create a mentality similar to your “use it or lose it” vacation leave or flex account — when you know that your asset is going to be lost over time, you’re encouraged to use it now. And this mentality is meant to trickle out to consumers.
But here’s the problem: Negative interest rates are bad psychology. It communicates uncertainty and thus, encourages individuals to act cautiously and to save more money. Instead of creating a free-for-all of money flow, people are hunkering down, spending less, and saving more.
The Wall Street Journal today quotes several people who are hunkering down and cites statistics on reduced consumption after negative interest rate policies were implemented. People are feeling that they need to save more today to build up wealth. (Not mentioned: I guess these folks don’t want to take their chances with the stock market.)
The interest rate on three-month US treasuries. (Source: barchart.com)
And this makes perfect psychological sense. We know that when people feel richer, they are more likely to spend on consumption, more likely to take risks. Negative interest rates are meant to communicate that it is riskier to leave your money in savings than to spend or invest it now — that’s the rational outcome.
But that’s not how people think. People are not perfectly rational with their money. Individuals are certainly not trained to consider inflation risk.
I wonder if the problem is not so much with negative interest rate policy as it is with how it’s communicated. Because here’s what it means to the financially enlightened: It is still probably a good time to take risks or to start a business. The US is not likely to grow interest rates while trading partners are stuck at negative.
Here is also what it says to me: The ‘experts’ are acting on theory, trying their best, but never really fully sure of what they’re doing and not good at measuring unintended consequences. Economic policy is experimental.
What do you make of these platitudes in the workplace?
It gets confusing when we start to conflate being with doing. They are different things, but each informs the other.
“Nobody wants to see your true self,” Adam Grant writes in the New York Times. “We all have thoughts and feelings that we believe are fundamental to our lives, but that are better left unspoken.” He concludes that people want you to be sincere, not necessarily, yourself.
Authenticity and vulnerability guru Brené Brown counters, via LinkedIn, “We are sick of the hustle and the bullshit and the fakery. We are tired of trying to live up to impossible ideals, and we’re no longer willing to orphan important parts of ourselves to achieve success. Most of us will take messy and real over pretending and people-pleasing every time.”
Here’s what I think: They’re both right.
“Be yourself” is flawed because it is advice — and all advice is flawed. (Remember that the next time your mother-in-law gives you some and just smile.)
We are splitting hairs on syntax. The definitions of sincere and authentic are quite similar — they both mean some form of genuine. We are better off when we are genuine people.
But what’s genuine? What is the self anyway? We each have a multitude of feelings and skills and talents to call upon to serve us in any situation.
This matters because many of us in the modern economy are in the relationship business, in some form or another. I’ve found that the geekiest technology companies have some of the most authentic employees, simply because they know that to live is to explore and discover. Meanwhile, professional services such as law and medicine, people who are supposed to uphold the title of “expert,” have employees who find it harder to be authentic, where relationships seem more scripted and formulaic. No matter where you work, authenticity can constantly be cultivated.
Your self is constantly changing. Think back 10 years on some of the stupid shit you said. You’re different now, right? And thank God for that! You have to know your self to fully be yourself, and knowing is a life long journey of discovery.
To be fully alive as a human is to constantly reinvent, to explore, to act in new ways that challenge us and grow us.
I’ve switched careers a few times now. From studying and working in computer science in college, migrating over to business journalism and reporting for newspapers and wire services, then climbing the learning curve for Wall Street stock analysis, and I’m now an executive and high-performance professional coach.
Each role required a different way of acting, and in some times, a different way of being in the world.
“Act your way into a new way of thinking and being,” Herminia Ibarra writes in her book, Working Identity. “You cannot discover yourself by introspection.”
(Emphasis mine.)
You discover yourself by doing. Do first. Then be. Then do authentically.
Wall Street analysts have to market themselves and their research. This means you waltz into a hedge fund office with your laptop with all your spreadsheets, your files, your business cards, your iPad, and sit down in a board room (usually overlooking an amazing view) to meet with fund analysts and managers, talking about your research and answering tough questions.
My work was high quality, but what did it mean to be myself in that environment? The culture was new. Seven years ago, Wall Street was a totally new environment to me. I grew up a working class Jersey girl — was never rich — and was most recently a business reporter making $50,000 a year.
But like anything, you adapt, stay curious, and have fun. I made sure I looked the part: $1,000 designer outfit, nice hosiery, stylish flats, hair pressed and neat. Before flying away for a trip, I’d have to clean the dirt out from under my fingernails from my most recent hike.
Wall Street analysts also have to mingle with industry for research and network with contacts. I attended so many industry conferences — from drones, to electronic warfare, to agricultural equipment, to electric vehicles, to solar power, to geospatial intelligence, to guns. Let’s just say you don’t wear the same outfit when researching the firearms industry as you do when visiting with your hedgie client. You don’t talk about the same topics, unless, of course, they are considering investing in guns.
Same when covering Tesla. I *got* Elon Musk and his crew, like understood them (I felt) in a deeper way when this light bulb went off: “Oh, they’re just like the geeks I studied physics with in college.” When analyzing $TSLA, I called deeply upon my innergeek to understand the company. When analyzing guns and defense, I called upon my inner freedom badass. When meeting with investor clients, I called upon my inner-loving-reporter-researcher-tired-of-being-broke-self. With my child, I am simply, “Mama,” and that is a world unto itself.
We are all many selves.
Ok. So you are reading this blog and you are a multi-talented individual. What does it mean to be yourself? And should you?
Here’s what I learned: We are always discovering ourselves. Reinvention is the name of the game. And we are at our personal best when we can connect successfully with others.
That’s all authenticity really is — it is connecting with people as best as you can in the moment. You get there through cultivating your own sense of curiosity and awareness, about yourself and about other people. Authenticity isn’t about your funky socks, or your annoying habit that you defend by saying, ‘that’s just who I am! snort!’, or the streak of pink you just put in your hair (it’s lovely, by the way, by all means, express your style). Authenticity is other focused.
“Most people associate authenticity with being true to oneself — or “walking the talk.” But there’s a problem with that association; it focuses on how you feel about yourself. Authenticity is actually a relational behavior, not a self-centered one. Meaning that to be truly authentic, you must not only be comfortable with yourself, but must also comfortably connect with others,” says the Harvard Business Review.
On the Street, the more I admitted to my imperfections, the more I courageously said, “I don’t know,” the more I dialed up the level of service and dialed down any last traces of bullshit, the more clients I gained and the more my research revenue grew. I certainly didn’t do this in direct service to myself, because sometimes, it was vulnerable and embarrassing and I had no idea whether I’d lose the client. I did it because it was the best way to serve the client, even if that meant admitting that perhaps I wasn’t the best person to serve the client in that moment.
True story: Once, a hedge fund client in San Francisco called and said, “This stock is down 7%. You said it would go up. Why?”
And I said, “Because Bob, I’m really bad at this job.”
I was joking, but only a little — several of my stock predictions had gone against me in that time period.
Later, one of our stock traders pinged me, “What’d you say to Bob!? He just paid us $5,000 in commissions.” And I messaged back, in amazement, “I just told him that I was really bad at picking stocks.”
Truth and trust are still in short supply in this world. You can exhibit both while still being on a journey of self-discovery and acting different roles.
If you can offer others a healthy dose of humility and vulnerability, then you’ll form deeper connections.
But you can’t use “be yourself” to justify being an asshole. That’s just duh.
(*Name changed)
“Time. We kill time, spend time, lose time, make time, beat time, take time, waste time; but we virtually never consider time, much less understand it.” –Richard Berendzen, physicist, astronomer and my university professor
Questions like these informed my faith and worldview as I minored in physics in college.
The way I conceptualize time is this way:
There you are standing there, still.
But oh! Not still! You may be unmoving in the first three dimensions, length, width, and height. But you are zooming through the fourth dimension, which is time.
We are never still in Einstein’s spacetime. Of course, the faster you approach the speed of light in the first three, the slower it goes for you in the fourth — hello relativity!
Nobody sits still. We are hurtling through spacetime.
Per The Atlantic article, I suppose my conception is most like the “accretive” theory described at the end.
Perhaps when we die, we cease to flow through the first three dimensions so easily, but how could you ever cease to flow through the fourth? If time is made of particles, maybe we exist forever in the particles that we existed in, even as new time is added. Maybe heaven is merely another word for time.
Happy Saturday!
If you like to ponder time — and really, what better could you do with your time? — consider the following posts:
I thought it’d be fun to write up a bulletin the way I did for my Wall Street clients. The only difference between this and the kind I used to do is that this doesn’t contain stock recommendations. Don’t hammer me on syntax or political correctness — the point is to get people up to speed quickly and in a way that honors their intelligence, but also doesn’t assume they know everything or have ever even opened a history book. 😉 I wrote this in five minutes.
I hope to expand this series, “How the world works,” to many other topics. I promise it will help you get smarter about things you may have been afraid to ask.
What’s new:
A faction in the Turkish military is staging a government coup d’etat. A ‘coup’ is when one group suddenly seizes government power. The Turkish military has shut down bridges into Istanbul and has taken hostages.
The Turkish military says it is now in control and all diplomatic relations would remain the same.
Prime Minister Binali Yildirim disagrees, and says his government is in control.
Nobody is yet sure what’s what.
What it means:
Turkey is a key American ally and should remain so, no matter who ends up in charge. Turkey is a member of NATO. NATO is the North Atlantic Treaty Organization. It’s basically a bunch of countries with decent-sized militaries who have promised that they’ve got each other’s backs. In other words, if a country is in NATO, America has got its back. NATO members are about 70% of total global military spending. Most notably, the club is defined by who isn’t in it — namely Russia and China.
What’s tricky about this is, which side would the US take? Presumably, the military is also pro-NATO and so other allies would stay out of it.
The Turkish military has historically represented secularism. That is, it is pro-democracy and believes in separation of church and state.
President Tayyip Erdogan has been in power since 2003. Erdogan was prime minister from 2003 to 2014. He’s been president since 2014 and has consolidated executive power. He’s said to be Islamist, meaning that he favors injecting more religious principals into the law. In other words, some people see Erdogan as being a threat to Turkey’s secular democracy.
It’s not immediately clear if the US is helping or secretly involved. Of course, that is not something we would ever know as it would be classified information. But the US has backed secular organizations in previous coups throughout the past century. (Update: The US denies any knowledge or involvement.)
Brexit may have played a role in the military’s decision to move the country back to its secular values. Remember that Turkey wants to join the EU and that one fear that Europeans have is that Turkey is too religious, and that is partly because of moves that happened under Erdogan’s leadership.
My fave bit: “Our Founders always wondered about how long it would last. The price of liberty is everlasting vigilance. You’ve got to be on your guard every minute or you will lose it. In most of history, societies have not been free. It’s a very rare society that is free. The default condition of human societies is tyranny. Every society’s inclination is toward tyranny, unless you resist it constantly.”
Some time a bit ago, a Seattle pastor posted this challenge question to Facebook: “To whom will you bring comfort today?”
It was early morning on the West Coast, which meant I had been working about five hours already. I thought back over my morning spent with clients discussing a stock that was selling off that day. My clients and I commiserated. We looked at what we got wrong. We looked to see if we could offset at least some of the blame to the management team. Some clients ranted and raged. Some were quiet and steady. All needed a confidential and trusted place to go over their thinking and decide what to do next.
What do you do when things go horribly wrong? When the amount of money being lost has more zeros than the average person can fathom?
You process it, you manage the cortisol pulsing through your blood stream to get to a place of rational thought, and ultimately, you have to decide on what to do next: Sell the position or double down at this lower level?
To whom was I bringing comfort? Hedge fund managers.
My position was a privileged one. For seven years, I studied the intersection of fear, greed and anxiety through thousands of conversations with extremely bright people. It was all very human and very fascinating.
Sometimes, we had the craziest high-five thrills I’d ever experienced. “Love that money! Woo!” – Ricky Bobby, Talladega Nights
Other times, it was vomit-inducing stressful.
Welcome to Wall Street.
If you manage assets* for a living, then I want you to know that part of the reason why your job makes you so anxious is because it is supposed to. People pay other people to manage their money for them as way to outsource financial anxiety.
People on Wall Street are paid to worry.
There are few industries where constantly anticipating what could go wrong is not the result of paranoia, but is actually part of the job description. (Military and tactical law enforcement are others.) The mental health profession says hyper-vigilance is a symptom of PTSD. On Wall Street, it’s a symptom of a job well done.
What’s that? It’s Thursday and you haven’t seen your kids since Sunday night, you’re fantasizing about moving away to a Greek island (or Florida), you have a vacation planned that will probably get eaten away by unforeseen events, and you find yourself taking your first deep breath of the day after market close?
No, you’re not crazy or doing it wrong. That’s your job.
Now go check your bank account. Ahh. Isn’t that better?
Also fun: Failure is never an option.
There is one way to be right: Beat the market.
There are infinite ways to be wrong.
Do you know what science calls it when there are infinite ways to have disorder and one way to have order? Entropy.
“Your job as an investor is nearly impossible: to make great decisions with incomplete information, while reducing uncertainty,” says Marc Balcer, a former hedge fund founder who now runs his own mindfulness coaching practice. He coaches people on how to manage high stress situations. Like me, he works with many Wall Street clients.
I’d like to share some observations that I believe affect the entire economy — from how publicly traded companies manage their businesses on a quarterly basis, to how capital is allocated, to the risk tolerance of ourselves, as a society.
And here, I’m just talking about stocks. I’m ignoring the gigantic, can’t be overstated how big, world of bond investing.
Investors – and people like me on the sell side who served them — are expected to predict future events and predict how a stock will react to those events.
Every quarterly earnings season is go-time in the world of stock investing. Do or die, the final accounting of our predictions in the quarter. Companies report out their financial performance and asset managers score themselves on their bets and then report out to their own clients on how the fund is performing.
Earnings season is The Reckoning. A typical portfolio of 12 stocks is going to have 48 reckonings per year. Plus, all the peers will report and those also move the market — and maybe the fund should have invested with one of them, instead. During earnings season, free time disappears and decision making rules the day.
Everyone is on high alert. Everyone is stressed. Decision fatigue becomes a real thing. It’s tough to manage constant reckonings. Everyone is constantly scored on the manifestations of their hard work, and performance is critiqued by colleagues, competitors, and clients.
Generally, the faster the money moves in a fund, the more stressed everyone is. The hierarchy of stress starts with the long-term mutual fund managers at the bottom (still paying attention but not as frantic) and increases until you get the fast money long-short funds at the top of the stress heap (huge amount of pressure to change positions rapidly and make decisions in the face of incomplete information.)
I knew of several portfolio managers who were red-faced screamers. I worked with them as well as the analysts who reported to them. In every case, it was a fast money fund and the portfolio manager, though behaving horribly, in my view had a lot of public face on the line: In every case, he was managing the assets of people in his own social group. It’s one thing to lose your own money. It’s quite another to lose all your friends’ money.
(And while I think there is never a good excuse for treating someone wrong, I know during the most intense periods, I was not always the kindest -ahem- to my own junior analysts. Reputation, ego, perfectionism, winnersville versus losersville, tight deadlines, seconds mattering — it all played a role. I was not above completely losing my shit over a misplaced decimal point in a financial model. And unlike the buy side, I never actually had any money on the line.)
Here are some sample ways to be wrong:
Be sort of right and sort of wrong = Wrong.
Be right on what happened, but wrong on how the stock reacted = Wrong.
Be right on how the stock would react, but too early on the timing = Wrong.
Be right on how the stock would react, but failed to convince the portfolio manager to adjust the position = Wrong.
Be totally right on the events that would happen and how the stock would react, fail to trim the position and lock in the gain, the next day something crazy happens and the gains are wiped out = Wrong.
Be totally right on the events that would happen, trim the position to lock in the gain, the next day it gets even better and the stock’s up another 15 points = Wrong.
Freak out and sell the position when its down 20 points, and it moves upward another 15 the next day = Wrong.
Be completely right but lose the trust of the PM and nobody acts on your recommendation = Wrong.
Be right but fail to pound the table hard enough = Wrong.
Learn from that mistake, next time make a high conviction call and pound hard, and this time, get it wrong = Wrong.
Have a great year but still under-perform the general market = Wrong.
Be right on nearly minute detail but fail to anticipate that demand for copper in China is going to compress the gross margins of this US industrial by 2 points, causing the company to miss EPS by $0.01 when the Street was expecting a beat and raise = Wrong.
You see? Infinite ways to be wrong. Entropy.
It’s never dull. It’s all-consuming. People use all of their energy to not go nuts. And everyone is dropping fucks like dollar bills
Most hedge fund employees I know — from the folks at the top to the n00bie analysts — take the job seriously. They want to do the best job they can, make a good living, and go home and kiss their kids at night. (Or, if they’re single, party.) They love the money (who wouldn’t?), appreciate the meritocracy, crave the intellectual stimulation, and treasure having some power. There are cheaters and losers as in any industry. I never met anyone shifty or dishonest — that’s my honest truth.
The deeper I get into being a coach for executives and high-performing professionals, the more I learn about the importance of being calm and differentiated — of knowing where one person stops and where another begins, and of the importance of a confidential and trusted space to think. I realize that in many ways, it is what I’ve been doing all along.
You’ll never eliminate anxiety — you’re paid to be anxious.
But, you can manage your anxiety and with enough self care and awareness, channel that energy into making better investment decisions.
**HUGS**
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*For non Wall Streeters reading this blog, asset management refers to the profession around managing money. That money is managed in sums so large that it’s not even called money any more, but rather, assets, or capital. Thus, when we say the capital markets, we generally mean the stock market and the bond markets, where large sums of capital change hands every day.
If your retirement account is held in a managed fund, then there’s someone on Wall Street managing your money — either working for a mutual fund, a pension fund, or a hedge fund. And, since many pension funds outsource some asset management to hedge funds, there’s a chance that your retirement account is influenced by the hedge fund community.
The PM acronym is for portfolio manager, the person who has the job of making buy or sell decisions, and the one who usually bears the brunt of the credit, blame, and stress.
The Atlantic has an article, The War on Stupid People, that provides a great starting point for a discussion on innate ability versus hard work. It brings up several thoughts for me.
One, it’s profoundly difficult to be low IQ in today’s economy. All the low IQ jobs are being outsourced to robots. And to be low IQ is to be mocked. To be medium IQ is to fit in with the majority. To be high IQ is to often feel isolated and to create systems and companies and fill them with one’s own kind.
Two, what creates IQ? Is it inherited or learned?
People have value and worth no matter their intelligence level, so how does everyone participate in the economy, and thrive?
It’s difficult for Americans to realize that we aren’t all equal in terms of ability. We want to believe that anyone can do anything if they just try hard enough.
I was guilty of “equal thinking” myself when I was younger, looking at peers who could not perform complex math or physics, as I could, and wrongly concluding that they weren’t trying hard enough. Yes, there is something to be said for effort, but there is also natural gifted ability that was not earned, not a factor in human worth or deservingness of good things.
(My own ‘aha’ that some brains simply cannot do everything well came from taking a hard look at my own poor spatial awareness and sense of direction. This personal mental weakness broadened my empathy for others considerably! My poor spatial awareness means I’ll never make a living driving a car, but we all find different ways to thrive.)
The Atlantic article posits that not everyone has the mental fortitude to complete four years of university study, and what then? Some human brains cannot do the mental heavy lifting the same way my spindly human fingers cannot grip heavy objects, and no amount of trying is going to alter the underlying biology.
Inequality of ability leads to inequality of outcome. The really hard part is recognizing that ability is both *inherited* and *cultivated.*
I think the answer is in helping each unique person discover his or her gifts and strengths, and to play those cards as best as they can. And also helping people to understand that hard work and determined effort can close a lot of the mental gap.
I also think that mathematical thinking needs to be recognized, early on, as a non-negotiable core strength to be developed and cultivated the same as reading and writing.
In the end, raw intelligence makes life a lot easier on a person the same way beautiful bodacious breasts make life easier on a woman and having a strong jaw and being tall makes life easier on a man. But inherited traits do not equal self-worth. A person might be a bit dim, but his divine spark shines just as bright.
This is not meant to be a political discussion – though I can see how it would be interpreted that way – but a personal growth discussion. A chance to deepen one’s personal insight about the economy, ourselves, and our abilities.
What do you think? What are your natural gifts and how do you play to your strengths? If you happen to be intellectually gifted (probably most of this blog’s targeted audience), what steps can you take to get a bit more humble and empathetic?
