- Gerald Nye
“All through life there are opportunities in allocating capital - it might be your own time or money in personal development. It might involve investing capital – with time, money, or something else - in the company you work for. Or it might be investing capital into our country or system - building new companies, new products, changing the world. In a capitalistic-based system like the United States, we have a 230 year history of generating enormous returns on capital. Being part of that process is a remarkable opportunity and honor”.
- Sam Hallowell
In 1973 my family came across the Canadian border as part of an agreement to become United States citizens if my father would transfer his service to the United States Army. On that long car ride, I remember reading Lincoln’s Emancipation Proclamation and hearing the phrase “all persons held as slaves within any State or designated part of a State, the people whereof shall then be in rebellion against the United States, shall be then, thenceforward, and forever free”. It gave me goose bumps then and still does today.
During this holiday season, I give thanks for several events in my life that made so much of my later success possible. The first is coming to the United States at the height of its influence as a young white male. Demographics and timing made a huge difference in my life. Second, I had parents who insisted that all their children attend the best schools for their abilities. My attendance at an Ivy League school opened an enormous network to me. Third, right out of college I was introduced to the American system of capital allocation. I’ve never faltered in my thinking - though it is dented and tarnished these days - there is no better system in creating long-term value.
As I worked my way up the greasy pole in the investment world, I began to realize nearly everything I did - from personal development to professional training to my role as an investment manager, was really about allocating capital. Whether it was my personal time and money, or my client’s hard earned capital being deployed into the markets, my job has been to maximize return on capital. Now that I’m older and wiser, I realize that while all that is true, the real blessings have been that I have lived in a time and place that made that type of career possible. Sitting around the house having survived another delicious meal, watched another badly played football game, solved all the world’s problems in a series of increasingly emotional arguments, I usually come to feel a great deal of thanks for several key factors in my life.
We Still Have the Best Capital Allocation System
Over the years I’ve written extensively about some of the issues I’ve seen developing in our capitalistic system. Whether it be Jack Bogle’s wonderful analysis of the shift from owner’s capitalism to manager’s capitalism or the constant battle fought over fees, I’ve taken some rather heavy pot shots against our current capitalistic system. Having said that, I still believe our current economic system gives the most people the best opportunity at achieving financial success. Every day, millions of citizens get out of bed with the intention of starting a new business, deciding where its best to allocate their company’s capital, or where to allocate their assets as they think about retirement. Is the system perfect? Absolutely not. Can it use a real deep cleaning? You bet. But every morning as I prepare for the work day, I know I’m building a company that provides my investment partners with the chance to see their capital put to work and make their portfolio - and their country - a little bit stronger.
As Shareholders We Have Rights….Use Them!
Along with the ability to freely choose how, where, and when I allocate capital comes the responsibility to act as an owner. Each corporate share I own is a piece of an outstanding business that has passed my investment criteria. Being an owner comes with responsibilities – reading corporate documents, voting for my board candidates, and speaking out when I agree or disagree with a substantive issue. I am grateful that I have the chance to exercise this control, though sadly it is a responsibility badly neglected these days by individual and institutional investors alike. Much like voting in political elections, most of the work is done for you as a voter. Ballots are frequently mailed to you or available online. If one expects to be a successful investor, then you need to be a successful owner. Be thankful you have the rights of an owner….and use them!
We Are A Nation of Laws
If you look around the world – both the developed and underdeveloped – there aren’t many countries where investors have a near implicit faith in the underlying legal, regulatory, and policy structures that support individual businesses and the greater markets. That exception (though again somewhat battered and beaten down) would be the United States’ capitalistic system. Though it isn’t perfect, investors in the US can be confident that contract law provides legal protection, that regulatory agencies (generally) look out for owners, shareholders, and other stakeholders in a fair and just manner. Anybody who has tried to work in other countries where the political system is a single-party monopoly or the courts are mouthpieces for the powers that be, have found investing - or even simply doing business - is an act of risk of the highest order. During this holiday, be thankful that - even if a handshake isn’t as solid as it was - contract law remains as a solid foundation of the US economy as it ever has been.
As another year winds down and my family gathers to celebrate Thanksgiving, it’s important that we give thanks to living at a time, in a country, and in system that allows us to fully participate in the economic life of the country. Whether it be investing in a rental property, being a silent partner in a friend’s new restaurant, or being the smallest investor/owner of the largest operating company on Earth, we are blessed to be part of the greatest, most successful experiment in capital allocation the world has ever seen. After all the left overs are gone, the long naps been taken (along with all that antacid!) and the in-laws have driven home, roll up your sleeves and be prepared to get back to work. Being an investor is both a privilege and responsibility. There is much to be grateful for at this time. Accepting that - and being aware of all that requires of you - is the beginning of a tremendous journey that will educate you and be profitable in far more ways than dollar and cents. We hope everyone had a wonderful Thanksgiving and wish everyone a happy and safe upcoming holiday season.
 Jack Bogle, former CEO of Vanguard argued that over the past several decades, ownership has shifted from a traditional owner’s model where the owner put up 100% of the capital, took 100% of the risk, and received the vast majority of the rewards. In the manager’s capitalism model, the manager puts up little capital, takes on little risk, but receives a great amount of the reward. Bogle felt (and I completely agree) this greatly distorted the values, ethics, and financial outcomes of the capitalistic system.