February 19, 2014

Commuting Sentences

Are you a commuter? Even if not, come along for today’s ride or you’ll miss the story.

Imagine that you drove to work by car. You’d have your favored route and your backups.

Long ago in California, I commuted daily from the suburb of Roseville to 21st & P Streets in midtown Sacramento. Whether I went east to I-80 and down to Highway 160 or “across the top” on the I-80 business loop, or west on Baseline Road to Highway 99 and over to I-5 turned on whether I was out the door at 5:58 a.m. or 6:05 a.m. The spread could mean a difference of 15 minutes of commute-time based on traffic-flows.

Now suppose the work regulators released a set of commuting rules saying you could not leave before other commuters. Additional Commuting Rules followed, regulating how many left turns one could make, and how far from any main thoroughfare or traffic artery your commuting path could deviate.

Soon systems would arise that would measure commuting speed and efficiency to establish best-commuting standards. Workers applying for jobs would come in with resumes, and human-resources officials would examine them and say, “Well, this looks good. But let’s get to the important stuff. What kind of commuter are you?”

Infrastructure would spring up to support new commuting approaches and techniques. And justice departments would inevitably launch investigations and then prosecutions for unfair commuting, and the most deplorable and pernicious of all: insider commuting, in which people would secretly stay at work sleeping on cots and hiding in alcoves while claiming to have excelled at commuting.

Do you see where this is going?IR folks skeptical about the need to know market structure say “why should I care?” The purpose of the market is investment, they say, and I talk to my investors consistently and we’re trying to run a good business and everything else is a waste of time.

There’s a T Rowe Price advertisement that suggests a link between jellyfish protein, life expectancy in the US, real estate in Hong Kong and optics in Germany. That’s a clever way to highlight bottom-up investing. But 90% of orders in US equity-trading flow through 30 firms, and 40% of those are short, and the first bid by an intermediary prices all of it. Purpose is obfuscated by process.

Is the purpose of commuting the commute, or the job? The way you get the focus back on the job is for the people involved in work to first understand what’s happening.

Isn’t it T Rowe Price’s problem if the role of the market has shifted from investing to commuting? Sure, in part. But if the purpose and the process don’t match, why are public companies wasting time telling the story? It disappears in the process. It would be better to be private, where capital has no choice but to commit for long terms and there is no high-frequency trading setting itinerant prices in enduring assets.

But there goes the equity market then. All analogies break down. The point here is the need for IROs and the executives they serve to understand what’s going on.

If we want a vibrant marketplace where IR jobs multiply (along with all the other jobs) and where the link between jellyfish protein and German optics remains intact from story to trade, then the constituents of the marketplace, especially public companies, can’t ignore the process as though the way money moves from idea to action is just a side street.

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