Wall Street is a Cult

I have to confess that I struggled with the title of today’s blog post.  Let me begin to tell my story, and if any of you have any suggestions as to a better title, please feel free to leave it in the comments section of the blog.

For centuries investors have moved with mob like behavior into assets in such large numbers that gigantic inflationary price bubbles are created.  Then, when panic takes over there is a huge rush to the exits in mob-like fashion, too.  This cycle was documented in the classic investment book, now over 160 years old, “Extraordinary Popular Delusions and the Madness of Crowds” by Charles MacKay.

Included in this book is the famous explication of the Dutch tulip bulb bubble.  Here folks in Holland gave away life savings for the sexiest tulip bulb as the madness swelled.  You know how this ended, yes?  The bubble burst.  In this kind of situation it seems ridiculous that anyone could have created such froth over tulips.  Yet, to those participating it was well worth it, until they lost everything.  All the while, the tulip bulb naysayers were ridiculed and made to feel foolish as the “gold rush” had minted instant wealth for many.  Sound familiar?

Once you learn to identify an investment bubble it is all too obvious when one develops.  The dot.com bubble – obvious.  The real estate bubble – obvious.  The current gold bubble – obvious.  Why does this keep happening despite the dozens of examples of crazy behavior on the part of humans?

For me, its because we are wired from youth to follow the behavioral cues of those around us.  We learn by patterning our facial expressions, our movements, our talking, and our behavior by following those around us.  We learn, not by paying attention to the world around us and our own unique experiences, but by reading about the thoughts of other people on blogs or in books (please keep reading the blog : ) ) and then aping what others do.  I could go on, but certainly you get the point: a lack of originality and a preponderance of cultish, mob behavior.

Which brings me to the story I found so interesting from today’s Wall Street Journal.  The story is about the 30-year anniversary of Wall Street’s cult calculator, the Hewlett Packard 12C.  If you have ever been to business school you were likely indoctrinated into the cult of the 12C.  At my graduate school nearly every professor, and consequently student, used a 12C.

The Journal article is entitled “Wall Street’s Cult Calculator Turns 30.”  Here is a gem of a quote from the story:

“Thirty years after the launch of the 12c, it’s still commonplace for financial analysts filing into a conference room to set down their calculators next to their papers and cellphones.”

If you have never attempted to use a 12C it works on Polish logic.  This is no slur, that is really what it is called.  Effectively, you have to think backwards from how you do arithmetic in order to use the calculator.  In fact…

“The system tends to render the calculator mystifying to the novice user. Senior portfolio managers, who use it to calculate bond yields, rates of return and present value, among other things, say they enjoy watching their younger colleagues struggle to master its quirks.”

And this is my very point.  If you want to earn returns greater than the majority of investors, by definition for god sakes, you have to do what no one else is doing.  So you would think that Wall Street would be full of rebels, free-thinkers, Renaissance men and women.  But it just isn’t.

After having worked in the industry for nearly two decades I can tell you that I have rarely encountered greater cultural tradition than in the midst of Wall Street folks.  With the exception of fundamentalist religious circles (that includes Judaism, Christianity, Islam and New Agey folks) Wall Street is where I see the most group think.

Today’s 12C story in the Wall Street Journal is meant to be cute and reveal one of the more charming aspects of Wall Street: love of the 12C.  Yet, in it, I see a microcosm of behavior that is exactly what makes Wall Street absurd.  Group think, cultishness and hazing.  It even goes into the depths of what calculator they all use.

What calculator do I use?  The Texas Instruments BAII Plus.  I have been using it for my entire investment career.  Why?  Because it has greater functionality than the 12C.  I know, because I have been repeatedly challenged throughout my career to calculator duals by master race, 12C geeks.  I have always won.  Not, in terms of speed, but in terms of being able to do something that they cannot do.

Further, the BAII Plus uses regular calculator logic so you don’t have to haze yourself or be hazed by Wall Streeters in order to use it.  Wall Street folks love to make outsiders feel foolish.  That’s why they predominately hire from Ivy League schools over and over again.  It keeps the insider cult just the way they like it: cultish.

As a kid coming out of the University of Colorado I was ridiculed by some Ivy Leaguers in my career.  As if the information about how to do finance, and how to think like an investor, is unique to their schools.  Meanwhile every business school student reads about the same information from similar text books and from similar professors.  The only difference is geographical location; Boulder not New Haven, Boston, Philadelphia or Chicago.

Do you feel that you understand investing?  Many feel overwhelmed with gobbledygook.  Trust me, Wall Street wants you to feel that you don’t know what you are doing.  That way you need them.  You will always be excluded from the cult and you will always want to know what they know: the secrets.  They love this.

Oh, and did I mention, the Texas Instruments BAII Plus costs less than the 12C?  How can it be that you have greater functionality, ease of use, and lower cost, yet Wall Street folks continue to worship the 12C?  Hmmm.  Clearly we are not in the realm of logic and clear thinking, we are in the realm of the ego and of cultishness.

So why would anyone use a 12C?  Why would anyone think that a tulip bulb is worth surrendering all of your money to own?  So in the Wall Street Journal article we have all of the evidence of the cult-ure of Wall Street; and in that story, we can see almost everything that is wrong with it, too.  Namely, group think, cultishness and hazing.  Ugh!

Jason

[Note: I have edited this story for clarity.  When I wrote it this morning I was rushing out the door to basketball.]