08 Dec 2014

On Ambition, Greed and Funds Management

Adam Geha

08 Dec 2014

positioner

On the long plane ride to LA recently, a colleague and I were musing on the difference between ambition and greed and whether or not it was an entirely subjective distinction.

My friend argued that it was simply a case of: "I'm ambitious, you're greedy and he's the green eyed monster". He then went on to argue that there was no such thing as greed - that "greed is but a word jealous men inflict upon the ambitious” (Spartacus). On this interpretation, only ambition is real and greed is simply a pejorative label that some people choose to place upon it.

There is clearly some value in these pithy sayings as they remind us of the pitfalls of hypocrisy - but is that the sum of it?  I don't think so.

In the 1960's, Gus Levy's famous mantra at Goldman Sachs was "don't be short term greedy, be long term greedy". And ambition for me is being "long term greedy". Ambition is prepared to roll up its sleeves, to build lasting relationships and to sacrifice short term profits when they conflict with long term goals. Under this calculus, a fast buck should never come at the cost of a damaged reputation.

Greed by contrast is impatient and focused on the short term. Greed is willing to cut corners, break principles and burn relationships. It's not so much malevolent as it is indifferent. Greed is into quick results whether or not this gives rise to genuine value for the clients it serves.

So what does all of this have to do with funds management ?

Well, we all want our fund manager to be motivated to make money - after all that is why we appoint them in the first place. But you want them to be "long term greedy" (ambitious), not "short term greedy". This is because while greed regularly out-performs ambition in the short term, it almost always under-performs in the long term.

And here's the rub ... since the ultimate short term fixation in the modern era is in the listed markets, the last thing you want is for your fund manager to become listed. Take a look at these graphs:

Based on NY and London stock exchange data, the average holding period by stock investors was around seven years in 1940. This stayed roughly the same for the next 35 years. By the time of the 1987 crash, the average holding period for stocks had fallen to under two years. Today it's about seven months !

In other words, investors in listed markets have changed from being "long term greedy" (40 years ago) to being "short term greedy" (today). The obvious corollary of this is that the senior management of listed companies has had to become very short term focused.

Seven months is simply not enough time for ambition - in fact, it's barely enough time for greed.

So the next time your fund manager tells you they want to be listed - ask them why, listen attentively and then run (with your money) for the hills.