In the past decade we?ve seen it all. In the mid to late 90?s people became superstar investors regardless of what they actually knew due to the markets going up like a rocket ? virtually all of them. Just about anyone who owned securities or mutual funds made a lot of money. Then in 2000, 2001, 2002 the reverse happened ? all those who made lots in the 90?s gave most of their gains back and perhaps some of their principal ? depending on when they began investing. In the past few years we?ve seen much less extreme ? just a few average or flat years and one exceptional year in 2003.
Moving forward there are many things to consider and I want to take a closer look at some of these issues. The first issue is executive compensation ? in the world of public companies most of them are downsizing, eliminating jobs and pensions, cutting costs wherever they can ? and the executives of those companies are getting paid ludicrous amounts of money. Overall, executive compensation is totally out of control ? nobody needs $50,000,000 in annual compensation ? nobody. Let?s face it, once you?ve accumulated $20 - $30 million you can do just about anything you want to do. Why someone needs that each year is beyond my wildest dreams. Does that make the company, economy, country stronger? No ? as a society we need to get on a path that looks out for the greater good. The corruption of recent years has put a lot of light on this issue ? Enron, WorldCom, Healthsouth have been poster children for what not to do with corporate greed.
How has the Government reacted? They reacted and enacted new laws but they?re not for the greater good, they?re just new laws and layers of minutia to show they did something (Sarbanes Oxley Act SOX) ? now everyone is treated as a criminal. I define this as stupid non productive legislation. Each CEO, CFO or control person associated with public firms is now assumed to be criminal and subject to onerous regulation that does not seem to be about investor protection but about just doing something.
This level of minutia, although with good intent, has the effect of detracting from American Capital Markets. Foreign firms are not going to subject themselves to this level of aggravation and minutia unless they absolutely need access to American Capital Markets. This isn?t what we want, we want people to come to American and invest. Wealth isn?t created by spending, it?s created by investing and building ? which the Government should incentives. Smaller companies cannot afford to comply with SOX. An example of great legislation would be the investment company act of 1940 meant to control investment companies and has given the public full faith in the industry and that money managers can be trusted. All disclosures are standardized, there is no more lack of disclosure nor are certain people given special treatment.