Tom Brakke recently highlighted a rather outlandish Wall Street practice that is fairly commonplace in the world of finance:
As reported by RIABiz, there was a telling exchange during the last Charles Schwab earnings call. An analyst “grilled [the CEO] about whether Schwab was damaging shareholder interests in an overzealous regard for the welfare of investors.”
The analysts covering this stock are worried that, by lowering their fees, Schwab is treating their clients too good. ‘Only on Wall Street’ was the first thing that popped into my mind when I read this.
Obviously, the finance industry isn’t the only place that puts far too much emphasis on things like short-term profits but this got me thinking about what it would be like if other areas of life operated like Wall Street. Here goes:
What if pop music one-hit wonders operated like financial charlatans who were right once in a row and lived off that single call for the rest of their career?
Hi, we’re Chumbawamba. Remember us? We had that one song — Tubthumping — that gets stuck in your head forever and was a huge hit in the late-1990s. We’re going to release a new song every year and even though they’re all going to be terrible we’re still going to remind you of Tubthumping’s success every time so you’ll have to continue listening to our music over and over again because of that original hit back in the day.
What if professional athletes acted like hedge fund managers when they underperform?
LeBron, can you tell us why you lost the game tonight?
First of all, there’s no way we could have predicted the other team would make more baskets than us. And the refs obviously manipulated the game. Plus, on a risk-adjusted basis, we actually scored more points than they did so it’s just like we won even if the scoreboard doesn’t show it. This game was our Battle of the Little Bighorn.
What if doctors acted like financial salespeople?
Hi, nice to meet you. I recommend an appendectomy.
Actually, I think my ankle is broken.
Trust me, I’m a professional. I’ve been doing this for a long time. Your body will do much better over time if we get that appendix out. It’s a can’t-miss surgery that is sure to take care of every other ailment you currently have. I’ll just go ahead and take my commission on this surgery up front…
What if your boss measured your work performance the same way investors scrutinize Apple?
Tina, you’re slacking. What seems to be the problem? You’ve lost your touch.
I mean, I invented one of the most innovative widgets in the history of our firm less than a decade ago that completely changed the way our industry and our competitors operate. It still generates more cash flow than the company knows what to do with.
Ha. You obviously can’t innovate anymore. Have you considered buying back more stock options as a way to add more value to the firm?
What if your household budget worked like a company’s quarterly financial statement?
How much money did we save last year?
Well, we had to buy a new roof, fix the car, get our daughter braces at the orthodontist and put a down payment on a new house. However, those are all one-off, non-recurring expenses so they shouldn’t impact our earnings this year on a pro forma basis. We have no cash flow on hand but our restated earnings after accounting for one-time expenses look amazing.
What if the waitstaff at restaurants gave out menu advice like pundits on financial television?
The best thing on the menu is the filet mignon. I predict the chef will cook tonight’s filet to perfection as he has been data dependent with his cooking techniques.
[the steak is served overcooked]
Did I say steak? Scratch that. I obviously meant the chicken parm. Why would you ever get the steak? The reason you should be a buyer of chicken parm here is…
What if your kids’ grades at school worked like quarterly analyst estimates for company performance?
Yes mom I know I got D+ on my English paper but I only estimated that I would get a D. I outperformed expectations! My grades should be rising as a result.
What if movie critics were like investors who use too many rules of thumb, quotes, and analogies?
I’ve seen this movie before and it ends badly. It’s about a canary in a coal mine who never should have shorted a dull market before getting punched in the face by Mike Tyson without a plan while skating to where the puck is going to catch a falling knife. This movie was more of a marathon than a sprint and the lead character was obviously playing chess while everyone around him played checkers. I believe this movie is fairly valued…unless this time is different.
What if online dating sites predicted who you should date the way investment strategists make market forecasts?
For the next three months, we’re urging caution on Samantha as a potential mate because she just got out of a bad relationship but we’re still constructive on her over the long-term. There is risk to the downside on James because he is a bit dull but we would be buyers for a quick trade on dinner and a movie. We’re lowering our price target on Tom as the risk of his volatile personality is heightened in our view over the remainder of the NBA season since he is a Knicks fan. Dexter is a second half story so avoid him at the bar until he gets a few drinks in him. And we’re advising clients to stay the course with Janie as she has a strong balance sheet from her rich parents.
A Battle For the Spoils
10 Crazy Things People in Finance Believe
Now here’s what I’ve been reading lately:
- Will the rise of factors kill factor investors? (Irrelevant Investor)
- Investors prefer funds with smooth sounding names (The EBI)
- Some insane things people believe about retirement (A Teachable Moment)
- The gains no longer available to you (Reformed Broker)
- Would you rather have $1 million or $5,000/month in retirement? (WSJ)
- What is enough? (Prag Cap)