Don’t Check Common Sense at the Door

One of my mentors in our business was a long –time pension manager nearing retirement named Ray who, even though he was “the client,” routinely offered me sage commentary in a variety of circumstances. 

Because of his wisdom, Ray was typically my first call every morning.  Many of those calls ended with him telling me “Here endeth the lesson.”

One of those mornings in the hot summer of 1993 I was talking with Ray about a new 100-year corporate bond offering from Disney (DIS) that my firm was about to bring to market on behalf of the entertainment giant. 

I remember talking to Ray about the issue and focusing on interest rate trends, insurance company and pension fund demand, convexity, modified duration and all manner of other niceties.  It was a pretty hot deal. 

Indeed, Alan Greenspan, then Chairman of the Federal Reserve Board of Governors called the bonds “one of the more important indicators that the long-term inflation expectations that have so bedeviled our economy and financial markets seem to be receding… a very good sign.”*

Ray was having none of it. 

He listened patiently to my spiel and then, as he was wont to do, gently brought me back down to earth with one simple comment. 

Ray quietly said (and I remember it as if it were yesterday), “If, 100 years ago, you had bought a 100-year bond from the leading entertainment company in the world, you’d be holding a bond issued by a player piano company today.”  The statement was as insightful as it should have been obvious.

As you might guess, I had no ready reply.

No matter how complex the market-related subject we were discussing became – and he was a proficient quant too – Ray never lost sight of good common sense. 

For example, as a double check on the official economic data, every Friday Ray would ride the bus into New York City over the George Washington Bridge and record the number of delivery trucks he saw heading into the city. 

He also read the New York Daily News every day in addition to more establishment papers to remain in touch with what the public at large was reading and doing. 

Ray was always testing the data he used with his own experience and vice versa.  It’s part of why he was so good at his job.