Frank Thoughts: The Crowd
Frank Boland
August 11, 2014

As I entered the locker room, I heard my name called out.  Cringing, I stopped and turned around slowly.  The man who had called my name, “Cam” Deveny, walked up to me to ask what I knew would be the inevitable question.  “Frank, what did General Electric do today?”  “I don’t know,” was my answer. “Well,” he went on “then what did the market do?”  Without the slightest hint of embarrassment, I would once again say, “I have no idea.”  Yet again, he would shake his head and say - more than ask -  “Did you go to work today?” The question, of course, was meant to shame me.  But it never did because I had zero interest in “blue chip” dividend paying stocks.  I was only interested in growth stocks.

It was the summer of 1966 and the NYSE was forced to close at 12:00 PM every Wednesday and Friday afternoon.  Member firms had massive back office problems transferring securities.  There were no computers to transfer stock.  It was all done by hand.  This created massive turmoil because volume had gone from two to three million shares in 1956 to 15 million plus in ten years.  During that period there had been a dramatic, but largely unrecognized, paradigm shift in investing.  From the depression in 1930 to 1956 stocks yielded more than bonds because of their perceived higher risk.  And that became an accepted generational belief.  It was similar to the current belief held since 1982 that bonds are safer than stocks.  As a consequence in 1956 few people actually recognized the paradigm shift. 

I was no different.  In fact, I probably didn’t even know, though it was ten years later, what the word paradigm meant.  But I did find the subject of companies growing very rapidly absolutely fascinating.  And when I would hear security analysts talk about how you should buy this blue chip because it yielded more than another blue chip, I found it well … utterly boring.  When you are 22 you are definitely a blank slate in the investment world.  I just knew I wanted growth.  After all I was a poor Irish kid. Fortunately I would meet Robert F. Lawson.  Lawson was part of “Our Crowd.” Like all Boston patricians at the time, he was a Milton Academy, Harvard College, Harvard Business School graduate and member of the Country Club.  But one who had a unique difference from his “crowd.”  He loved to make money.  He thought it was fun!  And he did it by buying stocks for growth.  It was a unique concept at the time.  It went against conventional wisdom.  And so, I learned to think the same way as Lawson. 

It’s not that the crowd is always wrong.  It can be very right for a long period of time.  Stocks had yielded more than bonds for 25 years until 1956.  Bonds have been in a secular bull market from 1982 to the present.  What crowds miss is the inflection point of change.  Example:  today the crowd is obsessed with ETFs and index funds.  And they have been very right for the past five years.  But as “Cam” Deveny would begin to learn in 1966, the future can be very different from your historical experience.  For seventeen years from 1966 to 1982 his General Electric, as well as other blue chips, went NOWHERE.  It was a period of RISING interest rates.  Individual stock selection was everything!  And it will be again.    
 

Francis Patrick Boland

8-11-14                                                                

Read more