Frank Thoughts: The Uniqueness of Equities
Frank Boland
September 28, 2012

It was a late summer day in 1955.  Stamps and newspapers were three cents.  A bottle of coke cost a nickel.   That summer I was a 12-year-old caddy earning $1.25 for a round of golf plus, generally, a small tip.  But on this particular day I would realize what it would take to make significant money as an adult. 

The man I had caddied for that day signed my caddy slip and then, reaching into his pocket, pulled out a large roll of bills and handed me a dollar tip!   Putting the golf bag down, I cleared my throat and said, “Sir, may I ask what you do for a living?”  “I’m in the grocery business,” answered Stephen Mugar.  This unpretentious man, I would subsequently learn, was the founder of one of the largest super market chains in the country.  He then asked, “Would you like a ride home?”  I quickly answered, “Yes, sir.”  Sitting in his big Cadillac, I thought, I hope Mom sees me in this car.  She will be very impressed.   

That summer was my first year as a caddy at Oakley Country Club.   From my poor Boston Irish perspective, all the members were, by virtue of being members, very rich. Like my grandson now, I quickly fell in love with the game and decided I too wanted to be rich and belong to a country club. But I needed to find out how these members became rich.  So every time I had a new “loop” (caddy speak) I would say, “Sir, may I ask what you do for a living?” There was one problem with that approach.   They all did something different.  It wasn’t until I caddied for Stephen Mugar that I had my Satori (a Japanese Zen Buddhist term for enlightenment).   They all owned their own businesses.   As we know from the current Presidential election campaign, small business owners create most of the wealth and almost all of the jobs in this country.   But to a 12-year-old boy in 1955, it was a true revelation.

Ten years later I found myself in a training class for the investment business.  The teacher was pointing out that there are intangible assets and real assets.  Commodities and real estate, he said, are real assets.  You can see them, touch them.  Stocks are intangible.  But stocks are really not, when viewed from the perspective of a 12-year-old caddy.  From that perspective, hard assets are simply a directional bet.   Macro events cause hard assets to move up or down.  They are primarily moved by inflation or deflation.  That’s not investing.  It’s gambling.  Yet it is the way most hedge funds are managed today.  It is Risk On, Risk Off.  And at the end of any time frame you have a 50/50 chance of being right or wrong.  Notable hedge funds, down 50% in 2011, is a perfect example.

Stocks are unique assets in that they are people specific.  It is the only asset class with that distinction.  Sometimes we even know their names; Bill Gates, Sam Walton, Steve Jobs.  Would any of them have said to themselves, I need the economy and the stock market to be moving up before I start my business?   Yet that is the thinking of many money managers, managers who were never caddies.

Francis Patrick Boland

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