Every now and then, The Economist magazine will write something that makes sense. In the current issue, there is a headline about the Tea Party's latest "victim" (Luger) and David Cameron's mid-term crisis, so I braced for the run of the mill attack on prosperity, independence and individual rights. But there it was, a piece on a page labeled Free Exchange-hope springs a trap titled "An absence of optimism plays a large role in keeping people trapped in poverty." My goodness, I could have written this for them from experience and study. The article discusses an MIT study of data from a microfinance program in West Bengal. The BRAC program made loans to locals stuck in deep poverty.
It was assumed the loans wouldn't be paid back.
These loans were in the form of a farm animal like a cow, or a couple of goats or chickens. There was a stipend as well to deter recipients from eating their assets. The folks were taught how to tend and manage their animals to produce a small income. Long after the program ended, the randomly selected recipients were still going very well:
> 15% eating more
> 20% earning more each month
> Skipping fewer meals
> Saving more money
The trick to this longer term success was A) these people worked 28% more hours B) their work goes beyond the assets they were given and C) researchers found mental health improvement. These were extremely poor people that are now seeking new opportunities. The very smart people at MIT came to the conclusion that the absence of hope kept these people in penury while BRAC injected a dose of optimism. I've argued the difference between hope and optimism is that the former relies on an outside force to save the day while the latter relies on the person in the mirror to make it happen. The article went on to discuss the fuel of self-belief.
I love that term...it makes for the perfect replacement for the notion we can only make it as a collective.
Of course, while there is an occasional positive surprise in liberal rags, the world of academia never fails to surprise in their efforts to strike the idea of accountability from human check list to a fulfilling life.
These MIT mavens could have saved a lot of time and money by just reading an old Chinese proverb: Give a man a fish and feed him for a day, teach him to fish and he eats every day.
My Brain Made Me Do it
I remember the skit Flip Wilson used to do on his eponymous named show where a female character named Geraldine's excuse for poor behavior was "the devil made me do it." As it turns out it's not the devil but it's also not you- not the conscience you. Now the experts say we are born a certain way and that's that. It's about the bad seed. More recently a piece from PNAS.org says that our genetic architecture plays a predetermined role in our political choices and economic decisions.
In other words, people that take risk are predetermined to do so and people that vote republican or democrat are also bending to the will of their DNA.
The bottom line is we can control our own destiny. The real truth is we do control our own destiny, even if it means we enter into that Faustian deal of letting government pay for all our stuff in return for our allegiance in voting booths and erasing chances of our children living a better life. The powers that be must promote fuel of self belief, even if it means they relinquish their princely relationship with common folk. I doubt politicians will do this from either side of the aisle (unless those evil Tea Party types collect more victims), so it's incumbent upon us to escape the grip of hope and embrace the freedom of optimism.
Mount Olympus
Of course, as an investor these days, it's harder and harder to embrace optimism as the market continues its version of the Bataan Death March. Interestingly, you can now toss out the charts and income statements, along with balance sheets, cash flow statements and Ouija boards. The market is taking its cue solely in response to worries about Europe and impatience about more money printing operations on both sides of the Atlantic. In the meantime, the US dollar gets stronger and the world continues to crowd into American treasuries. Sadly, a strong dollar hurts the stock market, which is counterintuitive, but a new fact of life. The reason for this is the fact that we have more faith in international economies (outside of Europe) than domestic growth.
The dollar in the meantime has no competition.
Individual names are more likely to move with the broad market than on great individual developments and potential. Then there are the market Gods- those hedge fund managers that are on television more than Ryan Seacrest. Perhaps the most influential these days is David Einhorn, whose observances on stocks have the power to move prices the way it was once thought Zeus could move the winds. Late yesterday, he didn't mention being short Herbalife (HLF) and the stock soared, but he said Dick's Sporting Goods (DKS) will ultimately lose against Amazon and investors forgot about that amazing earnings and outlook from the retailer just a day earlier.
As frustrating as this is for investors (unless you bought NUS or HLF yesterday), imagine being the CEO of a company Einhorn or other hedge fund gods don't like (see MLM). To a lesser extent Paulson, Soros, Lambert and Icahn have the same power, although their modus-operandi is more about shakedowns that actual trading.
I will say that I do agree with Steve Mandel of the Lone Pine fund who observed at the Ira Sohn conference yesterday's Mount Olympus that saw a parade of hedge fund guys pontificate on the subjects ranging from Marx to the Economy. Mandel spoke of fixed income having no value because of inflation. He is spot on but investors are motivated more out of fear than fundamentals. I know these guys are good, but I don't think they are so good stocks should move in double digit clips on their whims and words. Heck, they are grappling in many cases and relying on quant strategies, insider information and other edges and seem to be going for the quick buck just like everyone else.
I'd rather take my chances on self-belief based on good old fashion work that gets muffled from time to time in these hectic markets but never goes out of style or lets you down for long.