The Haiku of Finance for 01/19/16

Trust in modern life
Perverse change from ancient world
Time to change it back

A Post-Modern Interpretation Of Trustworthiness

I made my usual rounds through San Francisco's intellectual circles of influence today. One aspiring philosopher claimed that trustworthiness is the fulfillment of a promise, especially one that is in accord with publicly professed values. The naivete in that expression was striking. Life would be so much kinder if only the modern world worked that way. The real world has a different definition of trustworthiness than the one held in the effete imagination of progressives.

The classical age's virtues gave the Judeo-Christian West a baseline for understanding trustworthiness. The baseline disappeared in the modern era as a semblance of material prosperity became accessible to the uneducated, unenlightened lower classes. The most postmodern definition of trustworthiness has a different formulation from the classical understanding. In antiquity, moral actors earned trust by fulfilling duties, especially civic ones. Today, amoral actors earn trust by providing economic advantages, regardless of how said benefits are attained. Demonstrating integrity by keeping promises is not part of that equation.

Consider how modern politicians typically earn trust. Election winners promise to give their constituents free things. Greedy, selfish, stupid voters flock to the polls and hand them victories purely from self-interest. The question of trustworthiness becomes "What will you do for me?" The answer is some variation of "I will make you prosperous." How the prosperity comes is irrelevant. Voters tend not to link their personal prosperity to abstractions like the rule of law, property rights, enforceable contracts, and incorruptible regulatory bodies. The modern electorate prefers cold, hard cash. It cuts out the middleperson that way. Benefits and bailouts are the order of the day. Politicians who try to do honorable things like balance budgets, end wasteful programs, curtail entitlements, and enforce accountability are the kinds of politicians that voters simply will not trust.

I have always tried to earn trust the old-fashioned way by telling the truth, showing loyalty, and sharing my work. I always fail because my personal values are out of step with the times. Feel free to scold me for my own naivete. My colleagues in financial services lacked personal integrity but outperformed me anyway, and their clients rewarded them for their exertions. Bernard Madoff lied and cheated all the way to prison, while the SEC and his well-heeled clients could not have cared less. In a perverse sense, vile people earn a kind of trust by violating values a philosopher from antiquity would have held dear. The Alfidi Capital solution is to be a lone voice in the wilderness raging against the onrushing dark age.

Trustworthiness is no longer earned in post-modern America. It is a commodity to be traded rather than a virtue to be demonstrated. It is highly ironic that a nation founded by serious intellectual students of the English Enlightenment and ancient Rome has devolved to this state. A reset to pre-modern definitions of trustworthiness and virtue is a pressing national need. Resetting national values is always an election year issue, whether we realize it or not.

I am Anthony James Alfidi, and I approve this message.

The Financial Adviser's Standard Deception

I used to be a financial adviser a decade ago. I had no success at a wealth management firm from 2005-2006. I told dozens of prospects exactly what I would do and made good on my word. No one cared. I learned why after interacting with some of the humans who did succeed. Financial advisers and their sales managers have a large bag of tricks they deploy against clients.

One corporate trainer I encountered early in my financial career built his entire training script around pushing people's emotional buttons. Humans make decisions around greed and fear. Emotional impulses trigger rash, irresponsible decisions and lots of financial advisers count on that to make money. Cajoling a client into discussing their hopes and dreams reveals a host of emotional buttons the adviser will push. Like in sales jobs anywhere, a cynical understanding of human weakness pays off. The difference in financial sales is that pushing a short-term emotional button can harm a client's long-term financial worth if they're pushed into an expensive or unsuitable product.

Insincere commitment is another standard financial adviser trait. The best actors can portray sincerity. Sociopaths are also convincing when they say something knowingly false. Financial sales jobs attract large numbers of actors and sociopaths because they can be persuasive all day without troubling their souls. Detecting fake sincerity is difficult. Poker players and law enforcement officers are among the few professions who develop skills in reading people. Maybe fraud investigators for insurance companies can figure out liars. It takes time and practice to read someone's body language and facial expressions for the "tells" of insincerity.

I had no bag of tricks as a financial adviser. I relied upon my intellect and integrity, and I told my bosses that's exactly what I thought was most valuable about myself. My bosses laughed at me. They bragged that painting a dreamy picture in a client's imagination was more important than giving them what they said they wanted. In a bizarre way, their insights into human nature had some merit. Most humans prefer self-deception and will paradoxically respect those who deceive them. I refused to deceive my contacts and that's one big reason why they refused to entrust me with their wealth. The human race will need a strong evolutionary leap to validate my business approach.

Nota bene: I am not a financial adviser, and I have not been one since I left UBS in December 2006. Alfidi Capital is not a financial advisory firm or brokerage of any kind. Readers will only find the truth here, not advice or deception.

The Haiku of Finance for 08/29/15

To be or to do
Decide honesty daily
Escalate the truth

Ethics And Escalation

I will throw a few thoughts on ethics out at the blogosphere for some weekend musing. Have at them with gusto. Marcus Aurelius was not the only one to jot down his meditations for all to see. People tell me I am a genius.  Here is some proof.

One can never be more honest or more competent than one's boss. The moment you outshine your boss is the moment you become a threat to their career. Most humans are sufficiently insecure about their own place in a pecking order that they will sabotage or steal from capable underlings. The remaining minority could be a lot more productive if they work for themselves. Supervisors behaving badly can fake it for a long time if their subordinates stick around out of desperation.

Everyone who works for a large enterprise will eventually be forced to choose between career success and personal integrity. We all choose one or the other. These are mutually exclusive choices. If you avoid making the choice, your boss will make the choice on your behalf, and your acquiescence is the moral equivalent of concurrence. Choosing personal integrity usually leads to negative career consequences. Repeatedly choosing integrity eventually guarantees a path to either self-employment or starvation. Choosing career success means immediate monetary rewards, plus long-term legal risks that no one can hide forever. Col. John Boyd, America's greatest military theorist, framed the choice as "to be or to do" for his acolytes. Being means choosing extrinsic rewards of money and glory. Doing means choosing intrinsic rewards of moral clarity and professional productivity.

Escalating a decision to one's boss means surrendering moral responsibility for the outcome. Sometimes this is unavoidable. Enterprise policies often define escalation triggers, especially in crisis management. Junior employees can learn from watching seniors handle the escalation even if the results remain hidden.

Humans owe a duty of loyalty to their superiors at the beginning of a professional relationship. This duty grows stronger or weaker over time based on the superiors' behavior. Bosses who demonstrate ethical lapses deserve progressively less loyalty as their deficiencies become obvious. Prolonged exposure to a superior who is unethical or incompetent is a career hazard. Never hitch a wagon to a dead horse. Escaping from unethical people is a moral imperative, not to mention a salve for one's sanity.

That is all for tonight. I will be up in Santa Rosa tomorrow, watching a charity polo match. Wineries will have their wares on display. I may bring home a bottle or two.

The Haiku of Finance for 08/18/15

Mentor wants meeting
Advises lying for fun
No longer mentor

(based on several true stories)

The Haiku of Finance for 08/12/15

Big shots bloviate
Impress clients by lying
People eat this up

The Haiku of Finance for 06/25/15

Slick pitch presenter
Prey on gullible clients
Run mouth to grab cash

The Haiku of Finance for 05/27/15

Mentor for success
Protege needs honesty
Follow tested rules

Getting Finance Right By Automating Lying Humans Out

Financial people do many things wrong.  Sales people are generally the worst and their managers are right behind them.  Saying anything to close a deal is a typical bad habit.  Lying is hard to stop once it's financially rewarded.  The best way to stop it is to never start in the first place.  The next best way to stop it is by automating the functions that lying humans used to perform.

Brokers who lie to clients cause more than missed performance expectations when clients get wise.  They cause legal liabilities that bring lawsuits for misrepresentation.  Compensation on Wall Street has long been a colossal expense for firm that feel driven to pay top dollar for "talent."  The talented liars running brokerages and investment banks are about to meet the new digital world.  Automated sales processes will reduce Wall Street's highly paid sales forces to a handful of domain experts and their DevOps partners.  Everyone else will be obsolete.  The liars' legal problems will be gone when they are gone.

Public companies that send financial statements to the SEC are supposed to make them truthful.  It's hard to discover financial fraud but dedicated forensics examinations can uncover egregious frauds.  Most auditors aren't so dedicated because they just want to make it through the day.  Catching the more commonplace fudging is quite difficult.  Modern accounting rules give CFOs plenty of leeway to report odd things.  Outside auditors that keep teams embedded with large clients are prone to capture.  Enron got away with fraud thanks to its cozy relationship with Arthur Andersen.  Both companies no longer exist except as legal fictions needed to unwind assets on behalf of angry creditors.  Automated auditing is coming next after automated relationship management.  The botnets will share no sentiments for human buddies across the aisle.

Doing the right thing in finance always means reporting results honestly.  Many humans are not up to this task but somehow mask their deficiencies.  Very talented liars can fool a lot of dimwits for a long time.  Hardly anyone can be fooled forever.  Getting finance right will be much easier when automation drives lying humans out of the corner offices.

The Haiku of Finance for 02/03/15

Finance expertise
Best to learn when playing fair
Lay truth on table

Everyone Who Does It Can Still Be Wrong

I recently had a very unpleasant conversation with someone who thinks that brazenly unethical actions in business are somehow excusable because "everyone does them."  Her moral lapse was breathtaking for someone who claimed to possess more than one advanced degree.  I might as well describe what's wrong with this mentality.  Some of you will benefit.

If you had good parents, they probably told you at some point that you shouldn't do some dumb thing just because all of your idiot friends were doing it too.  Phrasing it for a pre-teen goes something like this:  "If everyone jumped off the Golden Gate Bridge, would you do it too?"  The pre-teens who don't listen become adults like the young woman I mentioned at the top of the article.  Lots of dumb kids grow up to be idiot adults.

Entrepreneurs often find the temptation to embellish their backgrounds irresistible.  Those who give in to temptation invite disappointment when investors complete their due diligence and find no corroboration.  Investors check out people's educational backgrounds.  Alluding to a nonexistent degree in a pitch is cringe worthy behavior.  Attending a couple of seminars at Stanford doesn't count as an educational qualification.  People should know this, but they don't and they pitch anyway.

Lying early and often about something leads down a slippery slope.  Misrepresenting product capabilities, warranty commitments, or the legal fine print of a contract is usually actionable in civil litigation.  Pitching lies to a lot of very stupid people is often a quick way to riches and a long road to court problems.  The court then forces disgorgement of said riches, with other penalties piled on top.  Check out case histories at the FTC and SEC for businesses that tried to get away with making false claims.

Even grown-ups need reminders that the lowest common denominator behavior of crowds is not an acceptable substitute for ethical reasoning.  Adults who can't take the hint need to stay far away from me forever.  Business people who lie cannot be leaders.

The Haiku of Finance for 12/13/14

Dropping bad people
Liability no more
Focus on winners

Piercing the Dark Clouds Over San Francisco's Young Professional Culture Groups

I have supported San Francisco's leading arts and cultural institutions for as long as I have resided in The City.  The institutions themselves are fine, despite the problems their labor unions cause out of spite for the audience.  I used to think the young professional support groups associated with the arts were just as fine.  I no longer believe that to be the case.  My membership in those support groups no longer makes sense.

That's me, posing at the War Memorial Opera House in a publicity shoot for the San Francisco Ballet's planned giving program.  The arts matter to me and I once believed The City's young professionals I met at cocktail receptions felt the same way.  Some do, but most do not.

My decade of networking with like-minded people over cocktails bore a lot of fruit.  I connected with dozens of intelligent, ambitious people who are mature enough to handle professional responsibility.  I also encountered hundreds of forgettable people who were not worth my time.  I periodically dropped such people from my circle of contacts.  Let's review a recent sample of these losers, complete with pseudonyms . . .

"The Continental" . . . a Silicon Valley engineer who routinely spends more than he makes, and only avoids bankruptcy because his recent employers got acquired and gave generous severances to terminated employees like him . . .

"The Singing Jerk" . . . a very irritating man-child with no verifiable employment history, who inexplicably breaks into Rolling Stones lyrics in the middle of a conversation . . .

"The Fashionistas" . . . some gaggle of aspiring supermodels throwing all of their disposable income away on wardrobe and makeup, living for the chance to be featured in 7x7 Magazine or the Nob Hill Gazette . . .

"The Gold-Digging Barflies" . . . aging single women who would rather prospect for sugar daddies than hold down paying jobs . . .

The barflies have become particularly annoying because some of them became fixated on dating me, literally pushing away other high-quality women I would rather pursue.  I reached my breaking point with these idiots when I recently became aware of some totally unacceptable behavior.  It is the kind of conduct more typically associated with a certain alternative festival in the Black Rock Desert of Nevada than with a coterie of young professionals.  I don't have time to dig around separating factual narratives from spiteful rumors, because the rumors of this behavior are enough to put me off.  Where there's smoke, there's usually fire, and I don't need to know whether someone is actually burning.  I never witnessed this conduct, nor can I produce evidence that it occurs, but people I trust now corroborate its persistence.  The possibility of a pervasive problem is too alarming to ignore.  I am now compelled to take decisive action.

I declined to renew my memberships in several of these young professional groups.  One remaining membership expires in 2015 and I shall allow it to run out naturally.  I have also dropped a large number of people from my contact list, more than I have ever dropped in one sitting.  Three figures worth of useless humans are totally gone from my life this December.  These people had very little in common with me anyway and I won't miss them.  I still attend performing arts events, including galas, where these losers congregate.  I will not let them cross my path to blight my life.  The San Francisco War Memorial and Performing Arts Center was named for veterans.  I go there to represent my absent companions, and for my own well-being.

The effort I make in meeting people just to weed them out is now a burden on my schedule.  I have discovered that I am more efficient at meeting worthwhile people at strictly business-oriented events.  There's a common saying that a person is the average of their five closest contacts.  If I picked five people at random from those cultural clubs, I'd have a handful of arrested development jerks whose adolescent flights of fancy belong with Peter Pan.  If I picked five random entrepreneurs or freelancers from my business event calendar, most of them would belong in a boardroom.

Yuppie social groups were useful to me a decade ago when I had few friends in San Francisco.  Diminishing returns set in after age 40.  These social groups are to real philanthropy what a cargo cult is to a real economy.  Going through the motions of success makes little sense if participants can't back up their incantations with competence.  I would rather apply my competence elsewhere than go through motions with permanent aspirants.

I have overstayed the time I needed to spend in several young professional groups.  I will say goodbye to some people at a few remaining social events and ignore a large number of people who do not deserve my goodbyes.  I have been free of debt, addictions, and irresponsibility for my entire life.  Most of the people I used to know in the San Francisco yuppie crowd do not share those preferences.  It is time for me to go.  

The Haiku of Finance for 04/05/14

Ethical career
Hard to tell truth in big firm
People like to lie

Ethical Half-Lives In Finance

The few conversations I've had with people younger than me who aspired to finance careers always covered personal integrity.  I could not ignore this subject because it is the ultimate litmus test of whether someone belongs in a large corporation.  I use the term "belong" in a somewhat pejorative sense, as you'll see below.

I worked for three very large financial sector firms at various points in my career.  They all publicly held themselves out as putting the client's interests ahead of their own.  I observed their employees honoring this commitment more as an exception to general practices behind the corporate veil.  It is possible to make a decent living by genuinely caring for a client, meeting their expectations, and charging them reasonable fees.  Managers in large corporations often discount that objective by pushing their revenue producers (brokers, advisors, traders, loan officers, etc.) to make their department's growth numbers look good.  That's how managers get promoted.

The competition for promotions in finance is fierce and unforgiving.  A fast and loose approach to ethics is an easy ticket to the big time.  It is very difficult to have a long career in a large organization without resorting to unethical behavior.  The outsized rewards in finance tempt normal people to stray over to the dark side.  The ones who cross over often enough will never look back, and never realize where they went wrong.  Those rare people who climb ladders ethically and build business honestly deserve respect.  The rest of these people are clawing, grasping, vicious vipers who masquerade as humans to deceive clients.  They "belong" in a large corporation in the same sense that criminals belong in prison.  Society must keep its sociopathic predators under positive control.

I care more about my personal integrity than my career.  I performed very poorly when I worked in large financial institutions because I told the truth, followed rules, and executed my duties correctly.  My supervisors marked me for elimination after observing my behavior.  I wasn't fit for employment in their eyes because I would not lie or manipulate people.  I stand out as an oddball and I couldn't care less.  I dislike unethical people as much as they dislike me.

The half-lives of financial careers may be longest in corporate finance because incidences of temptation occur least frequently there.  It's always possible to falsify payment invoices but internal auditors can catch those instantly, especially if they're tied to the enterprise's supply chain.  There may very well be plenty of honest CFOs and treasurers around, and maybe this is why so many of them are sitting on piles of corporate cash rather than investing in overpriced assets.

Career half-lives are probably shortest in the financial sector's customer-facing roles.  I specifically envision retail brokerage, institutional sales, and investment banking rainmakers as the career paths that winnow out honest people very quickly.  The pressures to meet performance goals and earn bonuses are largest in those fields.  Opportunities to deceive investors appear daily.  The biggest liars and laziest trust fund babies win the retail production games.

Anyone who considers a career in finance should think very hard about the choice they will face soon after they begin work.  Personal integrity and career success in a large enterprise become mutually exclusive at some point during upward career progression.  Employees will choose one path over another.  Choosing personal integrity usually leads to unemployment.  Choosing career success usually means making ethical compromises.  Those compromises come with severe legal risks that cannot stay buried forever in an era of pervasive surveillance.  Having both integrity and success is possible with self-employment.  I have extended my career's half-life by working for myself.  

Academic Journals and Authors' Conflicts of Interest

I cited an article today in my financial sarcasm roundup about the conflicts of interest some academic researchers face in their work.  Industry pays some academics quite well to endorse their activities and I am concerned that such endorsement may color their scholarly research.  Disclosure is one way to manage conflicts of interest that occur in professional life.  Let's see what some academic journals in business have to say about disclosing conflicts of interest for submitted research papers.

The American Economic Association has a disclosure policy that requires authors to reveal any beneficial business relationships connected to their work.  That's very good.

The International Journal of Disclosure and Governance has an ethics policy that focuses on the originality of work but is silent on influential business relationships.  That's a problem.

The Journal of Economics and International Finance has publication ethics that mention conflicts of interest, but I don't see any specifics on outside business relationships.  They do mention the COPE standards below, which is good.

The Committee on Publication Ethics (COPE) has codes of conduct for journal editors and publishers.  The codes specifically mention avoiding undue business influence on publishing, managing conflicts of interest, and other funding-related ideas.  These guidelines are general enough to apply to any academic discipline.  Ooh, looky, COPE has flowcharts for addressing suspected misconduct.  Those aren't as funny as my own flowcharts but that's forgivable in academia.

Here's a reality check from outside the business world.  The journal Nature has a solid discussion of the role commercial financing can play in research.  Commercial interests and objective study aren't mutually exclusive but authors, editors, and readers must see where the lines are drawn.  The academic sources serving the finance sector can take a cue from the NIH's US National Library of Medicine MEDLINE disclosure fact sheet and the ICMJE's recommended conduct.  Lives are at stake in science and medicine and those sectors' compliance reporting regimes should be tight.  Finance can gain respectability by tightening up its own ship.

This is one of my more boring articles but I want it to be a public record.  I'd prefer to liven it up with pictures of attractive women but that's not going to happen today.  Peer-reviewed journals should take conflicts of interest in sponsored research more seriously.  I've relied on scholarly works for my entire career in finance and especially since I started putting my own thoughts into Alfidi Capital.  I refer to textbooks and other sources because I want to start any analysis with as much objectivity as possible.  I would hate to think that some of the ideas I use have their origins in agenda-driven apologetics.  I had enough of that nonsense at Notre Dame in my theology courses.  I don't need nonsense informing my own decisions with money.  

Financial Brands That Should Disappear

The folks at 24/7 Wall St do a great job stirring up controversy with their annual list of familiar brands that are in danger of disappearing.  It takes guts to go out on a limb and claim that some venerable companies are on their way down the tubes.  In the spirit of the moment, let's think about why some financial brands that should have disappeared are still around. 

Merrill Lynch.  These guys were spiraling down pretty hard in late 2008 until Bank of America agreed to buy them out.  The deal made little sense for BofA; they already had a presence in wealth management and investment banking and would have been stronger had they just stayed away from Merrill Lynch.  This is where ego trumps business sense.  CEOs who want to be known for closing the biggest possible deals retain the prerogative of throwing due diligence out the window.  Way to go, BofA.  Grabbing Mother Merrill did nothing but make your TARP bailout needs grow. 

Goldman Sachs.  Do a web search on this firm and you'll see its tentacles in every business sector on the planet.  The firm is insanely profitable but the way they do business raises questions about whether the firm has a conscience.  "Vampire squid" pretty much nails it.  Warren Buffett considers GS to be a good investment precisely because its amorality enables it to be so dominant in the financial markets.  Amorality is not necessarily a recipe for immortality.  Someday their enemies list will reach a critical mass and their moles at Treasury and the SEC won't be able to save them. 

AIG.  The continued existence of this firm is a strong argument that U.S. financial markets are rigged by the government.  The firm's credit default swaps in 2008 were so radioactive that they almost single-handedly took down the economy.  Hundreds of billions in TARP assistance later and taxpayers still hasn't received a decent return on their "investment." 

Compiling this list is depressing.  These firms will probably be around for a while.  That doesn't mean I have to do business with them. 

Stock Promoters Getting Sloppy And Getting Punished

Pump-and-dump schemes are even older than the financial markets in which they now operate.  When Schmedlap in 2000 B.C. was touting his camels in the Egyptian desert to unsuspecting tribesman, he probably embellished their stamina just a little bit.

Things haven't changed.  Pumpers touting stocks with poor prospects do the same thing.  Some firm called Wall Street PR just coughed up $382,000 to the SEC for promoting MitoPharm.  I've never heard of MitoPharm and after this news I don't want to hear about them.  Another promoter was playing games with unregistered shares of Universal Food and Beverage and as a result won't be doing anything with penny stock shares anymore.  I want nothing to do with penny stocks anyway, but those of you who do should take note of the sharks plying the waters ready to eat you alive. 

Full disclosure:  Alfidi Capital is not a "pumper" or stock promoter.  This firm does not accept any compensation from companies mentioned in its blog posts or research reports. 

Success And Ethics Only Mix One Way

The NYSE Group's chairman wants us to think that career success in a large organization is compatible with high ethical standards of conduct.  I beg to differ.  The massive bonuses paid out to bank executives under TARP are proof of this incompatibility.  Those executives knew their financial sausage factories were selling mortgage backed securities whose valuations could never be supported by underlying property values.  Anyone raising a red ethical flag during that process would have been canned.  Go along to get along, and you'll get rewarded with big bucks.  Sell that garbage quick with big lies and collect that bonus.  Don't worry about the client getting hurt afterwards when "I'll be gone and you'll be gone."

My post's title hints that success and ethics only mix in one way.  That way is self-employment.  When your only boss is your own conscience, no one can order you to falsify documentation or misrepresent an investment product.  Say "thanks, but no thanks" to Wall Street's hucksters when they try to tell you otherwise.