Vol I, No. 5    

June 2013  



A monthly review for investors and consultants about how the quirks of human behavior 

drive investing...and what you can do about it



The Misbehaving Investor

Yeia sas ("hello" in Greek):

I spent the last two weeks of May traveling across Greece and Turkey.

I'll spare you the slideshow but I will share with you my thoughts on why corporate executives should behave more like airline pilots or bus drivers.

Glad to be back,


John Feb 5    

John Heldman, CFA


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My Big Fat Greek (and Turkish) Vacation


My family recently returned from a 2 week vacation to Greece and Turkey. My wife, our family's personal travel agent, likes to see everything in a country. Twice. Or so it seemed.


Let's just say we endured--I mean participated in--many airplane flights. And lots of tour bus rides. Plus multiple taxi rides. Oh, and several ferry boat trips. I must say right here that we did have fun. My wife reads these comments.


As we traveled around Greece and Turkey, I realized that we were placing enormous trust in complete strangers. Airplane pilots, bus and taxi drivers. Ferry boat captains. Whether at 30,000 feet in the sky or hurtling down a mountain in a tour bus, we relied on others to protect that most precious possession. Our lives.


Flying from Istanbul, Turkey to Athens, Greece I thought about investing similarities. You see, I work even while playing. As with pilots or drivers, when we invest we are placing trust in others--professional managers--to act in our best interest. Lawyers call this "fiduciary duty". I like to think of it as self-interest.


Clearly in the case of an airplane pilot or bus driver their fate and ours are completely aligned. They'd like to survive and go home to their family.


However, in the investment world pilot behavior can be decoupled from passenger--shareholder--safety. Many corporate managers--the financial equivalent of a pilot--think first and last about THEIR well-being without giving sufficient thought to shareholders, the OWNERS of the company.


In my ideal but utterly unattainable investor world, all managers would be pilots, safeguarding their financial life along with yours. However, we have seen far too many situations where company managers run amok, engaging in fraud or self-interested behavior detrimental to shareholders.


Without this alignment of interests our "pilot" can treat the aircraft as a jet fighter pilot might. When trouble develops a hired hand--the pilot--might hit the eject button and bail out safely while shareholders are left to deal with the often ugly consequences.  


So, how do we create a common bond between pilot and passengers?  We look for managers who own lots of their company stock as one measure of alignment. We like direct share ownership, not through a bunch of stock options given for free. For example, we have large positions in several investment banks where officers, directors and employees collectively own over $1 billion worth of shares.  


These "pilot managers" can't hit the eject button. When they get out of bed in the morning, they're thinking about shareholders, because they are shareholders.


So, while we can't select our own commercial airplane pilot, we can select our investment pilots. Choose carefully, and you'll lessen the odds of a mid-flight bailout and improve the chances for a successful journey.



What a great country this is...  

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