A Time of Gifts

Christmas is here! Yes, it’s that time of year when we hedge fund managers reflect on the themes of charity, compassion, and, most important of all, free loot.

I look around the desks at Sopwith and I see men and women who can easily afford to buy anything they could reasonably desire. Yet every single one of them would rather receive a trinket worth a hundred bucks, no matter how useless a piece of junk it is, provided it’s free, than pay a hundred bucks out of their own pockets for something of actual utility. It’s a very curious phenomenon.

Mind you, there is no phenomenon so obscure, no tendency in human nature so venial, that our modern scientific society won’t take advantage of it. And by ‘modern scientific society’ I refer, of course, to our friends the investment banks.

That’s why at this time of year the offices of Sopwith Asset Management are flooded with greetings cards blazoned with messages of holiday cheer, peace on earth and goodwill to our fellow souls. And nestled underneath these cards are gift baskets packed with tons and tons of free loot.

My broker in Chicago fancies himself an amateur sommelier; he invariably sends me a case of fine wine. My salesman in London says he has an inside line at the distillery; he dispatches a bot or two of aged scotch. My man in Tokyo sends sake and the most exquisite floral displays. As for the New York crowd, they (true to form) outdo each other in sending me all of the above, and chocolates, and cigars, and caviar, and whatever else catches their eye.

It’s a profusion of presents, a glut of gifts, an oversupply of offerings. And to what purpose? Well, each of these bankers fondly imagines that come the New Year, when the time arrives for me to place my first trades of the season, I will remember their contribution with favor, and trade with them instead of with their hated rivals.

Note the economic calculations here. Even the most lavish of gift baskets won’t cost anywhere near as much as the commission from just one chunky trade. What’s more, trading commissions go directly into banker compensation; costs, on the other hand, are rarely subtracted directly from banker salaries. (The same logic, inverted, applies on our side of the equation: I pay broker commissions using my investors’ money, but get to drink the scotch myself).

Of course, the entire exercise is counterproductive, simply because everybody does it. If everybody sends a gift, then nobody stands out. So I end up trading with whoever offers me the best trade terms, expensive gifts be damned.

And the bankers know this. But they’re in a bind. If they, heaven forbid, choose not to bribe me any given Christmas, then they will stand out from the crowd, and I may choose to punish them by not trading with them. They can’t risk that, and so we settle into a happy (albeit unhealthy) equilibrium.

In any case I view the gift baskets as a sideshow. Because I never lose sight of what’s important – our real Christmas presents, and the ultimate in free loot: our annual bonuses. Merry Christmas, everyone!