It’s Time for America to Get Back Into the Storage Business
I used to be in the moving business. Eighteen years ago, after working for seven years in the risk arbitrage business, one of the many ‘moving’ businesses of Wall Street, I left New York to come to San Francisco in order to get into the ’storage’ business. America’s strong economic foundations are rooted in multi-year business building and long-term risk taking. We are now bearing witness to the sour fruits of moving securities around like meaningless scraps of paper for short-term profit and the securitization of risk into a daisy chain of the unknown and the unmanageable.
Over the past 20 years, the average holding period for stocks has declined from 2+years to just 3 months as of earlier this year. A root cause of the relentless volatility in the equity, commodity, and debt indexes is the steady erosion of long term thinking in investing, not only in this country, but all over the world. How many public company CEOs have lamented the wholly inconsistent demands of managing quarterly earnings expectations for fickle institutional investors while maintaining a consistent long term operating strategy to maximize shareholder value?
It’s time for a global re-boot of the investor mindset so that people can start investing responsibly– there are many reasons why Warren Buffett is such a successful investor, and long-term thinking is one of them.
I can thank Brett Haire, my boss at First Boston during the 1980’s, for inspiring me to leave Wall Street and risk arbitrage behind. I remember once asking Brett for permission to accumulate a long-term, unhedged position in the spin-out of a company that we were researching for investment. Brett looked at me, incredulous, and said, “Pascal, we’re in the moving business here, not in the storage business.” At that moment I realized that I did not want to be in the moving business and initiated the career path that led me to become a venture capitalist.
America needs to get back in the storage business at many levels and actively promote the entrepreneurial spirit that built this country one brick at a time at the same time that we re-build our securities markets. Let’s learn from our mistakes.
Related posts:
- Confusing Risk Capital with Systemic Risk– Venture Capital Catalyzes Unlevered Economic Growth, NOT SYSTEMIC RISK
- The SEC’s Colossal Failure of Oversight– Isn’t This a Violation of the Business Judgment Rule?
- New Book by Professor Mannie Manhong Liu and Pascal Levensohn– Venture Capital: Theory and Practice, published by the University of International Business and Economics Press, Beijing
- Bob Ackerman of Allegis Capital– America Depends on Entrepreneurs While Current Public Policy Assaults Them
- Kevin Compton of Kleiner Perkins is Featured on VC-InsideOut
2 Responses to “It’s Time for America to Get Back Into the Storage Business”
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About Pascal
I am a venture capitalist focused on investing in Security, Cleantech, and Digital Media. I have a strong interest in public policy issues and advocate public-private collaboration to protect our nation's critical infrastructure.
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October 12th, 2008 at 6:50 am
Fee structures of money managers and their client’s “what have you done for me lately” mentality need to both be addressed ASAP!
Maybe hedge fund managers can learn something from the fee structure of venture capital funds.
October 12th, 2008 at 7:48 am
Jeff– This is a very good point. For example, offshore entities that are otherwise identical to their twin U.S.-based hedge funds (run by the same manager, invested in the same positions) are functionally set up for non-U.S. investors but practically set up to be completely indifferent to holding periods because they are immune from U.S. taxes. Further, hedge fund GP’s have historically been able to defer their fees in their offshore funds and hence defer U.S. taxes for a very long time (I believe this has recently been reversed). You can imagine the behavioral impact of having a lot of short-term-performance-obsessed money invested in your fund that doesn’t care about long-term capital gains or long-term holding periods. That’s one reason why we have developed a large class of hit-and-run investors– and one side effect of this type of macro incentive is that it’s turned ‘everyone’ into a trader. But the answer, in my view, is not to tax these investors more– it’s to provide tax incentives to individual and institutional investors for being long-term investors. THe U.K. has done this for years with the AIM market.