Beware simple solutions and their sellers

Thinking I was shouldering up to my good friend, a high school English teacher, I mentioned how I had really enjoyed working with youth and thought I might consider taking a job as a teacher. This was much earlier in my finance career, and I was having second thoughts about it. My teaching friends were receiving regular annual raises and the bank that year didn’t dish one out. The firm had made some poor decisions and suffered a temporary setback.

“I think I would be good at teaching,” I told him, “And I think I might really enjoy it. Whadaya think?”

“I hear that a lot,” he responded. “It’s curious how people think they can do my job with no training. I have three university degrees and years of experience. Why do they think they can just saunter in and do my job? Was my schooling a waste of my time?”

Good point. I was dead wrong, and the inclination that I could roll in and be an amazing teacher was obnoxious of me. Aside from my lack of training and experience, I lacked sufficient curiosity to even examine the thing closer and that would have been a hard lesson. To my friend’s credit, he had a healthy inquisitiveness for my point of view when it came to the stuff I studied across campus from him.

I know a very successful real estate developer with properties all over the province. He has lived through several painful ups and downs but was just coming off a very strong decade when at a coffee shop one afternoon he wondered whether or not to put more capital at risk toward the next phase of his project. Real estate development is lumpy like that. He heard a few teachers sitting nearby and plotting a real estate project not far from one he had just sold out.

“I took that as my cue,” he told me. “If those guys thought it was time to buy in, I figured it was time to step back.”

And with that he paused his development business for a few years. His timing was perfect and he more or less sat out the last recession.

This is not an indictment of the teachers at all – good for them for having a dream – but it says something about the savvy veteran compared to the rookie.

When they say: “It’s the economy, stupid,” they really mean: “Ignoring its complexities is gonna hurt.” And the experience of building a business from the ground up is an MBA in its own right.

Beware of would-be leaders, advisors or policy-makers who’ve never taken more than mail-order training in commerce, never studied economics, never run a business, never had to scramble to make payroll and never balanced a budget, who were born to money, never left school or both.

Social media rants are taken by some as deep wisdom – and implant ideas at the belief level. Around six-and-a-half years ago, a young girl from Southern Ontario spoke at a Rotary club decrying Canadian banks. Her viral video said the banks “… are defrauding and robbing the people of Canada,” referring to banks’ position in the Canadian economy as “criminal,” and the government as “complicit.” Her solution more or less, was to nationalize the banking system.

Problem solved. She was celebrated as brilliant. An insightful 12-year-old economist. Nobel material.

At a national and international level, properly functioning capital markets are a convoluted mystery to the uninitiated, but an absolutely crucial cog in the wheel of our society. Let’s say we need $50 billion to upgrade our national defence system and we don’t want to have to pay out of pocket (meaning a huge tax increase that year). Instead, we have a well-developed capital market system – and a very efficient one, with bidders from the world over to consider lending us money to make the project fly. And some outstanding private banks to act as intermediaries. Yes, they’ll probably make a profit at it, but as noted above, if they make a mistake, it comes out of their pocket, not the people’s. And that’s good.

To suggest that the government can be trusted to take over and do a better job is the stuff of Orwellian intrigue, or worse, just lazy thinking. It’s natural to be suspicious of things we don’t understand. It’s another thing to label that mysterious thing with sweeping conclusions tied more to emotion than fact. And it’s still another form of goofy to celebrate those sweeping conclusions as a viable platform for policy.

The room got quiet when I stepped in and all eyes were on me. That hush that falls when they were talking about you just as you step in.

To break the ice, one of them blurted out: “we were just badmouthing banks.”

Coffee talk for Canadians, I suppose, but a conversation I had heard several times before from this crew.

Knowing their situation well, I responded. “No problem. If you think banks are useless, next time you have a venture in mind, try getting along without one.” Quiet went to quieter. Mark Ryan is an investment advisor with RBC Dominion Securities Inc. (Member–Canadian Investor Protection Fund), and these are Mark’s views, and not those of RBC Dominion Securities. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. See Mark’s website at: http://dir.rbcinvestments.com/mark.ryan.