Family offices, dentists and quants
“The foundational story of the American financial system is one of upper-middle-class financial capitalism, in which the ideal imagined investor is a thoughtful, financially literate but non-professional small investor who, with the help of a trusted adviser, buys stock in individual companies because they have good businesses and are fairly valued. Much of what is interesting in modern financial markets comes from the fact that that story is no longer true, is indeed viewed as a laughable myth by many savvy people. Who buys individual stocks? It has become an old-timey hobby for the modestly wealthy and eccentric, like model railroading.
So now there are huge public companies that are mostly owned by index funds and “quasi-indexers,” diversified mutual funds who own stock in all of the companies’ competitors. But our corporate-governance system is based on that older story of stock-picking individuals, in which managers’ duties are generally thought to be to their shareholders as shareholders of that company, rather than to the shareholders’ broader interests as holders of the market portfolio. There are tensions there. Or you have market-structure rules intended to protect individual investors, so they can compete fairly against the big institutions, even though a moment’s thought will tell you that’s impossible: The institutions have way more money and technology and time and access than the individuals do, and will of course have advantages in making investing decisions. …
Nobody buys stocks any more: Now, either you buy an index, or you buy a whole company. More people are using the most generic budget form of investing, and more people are becoming institutions themselves and getting involved directly in dealmaking and corporate management. The old story, of broadly dispersed individual shareholders in a single company who delegate management authority to professional executives, is no longer the norm.
Dentists.The foundational story of the American financial system is one of upper-middle-class financial capitalism, in which the ideal imagined investor is, let’s face it, a dentist. Dentists are the traditional backbone of our financial markets, educated people with money to invest but no professional investing expertise. But with the hollowing out of the investing middle class, the dentists are hurting ….”