Thursday, March 30, 2017

A sound banker

"A sound banker, alas! is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him." -- John Maynard Keynes

I've been in or on the edges of Wall Street for many years, and Keynes nailed this one: the typical high-level, million-dollar-plus a year employee of an investment bank does not care at all if he walks straight into a financial disaster: what he cares about is that he not stand out from the rest of the crowd who did so as being especially culpable. So long as he doesn't, even if he is fired, he will be employed again at a high salary quite soon.

2 comments:

  1. This. I tried to convince people of this after the Fannie Mae debacle. Any mid-level fund manager who saw it coming and moved to more conservative investments would have been seen as "leaving money on the table." He'd have been quickly replaced with someone who would buy nice, safe bundles of mortgaged backed securities and get the same returns as everyone else.

    Only someone investing on their own, or someone with rock star status like Warren Buffett, can buck the trend.

    ReplyDelete
    Replies
    1. Interestingly, Buffet tolerated two years of above normal losses on certain investments.

      Most fund managers would be forced to sell or answer for holding on those investments, but Buffett being Buffett was allowed to stick to his guns. Later, those investments recovered.

      So it was simply a matter of having a longer holding period.

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