backstage finance (Joshua Brown)

 Joshua M. Brown, Backstage wall street, 2012 

[pp.165-166]

 ... People love stories, and they react to them frequently.

     The need for a narrative or metaphorical connection is as old as the human race itself.  The Neolithic cave paintings found across Western Europe are one of the earliest examples of the storytelling tradition and its intertwined relationship with survival itself.  The paintings tell of how the clan is fed and nourished on the animals it hunts; this is an instruction manual in story form using the very earliest written language--pictures.

     To a large extent, the human mind is hardwired for story; it is the primary way in which we understand the world and pass on what we've learned to future generations.  And not any story will resonate; there are very specific story structures that effect us all in a primal way.  It is no coincidence that in every part of the world, there is some significant and revered version of one of the following seven story arcs or plots:

   1. overcoming te monster

   2. rags to riches

   3. the quest

   4. voyage and return

   5. comedy

   6. tragedy

   7. rebirth or transformation

[p.166]

     Examples of each of these seven arcs had been independently developed by ancient cultures with absolutely no contact with one another whatsoever.  This doesn't happen by accident.

     Christopher Booker spent 30 years researching his seminal 2005 book on the subject, 'The Seven Basic Plots'.  The psycho-analyst Carl Jung took a shot at this idea, calling these archetypal stories the "the development and integration of the mature self."  Joseph Campbell has also written hero myth types ultimately on the subject, his dissection of the classic hero myth types ultimately inspiring George Lucas to combine them all into the story for the Star War movies.

     And without even trying, you can see how adroitly these seven basic story types have been adapted by the investment industry in order to market and sell product: 'Overcoming the monster' with inflation-proof bonds, porfolio insurance, and principal-protected index funds.  The 'rags to riches' promises of being in on the penny stock that explodes by 1,000 per cent or investing in the newest category of hot growth funds.  A 'voyage' to the emerging market stocks and bonds that simply must be a part of every portfolio.  The 'rebirth' of a corporate turnaround stock and the 'transformational' opportunities to be exploited in the technology sector.

     Wall street is extra-ordinarily adept at selling through story, and when no story is immediately apparent, it will create one out of thin air.  Themes sell funds and stocks and strategies.  Themes get people to pay attention to television appearances and newsletters.  They get investors talking to each other, which sells even more stuff.  Themes are the alpha and omega of Wall Streets every existence; they are the hook that pulls in the Main Street money no matter how many of them have been total busts.  <skip one sentence>

[p.167]

     But when it comes to thematic investing, most of the money is made by those who germinate the very concept itself, positioning early and then spinning the yarn while encouraging its dissemination.

[p.170]

     ... By 2010, gold had been outperforming virtually every other asset class on the menu for a decade.  As it became apparent to ordinary investors that central banks around the world were in a "currency race to zero," protecting themselves from inflation ... . ([ I can not tell you or explain why, however, real physical gold continues to be inflation hedge against holding paper money or note. ])

[p.164]

     And it is not just product that needs to be sold.  Strategies have received their own stories as well.  “Buy and hold” is one of the greatest stories ever told, this despite the fact that in the past century we've seen 25 cyclical bear markets and two bone-crushing secular bear markets.  Had you brought and held equities in the late 1920s, you would not have been back to breakeven until the early 1950s.  A basket of stocks brought in 1966 would have been worth the same nominal dollar amount 16 years later in 1982.  But buy and hold means captive pools of asset to assess steady fees from, and so buy and hold is ingrained in the Wall Street sales pitch to America.  [...]  Unfortunately for the buy-and-hold faithful, we now find ourselves experiencing the so-called hundred-year storm about every seven years these days.

[pp.xix-xx]

Lights, Camera, Finance!

     ...

     According to BusinessWeek, the securities industry spends $15 billion a year advertising ... .  To put that number in perspective, the alcohol and beer industry spends ... $2 billion per year. [...]

     There is a common theme that runs through almost all investment marketing: “We know what we're doing in the market.”

     This would be fabulous if true; unfortunately, by definition it's impossible.  A market is made up of buyers and sellers, both of whom believe they are on the right side of a given purchase or sale.  They cannot both be right.  Now we can take a detour and say that a buyer may be wrong short-term but absolutely right long-term, but the advertising we're discussing doesn't merit quite that degree of nuance.  After all, what brokerage ads are meant to convey is that the firms cannot possibly be wrong because even when they are wrong, they are still right.  Speaking of Lewis Carroll, somewhere the Red Queen is smiling down on this ubiquitous marketing message with immense, almost maternal pride.

     Well, pardon me for acting as the wrench that fate has sent to be thrown into the works, so to speak.  Excuse me for having heard (and written) every pitch and every sales rap that's ever been uttered.  Forgive me for having made the decision to begin blogging as a human being, and by doing so, to begin pulling back the curtain.

     Not only have I seen these films before, I've been on the studio back lot during their production.  I've met the director and have hung out with the actors in their trailer between takes.  I know where the makeup artist parks her car each morning and which screenplays are most in need of a rewrite.  I know what dishes craft services is putting out for lunch and which sequels were only green-lit because the studio knows you're going to buy a ticket.

     Wall Street has long incorporated the most effective showbiz techniques into its repertoire.  And while you may have gotten a peek backstage before, what I'm about to show you will be entirely new and somewhat revelatory.

     Welcome to the reality behind all the false glamour, contrived accuracy, and manufactured confidence.  Welcome to a world where institution feign perfection and human beings pretend an omni-potent mastery over the random and uncontrollable.

     This is your guided tour.

   ('backstage wall street : an insider's guide to knowing who to trust, who to run from, and how to maximize your investments', Joshua M. Brown (2012), copyright © 2012, [332.6097 Brown], )

(Brown, Joshua M.; 'backstage wall street', copyright © 2012, publisher McGraw-Hill Companies, [332.6097 Brown], pp.165-166)

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