The Best Democracy
Amen of the Week:
“By the late 1970’s, Mesa often took sizable stock positions in other oil companies. We would sometimes suggest to management that certain actions might increase the value of the stock. The response was generally cool, to put it mildly. The standard reply was, in effect, If you don't like the way we run the company, then sell your stock. That's like saying, If you don't like the way the gardener mows your lawn, sell your house.”
- T. Boone Pickens, founder of Mesa (from Boone by T. Boone Pickens, 1987)
Just for fun, the next time you meet someone new at a party, bring up the subject of shareholder democracy. You’ll see their eyes immediately glaze over and then dart around the room seeking an excuse to escape the torture of your presence. That’s too bad, because this seemingly boring topic is actually quite interesting ... and important.
Democracy is a great thing, or at least that's what we red-blooded Americans were taught at a tender age. But there's a glaring contradiction. The track records of other democracies (pre and post America’s birth) have not been so good. Somehow America has been different. How so? The comprehensive answer obviously extends beyond the scope of this one-page missive. (For that, I’ll refer you to Facebook to make enemies with all your friends debating what's right and wrong with America.)
I’ll offer only this observation: the birth of our democracy coincided with the birth of modern capitalism, fueled in large part by the development of truly public capital markets (ergo, publicly traded stocks and bonds). This enabled more diffuse ownership and thus more opportunity than was possible in earlier eras. More businesses were formed, more risk was taken, more jobs were created, and more innovations improved our everyday lives. America's early years were shaped by this participatory economy, not just our participatory government. People weren’t just voting at the ballot box each year; they were voting each day -- consumers choosing which product to buy, employees as to which employer to join, investors as to which business to back. A participatory economy was born. A middle class was born.
Study the profiles of the Forbes 400, and you’ll quickly see one commonality: they’re all owners. Whether self-made or inherited, their fortunes were built by owning something. Most commonly, this “something” is a business. Since many of these companies are publicly traded, regular folks have had the opportunity to invest right alongside them. For example, some of the top 20 of the Forbes 400 made their fortunes in these eight companies: Amazon, Facebook, Nike, Google, Wal-Mart, Microsoft, Oracle, and Berkshire Hathaway.
Granted, there are caveats. For instance, public company executives often treat themselves to extra perks at the expense of public investors. So the system is not always perfectly equitable for the small guy. Admittedly, shareholder democracy is messy and imperfect -- just as with government democracies. Borrowing from Churchill, it is the worst form of an economy … except for all the others.
Grumpy Uncles among you will also point out that much of the public company wealth was built prior to their initial public offerings (IPO’s). Thus, public investors did not participate from the ground up. This is true. Regardless, public investors have participated in plenty of the wealth creation. Of the eight stocks mentioned above, six have risen by over 100x since their IPO’s.* Facebook and Google, the relative newbies, have not risen by that magnitude (and might never). With all these naysayers' valid criticisms acknowledged, I’m merely trying to make the point that small investors have had the opportunity to buy and hold shares in the exact same securities that helped some of the world’s best entrepreneurs attain Forbes 400 status. Isn’t that cool? Isn’t that the type of inclusive economy that we want to encourage and promote?
Alas, I fear that we’re going in the opposite direction. More than one young-ish person has remarked to me in the past week that it doesn’t really occur to folks in their generation that they can save their money into shares of great companies that they admire. That needs to change. It’s not good for the republic. The legendary investor Sir John Templeton used to advocate that we should encourage all citizens to be shareholders. It would help people understand business. It would help them accumulate wealth over time. It would help them attain independence. It would give them self-esteem.
Before closing, please note that Fielder has a new address. Stop by for a visit sometime:
Fielder Capital Group LLC 535 Fifth Avenue, Suite 602 New York, New York 10017
Yours in the Field,
Frank Byrd, CFA
*Per Chris Mayer, 100 Baggers (2015)
While the information presented herein is believed to be accurate, Fielder Capital Group LLC (Fielder) makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in the document. Fielder is under no obligation to notify you of any errors discovered later or of any subsequent changes in opinions. Nothing herein should be construed as a recommendation to buy or sell any of these securities. It should not be assumed that any of the securities, transactions, or holdings discussed will prove to be profitable in the future or that investment recommendations or decisions Fielder makes in the future will be profitable or will equal the investment performance of the securities discussed herein. Fielder or its employees may have an economic interest in securities mentioned herein. This information is intended only for the recipient of this email. Under no circumstances should this report be shared with or forwarded to anyone else without the express permission of Fielder.