A lot of the story of modern finance is that it keeps getting more boring. Finance looks like, and wants to be, a very rational activity. There’s a thing that you want to maximize—usually it’s money—and you go measure it and figure out how to maximize it. And the world being what it is, we keep getting better tools to measure and math to maximize. So the trend, as in much of modern life, is toward more science and less instinct.
Investors once sought out star mutual fund managers for their wisdom and folksiness. Now they index. Actual human traders once roamed the floor of the stock exchanges, shouting and gesturing and eating cheeseburgers for breakfast. Now computers do the same work faster and more efficiently. Bank CEOs once fought to dominate every business. Now they have scaled back their ambitions, focusing on what they’re good at and just trying not to pay too many fines. Everywhere, freewheeling gut instinct and personal charisma are losing out to boring rational calculation.
But when you look around, this trend is easy to miss. Somehow, despite the long-term evolution toward rationality, the big personal dramas don’t go away. The televisions are still full of shouting, even though the exchange floors in the background are quieter. The financial markets still harbor a lot of larger-than-life personalities, clashing in intense rivalries that don’t always look that rational. Those clashes remain, and retain their fascination, even against a background of rising rationality. They make it hard to see that background.
Why? Part of it is that the drive to drain the drama from much of finance ends up concentrating it in a few swampy pockets where big personalities and fierce fights thrive. So passive investing has been an enormous success for ordinary investors. But index funds tend to be a little too, um, passive toward corporate managers. Funds that invest in every company may not keep the sharpest eye on the people managing each of them—which creates opportunities for noisy activist hedge fund managers and short sellers to swoop in. Many of our fiercest business rivalries—Trian versus DuPont, Carl Icahn versus Dell, Bill Ackman versus Herbalife, Icahn versus Ackman—involve activists and short sellers who make their homes where markets are less rational.
Even the abundance of data hasn’t done much to get rid of personal rivalries. In some ways, this is odd. More than most human activities, finance lends itself to measurement, and measurement on one axis: money. You don’t need to argue over which hedge fund manager or bank CEO or mutual fund style is the best. You can just look at performance. Whoever has the highest number wins.
But it doesn’t work that way. Look at performance numbers, sure, but for how long? How can you tell that a manager made money sustainably, as opposed to by taking on excessive risk that will blow up in the future? How can you distinguish skill from luck?
So Bill Gross is by most measures an incredibly successful bond manager. But not by all measures! He had a great run of outperformance but then faltered in the last few years before he left Pimco to run a much smaller fund at Janus, made up largely of his own money. His new project seems to be less about building a business than about protecting and redeeming his legacy. Because while the numbers are indisputable, the fight over what they mean is undecidable. Was Gross brilliant for decades and unlucky at the end? Was he lucky for decades and a failure at the end? Were his skills suited for one market environment but ultimately obsolete? None of these questions can be answered by one more year of performance data—and yet somehow they sound like they could be. So he will press on, accumulating performance data, hoping that it will mean something.
In a way, the situation is reminiscent of rivalries in sports. Sports produce winners and losers and statistics. If you want to know whether your team is better than its rival, you can just look at the standings. But no one thinks that way. The outcome of a game always feels, at least to fans of the losing team, contingent. Sure, your team may be in last place, but the other guys got lucky, or cheated, or in any case did not demonstrate the same depth of character and strength of story line as your guys.
There’s an xkcd cartoon in which one newscaster says to another:
A weighted random number generator just produced a new batch of numbers.
And the second newscaster says:
Let’s use them to build narratives!
The caption is “All sports commentary.” The mouse-over caption is: “Also, all financial analysis. And, more directly, D&D.”
Rivalries in business, as in sports (and role-playing games), are a way to impose narratives on numbers, to render the abstract language of profits and percentage moves in human stories with vivid characters and exciting stakes. But in business—arguably unlike sports—the bare facts might matter more than the stories built on top of them. The numbers aren’t generated by a game. They affect lives: BlackRock and Blackstone manage billions in pension and retirement funds; bank CEOs are stewards of institutions that were at the heart of a global financial crisis; Yanis Varoufakis and Wolfgang Schäuble hold the economic fates of millions of Greeks in their hands.
But that just makes us want the human stories even more. We want them because they impose a narrative on a world that feels cold and bewildering, a world that might be rational according to a mathematical proof but that doesn’t always feel rational. Computerized trading is fast and cheap and logical, but it leaves ordinary people feeling alienated from financial markets that they think are rigged against them. Banks are paring risk businesses and rationalizing incentive structures, but they keep pleading guilty to crimes. Markets are efficient, we’re told, but they often seem to be efficient at a level just beyond human intuition.
Rivalries make for entertaining stories, but they also make for reassuring stories. We can all recognize Bill Gross’s quest for redemption, or a bank CEO’s desire to exorcise the demons of the financial crisis, or Schäuble’s and Varoufakis’s starkly different perspectives on the Greek crisis. While much of the financial world becomes increasingly rational, but also increasingly inhuman and alienating, these stories remind us that the financial system is ultimately a creation of human beings trying to do the best they can. And they let us hope that those people are still in control of the system.
This story appears in the July/August Rivalry Issue of Bloomberg Markets magazine.
A Rivalry I Love: Alexander Hamilton and Thomas Jefferson
“Not only for the clash of so many core values—Federalists and Republicans, urban and rural—but also for how it ended, with Hamilton looking beyond ideology to deeper values and endorsing Jefferson, his enemy, in 1800.”
George Walker, chairman and CEO of Neuberger Berman
A Rivalry I Love: Star Trek and Star Wars
“I love both franchises for completely different reasons. Star Trek presents a very positive vision of the future. For me, it’s about what’s possible and what we want the future to look like. Star Wars is technically about the past; it’s almost a creation myth. Growing up, both of those ideas were really interesting and exciting to me—and still are.”
Bill Maris, founder and president of Google Ventures
A Rivalry I Love: Duke University and University of North Carolina
“To me, it’s the greatest sports rivalry in the world. I have never shouted so much as at the 2005 NCAA Men’s Basketball game when UNC was down by 9 points late in the game, only to come back and win. I still have the ticket in my wallet.”
Sallie Krawcheck, owner of Ellevate Network and a 1987 graduate of UNC
A Rivalry I Love: The Ashes
“There is no greater test of nerve, guile, skill, sportsmanship, or endurance than the Test cricket series between England and Australia, which dates back at least 130 years. I find it so gripping that I can barely function when the best of five, five-day matches are underway. Thankfully, it only happens in England every four years. Don’t expect to get anything sensible out of me when it begins this summer!”
James Miles, co-founder and managing director of Liv-ex
A Rivalry I Love: John Kenneth Galbraith and Milton Friedman
“Galbraith’s elegant prose, width of thought, and worldview were always going to clash with Milton Friedman’s aggressive and narrow puritanical economics and capitalism. Galbraith’s withering assessment of his rival remains the ultimate verbal coup de grâce: ‘Milton’s misfortune is that his policies have been tried.’”
Satyajit Das, risk consultant and author of Extreme Money and Traders, Guns & Money
A Rivalry I Love: Golfers Ben Hogan and Sam Snead
“I think they respected each other, but I don’t think they really liked each other. The first time I met Snead, he asked me where I played. I told him Seminole, which is Hogan’s home course. ‘You know I played there with Hogan about 10 times,’ he said. And I said, ‘Yes, everybody knows that.’ Then he looked at me steely eyed and said, ‘Does everybody know I beat him every time we played?’”
James Dunne, senior managing principal of Sandler O’Neill and president of Seminole Golf Club
A Rivalry I Love: The Oxford and Cambridge Boat Race
“This is the original university rivalry, in the quintessential team sport, and it takes place over a long and grueling course on the River Thames. Students from all over the world compete for the 18 places and spend countless hours training to beat the other university in the only race that matters for both.”
Jim Rogers, Chairman, Rogers Holdings
A Rivalry I Loathe: South Korea and North Korea
“The two countries are still officially at war, 62 years after an armistice. It’s a tale of two political systems (liberal democracy vs. Stalinist) as well as two economies (GDP per capita of $35,000 vs. $1,800). It’s a rivalry I hope to see disappear in my lifetime.”
Michael Kim, chairman of MBK Partners
—As told to Yoolim Lee, Katrina Brooker, Max Abelson, and Elin McCoy