Slow Down, Big Money

Recently, in Shakespeare's As You Like It , the language seemed to accelerate to shrill inhuman interchanges accompanied with much brilliant physicality but without a chance for the words to sink in deeply. It seemed like a high speed cartoon, a caricature of the play and I wondered why most of the actors were in such a hurry and why the comedy was dependent on cheap modern antics like high fives unknown in Shakespeare's time. Is technology simply adapting us to higher frequencies, to a new shrill emptiness with too much information too fast to digest? Have we become captive audiences with engineered responses replacing the canned laughter of 1950's TV? Is this a cultural phenomenon that we have accepted along with the canned trading by supercomputers that dominates our financial markets?

When I founded an impact investment firm in 2012 and later wrote my book: Making Money Matter, it was with the hope that automation and the speeding up of life in our world would not increase out of control, but instead investors would increasingly slow down to think about the impact of their investments. The question for impact investors is, while thinking, how do we compete in public markets that are now mostly traded by unthinking machines ready to gobble up any opportunity for creating value before an honest and thoughtful trader can say boo.

Dan Martell, who now runs our public equity fund, gave up trading in 2012 at the end of the Mayan Calendar, not suspecting the end of the world. He was simply aware that after decades of successful intuitive decision making as a floor trader and 10 years as a portfolio manager with international banks and hedge funds, he simply could no longer beat the machines. Recently he came back to work with our impact funds because he sees that having deep knowledge about environmental and social issues may be a way to outperform mindless algorithms. It is our advantage.

We recently responded to a request from the SEC for professional input on how High Frequency Trading (HFT) should be handled. Mr. Martell has seen how these speedy machines controlled by the largest investors have become detrimental to others. This is unfair and should be outlawed in our opinion. Why? Because it flies in the face of a rule that prevents the "front running" of existing orders. Front running is the unethical practice of trading a security with advanced knowledge of pending orders. By being able to make a market inside the conventional bids and offers of smaller human investors such as us, the machines always win all else being equal.

HFT program trading algorithms allow big guys to swoop in with a minuscule difference in their offer and winning the auction a millisecond ahead of the crowd. Under the guise of market-making the HFT trading machines justify the efficiency of their pricing without considering the cost to the little guys. They merely insert themselves, with little economic risk, to extort a small profit inside the legitimate bid and offer range of unarmed investors.

It may be a stretch to compare high speed computerized trading to Shakespearean actors speaking too fast and too shrill for an old timer to catch the meaning. But I sense this speeding up of everything is going to end in a cultural crash if we don't slow down, and we may be catapulted back to the original meaning of impact, BAM! I sense the commonality of extremes longing for a time when the rich won't keep getting richer behind our backs while we mostly lose our local, small scale advantage, our time with loved ones, our reflections at the end of the day.

What is absolutely clear is that all things being equal is not the true reality of our world. You might assume: the big money with the big computers or the big oil fields are bound to win and with their winning we could lose our world. We can fear Saudi Arabia's threat to sell $750B in treasuries if their country is named in the 9/11 bill now in Congress. That is some powerful leverage. Other sovereign nations with oil- wealth could certainly wreak havoc if that was their goal. There are many doomsday scenarios.

But what if it is the thoughtful people who have the advantage today: the innovators, the meditants, the slow talkers, the visionaries? Prince Salman may be the first big money person who gets it: recently announcing that Saudi Arabia plans to diversify away from fossil fuels; to take their oil public and keep only 5% of it. What if, instead of buying the 5 or 6 largest companies in the world with his expected $2T windfall they put $33MM into all 60,000 public companies on Bloomberg trading terminals and turned them green? Something crazy good could happen: a kind of surreal awakening to real values could emerge. New companies with the best scalable solutions would gain traction, direction and subsequently would replace the mindless giant banks, plastic warehouse stores and the fossilized economy would crash. BAM! And a new slower, better world might arise.