A young Man in whom there is something of the old and an old man with something of the young!

Monthly Market Commentary: November 1, 2014

According to Lucy Kellaway, the higher people climbed within an organization the “dimmer” they were becoming. In my opinion, whether people “get dimmer the higher they went in the organization” depends very much on the culture and compensation packages of the organization. In dynamic organizations, which offer challenging opportunities and significant rewards, good people tend to stay on.

Kellaway also suggests that, “It may not be true that the partners are miles dimmer than the graduates” but that, “It is just that the two can’t talk to each other, and so are blind to each other’s strengths.”

My friends and I are all very happy when younger people with different skill sets than we have, teach us how to improve our efficiency with new methods and procedures, and new ideas and technologies. In the fund management industry, it is important to employ younger people who know more about social media, mobile phone applications, and electronic games than we do. So, overall I am not all that negative about corporations’ ability to take advantage of young people’s new skills and blending them with the experience and the knowledge of the employees who have been with the organization for a long time in order to progress and continuously adapt to changes.  

But, where I am more skeptical about the willingness of organizations to endorse new ideas and employ people with completely different perspective is in the academia and at central banks. In particular at central banks and in economics today, the Keynesian teaching are so entrenched that any other economic thought such as Austrian Economics is immediately dismissed as “a brain worm that has infected large swathes of our financial industry, commentariat and general public.” However, as Oscar Wilde opined, “Ridicule is the tribute paid to the genius by the mediocrities.”  

I am enclosing a report by Pater Tenebrarum (not his real name) entitled, In Defense of Austrian Economics, for my readers who are interested in Austrian Economics. Please click the link below.

I am also enclosing for the benefit of our new readers the March 2012 report, which explains James O’Shaughnessy’s investment strategy. It concluded that high price-to-sales stocks do well in frothy, speculative markets (such as 1967 and the late 1990s) during which performance oriented fund managers are willing to pay any price for ‘concept’ and ‘New Era’ stocks (this is now also the case). Their subsequent performance however, tends to be dismal - this particularly true when compared to low price-to-sales stocks. O’Shaughnessy further noted that it was more profitable to “choose stocks that are workhorses rather than showhorses.”    

I wish my readers a serene festive season. I hope that Young and Old will remember the words of English playwright and poet William Congreve:  

“He who closes his ears to the views of others shows little confidence in the integrity of his own views.”

With kind regards
Yours sincerely
Marc Faber

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