Frank Thoughts: Same Movie, Different Cast
Frank Boland
December 15, 2020

We tend to think of genre in terms of artistic composition. This is especially so with music or literature.  But it’s not that simple. Genre can also be illustrative of a broad context such as writing style … or subject matter. Moreover, every genre has subsets which can enrich the genre with nuance. I learned that years ago when - by chance - I met George V. Higgins. At the time, he was a struggling (had written fourteen books all rejected) writer who was about to become famous and rich.

With one new book, he created a new subset in the criminal genre of literature. Prior to his book, criminals were usually portrayed as rich, suave and smart. Dr. No in the James Bond epic, or Don Corleone in The Godfather are examples. But Higgins had written a book about real criminals. Ones that he had known as a prosecutor in Boston. These men were working class criminals with myriad bad Boston accents. The story – written mostly in dialogue – was called, “The Friends of Eddy Coyle.”

We met while waiting for an elevator in the Bank of Boston building. It was 1970 and his excitement was palpable. I stared at him with a look of … “what’s going on?” He blurted out, “I just sold my story to Hollywood! I’m rich. Rich!” The movie would come out three years later. George’s career was just starting; mine was fading rapidly. At the time, there was a subset in the investment genre of growth stocks called “The Nifty-Fifty.” You perished if you didn’t own them; then you perished if you did.

This subset would last from 1962 to 1972. They were in the genre of growth-stock investing and were known as “one decision” stocks; they were bought never to be sold. It was based on the belief that each one of the fifty was completely dominant in their respective business.  Since future growth was assured, the price paid for them didn’t matter. They were “anointed” stocks referred to as “Vestal Virgins.” Today we have over four hundred companies with the mystical name of “Unicorns.”

Besides classical references, these two growth subsets shared a common objective. Dominance. The Vestal Virgin investors believed it would lead to never ending profitability. And it did … until inflation and rising interest rates overtook the economy. The moat of dominance protecting the companies and their stock price disappeared. Today, as we all know, we have had two catastrophic events happen in the past 12 years. The debt crisis and Covid-19. Interest rates and inflation are now both close to 0%.

But there was also another unifying theme besides dominance and unending growth. Extreme valuation. The premium paid for Vestal Virgins was fifty, sixty even a hundred times earnings. Today this new growth stock subset – also in its tenth year – is selling at similar numbers not on earnings but … sales! That’s because, as The Economist magazine recently stated, 84% of companies pursuing IPOs have no profits. And yet many, if not most, have already been in business for ten to fifteen years.  

Today, with funding provided by sovereign wealth funds (such as SoftBank), public sector unions and leveraged buyout partnerships, Unicorns are anything but rare. The huge pools of money needed to fund these profitless companies did not exist at the time of the Nifty-Fifty. If George were alive today, he probably would be writing about criminals who are international CPAs that speak Mandarin.  After all, there are over 200 different Chinese dialects compared to the five identified by him as Boston accents.  Though some are hard to understand such as the one in door-chest- ta (Dorchester).

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