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  • Writer's pictureMonmouth Capital

Q2 2023: I need a Tesla. Why are you selling me a Formula One car?

Most finance is just entertainment. Just sport.

Sure, it dresses up as an intellectual pursuit, like chess. It might require ferocious amounts of detail and technical mastery, like Formula One. But like those pastimes, it’s not real life.

In F1, it matters how many hundredths of a second faster Verstappen completes a lap than Hamilton. Which tyres to use in different conditions and in what order can be crucial decisions. Tactical tweaks to brake and downforce settings mid-race affect the outcome.

But, in the real world, when you get in a car, these considerations are swamped by the need to arrive at your destination safely and in reasonable time, given the many factors like traffic that are outside of your control.

That’s it.

There will appear to be shortcuts and opportunities to shave minutes off a journey; yet there’s a fair chance that taking these decisions can backfire and cost more time, or introduce more hazard, than sticking to the original route (especially when late on the school run, as I find all too often…!).

Nobody gets in a car and adopts a Formula One mindset. Yet, for some reason, this seems to be what happens when people think about their investment portfolios.

The explanation for this, I believe, is that much of the finance industry exists to sell you, the consumer, a form of entertainment. Just like Formula One – which, it is easy to forget, is a privately-owned, profit-making company.

We are sold portfolios that are frequently over-engineered; it would be as if anyone actually needs a 240 mph car in real life. I saw a proposal recently with, inexplicably, dozens of UK stocks, along with well over a hundred individual bond holdings. It was pretty clear how this served the needs of the bank’s large equity trading and fixed income desks, but less obvious why the client would benefit from this level of granularity.

We are given market commentary in detail equivalent to an earnest discussion about tyre strategy, when in real life, nobody thinks about tyres more than maybe once a year, when they get punctured or worn out. You can take your pick of the material churned out daily in our industry: endless analysis, endlessly updated “forecasts”, all keeping lots of the finance equivalent of engineers employed, but again, without a clear benefit to the consumer.

All of this is entertainment. I actually enjoy markets, business and economics. It’s why I ended up, in a circuitous and unconventional fashion, in the industry. And it’s as far removed from what real clients need as a McLaren is from what I might drive to Tesco or to visit my new best friend in Birmingham.

There’s nowhere near enough consideration of the most important questions: Where am I trying to get to? When do I need to get there? What kind of journey do I want? How likely am I to need to change direction or destination? What will it cost me? What’s the best route, taking into account my need for safety and comfort?

Now those are real challenges, worth your intellect, energy and ingenuity, because they make a difference to real people, with real lives. I read the FT and The Economist for pleasure. But solving these questions is my job.

Faisal Sheikh

Managing Director


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