June 11, 2014

Live and Learn

What is it about this business we’re in that everybody seems to know everything about everything? In particular, as a bond manager, I can’t recall a time when most of my equity colleagues didn’t overtly suggest that they knew as much about bonds as I do (in addition to nearly everything else). Even after 25 years of experience there always seems to be the ever present need for debate. Don’t get me wrong, I’m grateful that every day is “quiz day” in this business, it helps to keep me on my toes, but gee whiz doesn’t experience count for anything these days?

Think about it, with the access to information handy as never before in history we can feast on the fruits of our search engine to intellectual nirvana. We can go to the doctor and debate his diagnosis. We can discuss the shortcomings of our Contactors estimate. We can take our child’s Fourth Grade teacher to task after having read the most recent article on our failing schools. All we really have to do is find it on the internet, hear it on the radio or watch it on TV. Never mind the unassailable evidence out there, that it undermines debate at the expense of experience. Time and again, experience gets trumped by the din of mediocrity.

Take for instance the accomplished academic. Replete with framed credentials there seems to be an overwhelming belief that the more letters appearing after an individuals name the more likely that individual is a born winner. Likewise there is the unsettling belief that unearned power can’t be justified in the absence of credentials. We needn’t look far to witness the prevailing elitism that exists at the heights of corporate management. And the self rewarding behavior and the cavalier style that so often accompanies it is staggering, even while it plunders us. It’s these groups that have been the beneficiaries of the worlds controlling interests ever since the invention of the middle class. And if history is any indication the controlling class has had a rocky time of it, hence the ever growing desire to brush up on the finer points of power, how to get it and how to use it when you’ve got it. And this is where I part ways with conventional wisdom. I don’t believe that humanities love affair with knowledge is to be like those who seem to get along swimmingly without it, but rather because in my judgment we inherently don’t believe a word of anything that’s being said to us.
Sure we trust our doctors, to some extent our lawyers, but only in the context of the expectation of perfection. The notion that the only avenue for genuine trust is verifiable excellence is anchored in the idea that everything in the world these days is black and white, either with us or without us, either we understand it or we don’t.

That’s why I like math. Math is the offset to random assumption. It has the ability to carve logic out of infinite sequence, forever staying grounded in tangible principles like consistency and discipline. And likewise it’s one of the reasons I enjoy working in the Bond Market. The bond market is characterized by the global flows of capital and what people are willing to pay for their share of those flows on a fixed basis to a specified end date. It doesn’t get much easier than that and dare I say it’s a trustworthy equation. Sure the markets move and sure bonds can gain and lose value in the changes in interest rates, but that’s where a good bond manager can help smooth out the ride.

I’ve spoken to a number clients during my career and although there is a lot of impatience the goal of managing expectations has its rewards. I believe experience and hard work, two qualities anybody can believe in can pay off. The collapse of the market that elitism built is all the empirical evidence I need to debate it.