February 8, 2009


While keeping on the topic of employment I wanted to reflect on the heroics of Chesley B. "Sully" Sullenberger, III the captain of the US Air flight that ditched into the Hudson River. Now this might have noting to do with the financial markets or for that matter anything to do with economics but I think it does. This is because human capital, the buzzword that gets thrown around with mischievous intent is the only true currency that binds all working people. And while I am never one to underweight the importance of academia in preparing a person to face the real, and often predatory, outside world Captain Sullenberger’s feat of heroics has been hailed as much to his over 40 years of flying experience as it has to anything else.
This issue of experience hits home for me because I have seen experience ignored in the financial industry nearly exclusively in favor of academic credentials. And if one scours the job listings most of the positions are advertised by recruiters seemingly entrenched in keeping the faith. Now I admit that they are likely working on behalf of the companies that do in fact hire these individuals, but they hold out positions with titles, such as “Fixed Income Derivatives Modeler” or “Sr. Fixed Income Portfolio Quant”. While the importance of an analytical mind is crucial to understanding the types of products conceived by an army of quant’s it is unfortunate that those are the very same products that buried the financial industry to begin with. Sure the likelihood of the innovators of multi-credit ABS or CDO’s are just as likely to be the innovators to get those products back in the hands of unsuspecting investors but the problem is much deeper than that. Experience is considered a liability because it uncovers the facts about many of the most toxic products created over the last twenty years. This is because most of those products parading as riskless were summarily advertised as “alternatives to fixed income”. Any Fixed Income Portfolio Manager who has been around for fifteen plus years knows that the biggest mistake Wall Street ever inflicted on the world was that bonds could be a competing asset class to equities. It was this idea that played to the vanity of the growing army of advisors (sic Accountants) searching for the sexy investment that would remind them of the dullness of their profession.
But I digress, what I’m trying to get across is that experience has the added benefit of perspective. Clients, such as institutions or high net worth individuals, are frequently duped into ownership of investments that they don’t understand and often don't need. And while it’s certainly legitimate to manage the distribution of ones inventory with zeal and confidence that the buyer is responsible for being in the know, that only works when selling widgets, not complex financial instrument. Fixed Income in its own unsexy way has been protecting the wealth of the very rich for centuries, has been dressed up in guarantees to save a few countries as well. But most of all has been the source of tremendous comfort allowing millions of investors to venture into stocks with an approach that mirrors their expectations.
Captain Sullenbeger had credentials and experience to get him through a horror that only experience can prepare one for. The unfortunate fact of life is that experiences generally accumulate with age.

Rule: Of you want risk buy stocks, if you want less risk buy bonds.