COGITO ERGO SUM

Not long ago I was in Germany, where I met with the finance manager and the investor relations manager of a company specializing in real estate investments. The company had become the center of our attention in recent months. After reviewing the company’s quarterly reports and analyses in detail, it had still seemed like a potentially interesting investment opportunity, so we had felt the necessity to meet and consult personally with management. At the end of our meeting, I turned to my hosts for directions, as some of the real estate assets in the company’s portfolio were located nearby, and I wanted to see them for myself. The investor relations manager offered his help, and playing the role of tour guide, he accompanied me on my walkabout.

The end result was a two-hour sightseeing tour around the city, during which we visited 6-8 buildings and discussed the peculiarities of the German real estate market, the main international trends and the company’s prospective opportunities. At the end of our mutual excursion, I thanked my host for the guided tour, which had been a particularly pleasant surprise for me, for those portfolios under my management had had no substantial holdings in this company, while at the same time, our company was a fairly unknown player in the German capital markets. The investor relations manager said all this was of course natural, for it was important for the company to be listed on the stock exchange, which was a source of capital for them; that is, it served as an alternative source of financing for them. (It is worth noting that recently – for the first time in the history of the aforementioned company – they had issued convertible bonds with which they had planned to supersede their soon-to-expire bank financing.)

Why do I think it has been worthwhile to share the above experience with the reader? Because it highlights one of the most important functions of the capital markets, namely as that of the efficient and authorized arbiter of savings. Similarly to the above mentioned company, many companies believe a stock market presence is important, for thanks to this presence, they have the capacity to initiate new investments from time to time, which creates new jobs, and as a result, contributes to the greater good of society, while also spurring additional tax revenue for the state. (All this happens, of course, under the watchful eye of the financial regulatory authorities.)

Why do I think it is important to draw attention to this basic interdependence? Because recently, more and more often I have encountered the attitude that capital market players are nothing more than reckless speculators; they are viewed as belonging to a kind of mystical world, as characters in possession of inside information who score immeasurable and inexcusably huge profits at the expense of the smaller investor. These innumerable conspiracy theories are often emphatically propagated by university-educated individuals (sometimes even by people holding economics degrees). At the same time they do not even make a minimal effort to try to understand it better. It is perfectly natural that these types of views gain a larger audience whenever we find ourselves in the midst of an economic or financial downturn, but despite the negative experiences, it would be wiser to refrain from drawing far-reaching conclusions, making generalized statements and spreading popular conspiracies. Even doctors sometimes commit malpractice, yet we do not tar them all as unsuited to their profession. In an earlier post titled GONDOLATOK” (“THOUGHTS”) my colleague Citadella has already shared his thoughts on this subject, with which I am in complete agreement. In my experience, this profession does not in its essence differ from the others: In the end, persistent, hard-working and dedicated people are the ones who become successful in the field.

Over the course of my carrier as an analyst, I have dealt with many types of companies and industries, and I, too, have had my perceptions. The more deeply I have delved into a given subject, the more I have been able to recognize that I am dealing with multifaceted, complex cases, and have come to the realization that I would have committed huge mistakes if I had ended my research too soon, basing decisions on partial information and making judgments prematurely. (For the players on the capital markets, these types of mistakes can cause tremendous and costly pain.) So this is a beneficial experience, of which I try to remind myself every day.