It’s all too common for investors to compare their style with a Warren Buffet or a David Swensen, but the CEO of Global Wealth Allocation, David Morris, takes a much cooler approach to creating some reflected glory. As the founder of ‘wealth-weighted’ indexing (don’t get him started on those more commercially successful fundamental indexers), Morris is obviously no price-worshipper from the Harry Markowitz school. “Modern portfolio theory is not economics.
The idea that price variance is risk is the biggest load of nonsense since…well, I can’t think of another one right now,” quoth Morris on a visit last month to Australia, where the GWA approach ranking stocks on cash flow, book value and net profit has about $1.5 billion under management through implementers like SSgA. Morris did regain his metaphorical flourish, likening Markowitz diehards to “those who only listen as far back as rock ’n roll”. Indeed, the Journal of Finance published Harry’s seminal paper “Portfolio Selection” in March 1952, exactly one year after Ike Turner had recorded the equally seminal ‘Rocket 88’ at Sun Records in Memphis, creating what most connoisseurs agree is the first rock’n’roll record.
Extending his allegory, Morris suggests that those who understand only ‘rock ’n roll’ (standing in for modern portfolio theory), but not its broader economic context, are bound to come in for a nasty surprise. “You need to understand the social conditions that The Beatles and The Who came from,” he says. “Otherwise you’re like the establishment at the time, who were astounded and outraged that these grunts from the street could plug in a guitar, and suddenly have far more money than Lord Such-and-such.” That being said, GWA’s affinity with the everyday man only goes so far.
Morris says his firm is likely to stay a wholesale-only proposition for some time to come. “I don’t think the retail market can get its head around us. We tend to get hurt whenever large bubbles of sentiment build up in the market, and retail is the hurt.” We humbly suggest a TV advertising campaign might turn that situation around. Unbalanced can see it now. With ‘My Generation’ as the blasting soundtrack, a band of funkily dressed fundamentals-lovers, in touch with the real economy, man, smash their guitars into a collection of Vanguard model sailing ships. Pete Townshend would surely approve.