What a farmers' market can teach us about money management

In his 2008 book In Defense of Food, author Michael Pollan explains some of the benefits to obtaining food from a farmers' market, and he does so in terms that strike a chord with us as professional money managers.

Beginning on page 159, he writes: "If you're concerned about chemicals in your produce, you can simply ask a farmer at the market how he or she deals with pests and fertility and begin the sort of conversation between producers and consumers that, in the end, is the best guarantee of quality in your food. So many of the problems of the industrial food chain stem from its length and complexity. A wall of ignorance intervenes between consumers and producers, and that wall fosters a certain carelessness on both sides. Farmers can lose sight of the fact that they're growing food for actual eaters rather than for middlemen, and consumers can easily forget that growing good food takes care and hard work. In a long food chain, the story and identity of the food (Who grew it? Where and when was it grown?) disappear into the undifferentiated stream of commodities, so that the only information communicated between consumers and producers is a price. [. . .] So here's a subclause to the get-out-of-the-supermarket rule: Shake the hand that feeds you."

That paragraph should be read and re-read carefully by investors, because we have long been strongly convinced that the arguments it is making are absolutely true for the financial services industry. The "industrialization" of the money management business has created a "long food chain" between money managers and consumers of money management, such that very few investors today are able to actually "shake the hand that feeds them."

The "farmer" who far away is cultivating the soil of their portfolio and planting it with individual securities is removed from the investor by the long and complex apparatus of the financial industry, with its enormous "supermarkets" selling a lot of their equivalent of processed food-like products.

There is abundant evidence that the industrialization of money management is making a lot of investors "sick" (judging from the studies of long-term returns across the broad range of investors). There is also evidence that what Mr. Pollan describes above as a "wall of ignorance" between producers and consumers has grown up over the past decades, and that this situation indeed "fosters a certain carelessness on both sides." We would argue that the implosion of many of the financially-engineered products created by Wall Street in 2008-2009 is incontrovertible evidence of this fact.

We have presented many of these points before, backed up with extensive data, such as in our series of articles on what we call "The Intermediary Trap."

As more and more of what Mr. Pollan calls "actual eaters" discover drawbacks to the "length and complexity" of the "industrial food chain," we would advise "actual investors" to use it as a lesson that they can apply to their search for healthy money management as well.

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