Monday, April 21, 2014

"He Works Hard For His Money"

I have a friend who manages the money I made when I made money.  From the time I began to realize that my moneymaking days were numbered, my investment instructions to him were simple and direct:

“I would like to make money from my investments, but way more importantly, I would not like to lose money from my investments.”

Following these guidelines, my friend has helped my investment portfolio to remain healthy.  And I truly appreciate that.  At my friend’s wonderful and accomplished wife’s request, I once wrote a commemorative limerick for a party honoring his birthday.  It went:

A man of great prudence and purity
He takes care of our money with surety
As our net worth advances
He reduces our chances
Of depending on Social Security.

My highest praise is reserved for my investment adviser’s ability to have kept me relatively un-wiped out during the economic meltdown of 2008.  I now brag that during “the Collapse”, my investment advisers lost me less money than almost anybody else I know. 

I don’t know if the company would care to highlight that achievement in their brochures, but as a result of my appreciation for their efforts, I have desisted from calling the quarterly fees that they charges me exorbitant.

Extremely high praise indeed.

My financial adviser friend is now retired, though his name remains on the company letterhead, along with one partner who is also retired and a third partner who is dead.  Leaving the money I need to sustain my wife and myself for the rest of our lives in the hands of three people who are no longer there. 

I suggested renaming the company, “Retired, Retired and Dead”, but my friend suspected – correctly, though not one hundred percent correctly – that I was joking.  (In truth, my friend continues to serve as a consultant for my investments, thus altering my proposed title changed to “Retired, Dead, And Retired But Not Entirely Out Of The Picture.”  Which was also rejected.)

I like my friend a lot.  He has hosted me to numerous hockey games, and he and his wife have invited us to Disney Hall concerts and to parties at their house.  It was on one drive to a hockey game that my friend informed me that his firm’s other retired partner now had a yacht anchored somewhere near Tahiti, a yacht, he described, that a helicopter could land on, providing some idea of the size of the yacht, since were helicopters to land on the majority of yachts, they would presumably sink under the helicopter’s formidable weight.  This one demonstrably does not, which, to me, says we are talking about a prodigiously sized watercraft.

My friend’s story reminded me of a anecdote I once read in a book whose title I cannot presently reveal as it is the punch line to the anecdote.

A visitor to New York is taken on a tour of Wall Street, and then to the Battery, where his guide pointing to the boats anchored in the harbor says, “Look, those are the bankers’ and brokers’ yachts.”  To which the visitor not inappropriately queries,

“Where are the customers’ yachts?”

The book Where Are The Customers’ Yachts? (by Fred Schwed) refers to a long ago era, so the disparity described in the anecdote is hardly unique to our times.

The difference, however, is the scope.

Metaphorically speaking, the “Money People’s” yachts have grown exponentially larger.

I realize I am veering into a touchy area.  In our economic system of choice it is not possible to say that a person makes too much money.  Culturally speaking, this claim makes no semantical sense.  It’s like saying a batter in baseball is getting too many hits.  That’s what you’re supposed to be doing.

The entire arena of personal income in our culture is a sensitive one.  Though it is acceptable to ask someone what they do for a living, it is unacceptable to ask them how much they make doing it.  Salary inquiries are an etiquettian “No-no.”  It is simply not done.  (Declaimed in a quavering Margaret Dumont voice, waving a lorgnette.)

It is the marketplace that determines how much you make, rendering judgments concerning its magnitude confusingly inappropriate.  And of course there are never complaints in the other direction.  At no compensation level will you hear someone say,

“Yeah, that’s too much.  Pay me less.”

That is also simply not done.

The problem, at least for me, arises when the recipients of the bountiful beneficences handed down by a disinterested marketplace start believing that they actually did something to deserve that much. 

Since I know almost nothing about what investment advisers do, allow me to analogize with an example from an arena about which I am somewhat although not substantially less ignorant: 


Up till the mid-sixties, a good salary for a baseball player hovered around twenty thousand dollars a year.  (The superstars got more, but the “mean”, round figures, was in the general neighborhood of twenty G’s.)

Then, as a result of free agency (no longer bound to a specific team, ballplayers could now peddle their services to the highest bidder), agents negotiating on the players’ behalf, and, most importantly, skyrocketing cable television contracts, it is not unusual for players (See:  The recent multi-year contract signed by ace Dodger pitcher Clayton Kershaw) to be paid upwards of (keeping it in round figures) twenty million dollars a year.

No question, Clayton Kershaw is an excellent pitcher.  But, as an example, Hall of Famer Sandy Koufax – one of the greatest pitchers of all time – in his best year, Koufax made a hundred thousand dollars a year.  

They are both doing the same job, exceedingly well.  Yet Sandy Koufax was paid one hundred thousand dollars and Clayton Kershaw will be paid twenty-three million.  Inflation?  I don't think so.

The difference between today’s ballplayers and the Hall of Famers of the past is that Clayton Kershaw and his contemporary ilk simply lucked out magnificently with their timing, entering the game when a combination of circumstances totally beyond their intention, effort or control dropped astronomical salary remunerations into their (and their agents’) fortuitously “Lucky Ducky” laps.  (And the future bodes even more auspiciously for the players to come.)

Does Clayton Kershaw deserve twenty-three millions dollars a year?  Does today’s retired money manager deserve a yacht that can support landing helicopters?  Does the word “deserve” have any meaning in this context whatsoever?

I cannot answer that.  I don’t know if anybody can.  Or if the question itself makes any reasonable sense.  What I do know is that when today’s astronomical compensations are sincerely defended by the words “I earned it”, my spontaneous response to such claims is an arched eyebrow and a skeptically expressed,



Marvin Miller Time said...

The great Willie Mays topped out at 165,000 in 72 & 73; Aaron made 240K his final 2 years; the Mick never made more than 100K (and once took a 10,000 cut after a down year; according to baseball reference, the Babe maxed out at 80 grand. The Big Train, Walter Johnson, probably the greatest right handed pitcher of all time, never made more than 20K. Today, the major league minimum is 500,000, and the average salary (in 2013) was 3.6-mil. Robinson Cano is going to get 240-mil. from Seattle over the next 10 years. Why? Different eras of course means huge salaries. One thing for sure, the MLB Players Assoc. is the finest union - ever.

Wendy M. Grossman said...

The same is seen even more extremely in tennis, where before 1968 the biggest events in the sport were closed to professionals and the pro circuit was tiny. When the women's tour got started, I remember reading in Billie Jean King's autobiography that she scraped and scrambled to earn $100,000 one year because she thought it was a really important milestone for women athletes to reach. I believe Serena Williams' haul (just prize money) was $9 or $10 million last year (plus untold millions more in endorsement income). Timing is everything.

That said, my father taught me young that if brokers knew what they were talking about *they'd* be rich (and at the time they weren't). So for the last 35 years my investment advisor has been a copy of Benjamin Graham's The Intelligent Investor. I commend it to you.