The markets were distinctly wobbly on the day I met Dan – but then so was he. There was no consensus about whether the markets’ condition was justified. Some commentators were pointing out that the fundamentals of the economy were sound; just as many asserted that overvaluation in recent months made a correction inevitable. But no-one doubted that Dan had good reason to be in the state he was in. The night before he had been out celebrating his 65th birthday.
So I excused him for being late for our meeting that morning as I sat in the reception area of the investor relations counselling firm which he had founded some 40 years ago.
The area I was in was larger than the offices in which he had started. It was also more lavishly furnished – in a minimalist kind of way. It was presided over by an efficient but distinctly cool receptionist. She appeared to have little to do now that voicemail had taken over. In the early days, you were greeted by a harassed telephonist who struggled with a switchboard, collated announcements, dealt with messengers (now banished to a back door), made the coffee and still had time to chat.
The current receptionist seemed to do nothing but take visitors’ names and tell them their hosts would be with them in due course. She then glared at you from time to time in case you dared disturb the magazines and newspapers she had tastefully arranged on the coffee tables in front of the Italian leather sofas.
Dan breezed in some 20 minutes late, but in remarkably good form considering the beating his system had taken the previous evening. He apologized for being late and led me towards his office in a far corner of the building.
‘It’s all very different from when you started,’ I said. I was referring to the premises but Dan took it that I was talking about the business.
‘Yes,’ he agreed. ‘Even I’ve got one of these now.’ He indicated the computer on his desk. ‘And what has been its impact?’ I asked.
‘Well, in the early days one of the reasons we were hired was our ability to deliver bits of paper around town efficiently. These days you don’t even have to be in town to deliver information instantly.’
‘And the result of that has been…’ I prompted.
‘Too much information,’ Dan ventured after a pause.
‘Surely that can’t be a problem,’ I suggested. ‘The fact that everyone can have equal access to news must surely be a good thing. And, similarly, being able to access raw data must improve decision making.’
‘In theory, I suppose the answer should be yes, but that’s not the way it works out in practice, is it? I mean take what’s happened in Asia. The signs that things were going wrong were evident there months ago. But investors continued to throw money at Thailand and Indonesia although they knew they were creating something which was unsustainable. And why?’
Since this was clearly a rhetorical question, I kept quiet.
‘Because the flood of money was pushing the markets up and as long as the markets were going up people continued to make money. What price information when the only information that matters is which way prices are moving?
‘Information hasn’t made investors more sophisticated. After all, the current fad for technology stocks is very similar to the Dutch tulip boom of the 17th century: putting your money in something you don’t understand because everyone else is doing it.’
‘It seems to me we’ve got things the wrong way round. Markets don’t fall because businesses are doing badly; businesses do badly because markets fall and people have less money to spend. Sometimes I wonder whether all this stuff we’re putting out has any purpose.’
‘Because companies need the markets to raise capital for investment,’ I ventured.
‘Do they?’ Dan replied. ‘Most trading involves transferring securities from one investor to another. The transaction benefits the buyer and the seller and, of course, the intermediaries, but does nothing for the original issuer.’
‘But it still matters to them,’ I countered. ‘In the way that prices in the used car market impact on manufacturers.’
‘Lots of other sectors don’t have a second hand market at all, do they? Food, pharmaceuticals, oil and gas. And the idea that stock markets raise capital for industry is largely a myth.’
He logged on to his computer and scrolled through the reams of waiting e-mail. ‘Look at all this,’ he said, pointing to the screen. ‘I started work in the days of carbon paper when one rarely did more than five copies of anything and you could hardly read the fifth one anyway.’
‘The truth is, you know, that most investment isn’t financed through equity, not even through debt, but through internally generated funds. The data is all available but no-one bothers to look at it. Still, I suppose it’s quite a good thing they don’t. Otherwise I might not have a business.’
