Iron Capital is guided by our core values of trust, independence, and service. Most of our clients have heard us speak to these values many times over the years. We structure trust into how we built the firm so our clients can follow the sage advice of Ronald Reagan and “trust but verify.” We believe strongly that one cannot serve two masters, and we guard our independence dearly. We serve our clients with what we believe is meaningful service – not service for the sake of service, but true insight.
That is our public face, and it is authentic. To ensure that it remains authentic we have a set of guiding principles that are not public but meant for us internally. One of those principles is to strive for wisdom. I know that sounds old-fashioned, but in our opinion, wisdom is what we are paid to provide. Information is free these days. When I was a young analyst at Invesco, we had an entire floor that held nothing but annual reports from public companies. The weight of it required the floor to be reinforced. Today, any investor can read the annual report of any company he wishes by simply searching for it online.
There may have been a day when information was enough to warrant an adviser’s fee, but those days are long gone. Knowledge is a different matter. It is one thing to be able to find an annual report online; it is another thing entirely to know what to do with it. Finance is like most other fields – we have our own language, and it helps tremendously to be fluent in that language. Knowledge is essential, but it is not, in fact, rare. Many of our clients are very knowledgeable in finance and investing, so they certainly wouldn’t pay us simply for something they already possess.
Knowledge is essential but it is not enough. We get paid for wisdom. What is wisdom? This isn’t philosophy class, so we need a practical definition. We defined it as the combination of knowledge and experience. There are no short cuts to wisdom; it takes time to build, and the longer one is at it, the more one understands that he can never obtain it, he can only continue to strive towards it.
Wisdom has fallen out of fashion, and the consequences of that are plainly obvious all around us. Our policymakers and political leaders increasingly have no real-world experience. Case in point is the Federal Reserve. The Fed is staffed and run by very intelligent people, all of whom went to the same schools, got the same knowledge, and have no actual experience. Last year as inflation was taking hold and Congress was doing everything in their power to make it grow, the very intelligent and knowledgeable people at the Fed kept saying that inflation was transitory.
We wrote at the time that it reminded me of the scene in “The Prince’s Bride” when Vizzini keeps saying, “Inconceivable!” Then Fezzik says, “You keep using that word. I do not think it means what you think it means.” I am not bragging about predicting the pain we are all in now as prices rise faster than at any time since the disco era; almost everyone I know in our industry with practical experience was saying the same thing: Fed, you are wrong. This isn’t transitory, and it isn’t going to just disappear.
There is no substitute for real experience when it comes to wisdom. Years ago, my wife and I were in a bar in Edinburgh Scotland. Hanging in there was a sign that said, “Good judgement comes from experience. Experience comes from poor judgement.” In the private sector when an analyst predicts that inflation is transitory and she ends up being wrong, she will face consequences and might even be looking for new employment. That may seem harsh, but it is the consequences of our mistakes that force us to learn from our mistakes.
Has anyone been fired from or even reprimanded at the Fed for being so wrong about inflation? I doubt it. There is a crisis in academia today of studies being published with results that cannot be replicated. They got published, that is more important to them and their careers than being correct. The fact their findings cannot be replicated (that’s fancy talk for they were wrong) simply means they need another grant to do it over again. No lessons learned, no wisdom gained.
This phenomenon is everywhere in public policy today. It used to be said of salespeople that they were often wrong but never in doubt. That wasn’t a compliment. Today the same can be said of most of our public “experts.” For the Fed, it means they waited far too long to address inflation and now they risk turning that one mistake into two mistakes by going too far in an attempt to fix it. Meanwhile, Congress – who really caused it and continues to fuel it – escapes any accountability.
The people at the Fed are very intelligent and quite knowledgeable. Those traits are absolutely necessary, but they are not sufficient for making good policy. That takes wisdom, and wisdom is one thing our current leaders are severely lacking. At least that is my perspective.
Warm regards,
Chuck Osborne, CFA
Managing Director
