Feb. 12, 2021 — I was still in banking when “The Great Recession” began. A reporter from our local newspaper called to ask me for comments about the housing meltdown and subsequent economic downturn. She had moved here from another country and was a darn good reporter, but her mastery of Ozarks colloquialisms was still burgeoning.
To demonstrate my opinion of how we once again had misjudged risk, I quoted a finance professor I had in college who said: “The buzzards always come home to roost.” She hadn’t heard that expression before, so asked a clarifying question: “So, the bustards always come home to the rooster?” We decided to just leave that quote out.
I’ve taught a “History of Banking” class for the Missouri Banker’s Association for 35 years. I always use that quote with the students as a demonstration of risk and return. We have seen it again and again where folks think they’ve figured out how to outsmart risk. “This time is different,” we hear.
During my own time as an adult, I’ve seen the investing fads of energy, commercial real estate, tech, housing and cryptocurrency boom and bust. Nobel Laureate Harry Markowitz first quantified the relationship of risk and return in the ’50s, and it remains timeless today, in my opinion.
I write about that today as we’ve seen yet another “this time is different” with the “democratization of Wall Street,” and the wild ride we’ve seen with GameStop stock, among others. We’ve read about the millionaires made in a matter of weeks, and a 10-year-old boy who invested his allowance and made thousands. If only it were that easy. (As of Feb. 12, GME is trading well below its spike of nearly $400 a share on Jan. 28, now hovering around $50.)
It is a great thing to have so many folks take an interest in investing. The use of several “app” trading platforms have indeed made Wall Street more accessible and affordable for folks to be at the table. It’s not helpful, though, to confuse equities with dice. One of those most followed Reddit sites is called “WallStreetBets.” That should give us a hint of the advice given. Maybe a Daily Racing Form would be more appropriate.
Thomas Picketty’s “Capital in the Twenty-First Century” book created a stir in economic circles several years ago. His basic premise was that capitalism, by nature, created wealth disparities because return on capital, as is reflected in more traditional stock pricing, outpaces wage increases over time. So those “with” do better than those “without.” Making investments more accessible can be a good thing, but having a tech tool without the knowledge tool is quite dangerous.
I did have a donor ask recently in a joking manner: “So, does CFO own GameStop?” I do want to compliment the work of our Investment Advisory Board of regional financial and business professionals, and our financial consultant, DiMeo Schneider, who work so thoughtfully, diligently and expertly on their investment guidance. We now have nearly $270 million in our diversified pool, and that partnership of the board and consultant team never loses sight of the end goal of an allocation crafted for perpetuity. Unlike trading on an app, the committee approaches its work in the best interests of the future of our funds. They’re accountable, experienced and, as I’ve seen firsthand, they detest buzzards.