Once upon a time there was a man named Jones who made a killing on Wall Street during the dot.com bubble. Jones was not particularly intelligent and he was perhaps a bit timid for a capitalist, but he had been young and impetuous at the time and had taken a number of flyers on the stock market because all of his friends had. However, unlike his friends, he had somehow managed to inadvertently liquidate all of his positions just before the bubble popped and he ended up a very wealthy man.Now Jones knew that his success was mostly a result of his hard work and sacrifices, but he was a pious man and he admitted that a great part of his good fortune showed that he was favored by God. And while hard work and sacrifice endureth forever, the grace of God could be a capricious sort of thing that could not be forced. So he praised the Lord and took up his massive pile of talents and put them into low yield but highly conservative and secure Treasury Funds and he vowed to go forth and speculate no more.About the time that he made his killing, his wife was delivered of a son. Jones, with the enthusiasm of the newly rich wanted to name his son and heir after his benefactor. But he considered that to name his son God would not only be in bad taste but could in fact create impediments in the boys future. So Jones decided to name his son Wall Street thinking that his son would be known as Street for informal occasions but that he could use the impressive sounding W. Street Jones whenever he had to sign something.(If you want to know what became of Wall Street Jones, you will have to read below the fold.)
Like all good fathers, Jones had great ambitions for his only child. Street Jones proved to be a nice enough boy, if not overly bright, but Jones knew from personal experience that brightness could be overrated when it came to success. What mattered much more were discipline, hard work, careful preparation, and a firm religious faith. It was these things that had enabled Jones to retire at the age of 27.Jones knew that while he could only encourage the habits of hard work, discipline, and faith in his son, he could personally assist with the careful preparation. Like all good fathers, Jones wanted his son to rise even farther than he himself had and he knew that to do this in this modern world, his son would have to get an MBA from a top notch school (since his son was not showing any signs that he was bright enough to make it as a lawyer.)As Street matured, he proved to be a not altogether bad student. In college, he was able, though a very careful management of the courses he enrolled in, to end up with decent grades. A half dozen Kaplan courses after graduation allowed him to lock down a goodscore on his GMATs. And as for the several years of serious business experience he was required to have in order to enter the truly top drawer schools, Jones was able to set Street up with a very close friend who ran a very successful firm selling mortgage backed securities. This close friend of Jones was considered a sort of marketing savant in the mortgage backed securities business, and Jones was gratified that his close friend saw more potential in Street than even Jones had. So Street was hired as an Executive Senior Vice President of Securities Marketing and Distribution with the friends personal assurance that he expected Street to considerably out perform the three hundred other Executive Senior Vice Presidents that he was sitting with in the large and luxurious Cold Call Room.For the careful preparation of the Grad School experience itself, Jones believed that he had hit upon the perfect plan. He knew, of course, that some kind of endowment would be required of him as a sign of the sons seriousness as a student. But Jones also had the idea of treating Street as though he were a Capital Asset. After all, Streets education was in fact an investment, not just for Street but for the entire Jones family. And in any case, Street as Jones son deserved to be treated with the Dignity of Capital. Jones knew that capital works best when unencumbered. Only when unencumbered by taxes, regulations, and other extraneous requirements can capital truly soar to the highest heights. So after Street was finally accepted into a top three MBA program, Jones told Street that Jones would be paying his entire tuition (to save Street from contracting crippling student loan debt); would pay him a very generous quarterly stipend (so he would not have to distract himself by working for someone other than himself); and he would provide him with a condo instead of a dorm room (so Street would not be potentially bothered by less fortunate types who might be unjustly jealous of Streets careful preparations.) Then, secure in the knowledge that the blue skies were now entirely clear, Jones wrote his son a check for tuition and his stipend, and drove his young eagle toa fabled Midwestern school next toa Great Lake.The frequent reports that Jones received from Street that first quarter were highly optimistic. Jones was delighted and was completely secure in the belief that he had made an excellent investment.So imagine his surprise when, at the end of the first quarter, he received an overdue bill for the first quarter tuition closely followed by a report card indicating that Street was running a D average, and that only in the courses he had managed to finish. Filled with alarm, Jones caught the first available Business Class flight to the city and once he got there, drove his rented Lexus as fast as possible to the university. At his sons apartment building, he rushed off the elevator and without even knocking; he let himself into his sons condo with his own key.As he entered the living room he saw his son lying on the sofa, wearing his distinctive business school sweat shirt, his hair matted with his own dried vomit, snoring loudly. Kneeling on the floor next to the sofa, and also wearing the distinctive business school sweat shirts (but little else) were two hookers startled at having been caught by a stranger in the act of doing lines of cocaine off the cover of a book on Advanced Managerial Accounting that was lying on the coffee table. Jones looked back at his snoring son and noticed that Street looked like someone had hit him in the face with a powdered donut.---Good Lord!, yelled Jones. Wall Street! Wall Street! Wake up! What have you been doing with your time and my money??---Huh? What?The hookers took this moment as an excellent opportunity to slip out.---Wall Street! Here you told me that everything was going wonderfully and that the outlook for the future was unlimited. And then here I find you apparently having spent all of your time and money on drugs and hookers!---Oh, is that you dad? How are you doing?---How am I doing? I demand an explanation! Why did you lie to me?---What? Lie to you? Uh dad, I didnt lie to you. I did study hard and all that. But a man has to rest sometimes. And besides, I had all of these opportunities to intensively network with other future captains of industry.---But it looks like you spent all of my money on drugs and hookers!---You dont understand the complexities of a modern education, dad. An educational investment is a complicated thing. It cannot be rushed. I know that the complexities might be hard, perhaps too hard, for you to understand, but I made a business decision to focus especially on my strategic social contacts early on, knowing that these would solidify my future earnings potential.---I have half a mind to yank you out of school!---But if you did that, dad, you would lose your entire investment. Youd simply have to write the whole thing off and I would not be able to get a degree to offset your investment with a high future rate of return. You know that an MBA from this school has a tremendous upside. The future rate of return on your current investment could rise into the very high triple digits, even taking into account the net present value of your money.---But how do I know that if I cover your tuition bill again and fund you for another quarter you just wont do all of this over again.---Now dad, you know better than most people that with investments, past performance is not necessarily an indication of future returns. Besides, you yourself taught me that a good investor takes the long view. I know that it might look like we had a bit of a draw down this quarter, but if you factor this in with my 10 year composite educational trend and include my future upside potential; this whole episode hardly amounts to a statistical blip.---Well, I love you and want to help you son, but---If you want to help me dad, what I need are additional incentives to work harder. Tuition, fees, and a stipend are all fine and good, but your high returns from your best performers need to be stimulated by some serious incentives. Its not like Im some sort of wage worker or something.So Jones gave in to the irresistible force of Wall Streets logic. He not only covered his current debts, but he agreed to fund the rest of his education and gave him a large performance bonus to boot. This was four quarters ago. While Wall Streets performance has improved somewhat from that particularly dysfunctional quarter, it has been spotty at best. Most discouraging to Jones are all of the incompletes that Wall Street has managed to accumulate. The original three year timeline of Jones expected educational investment seems to be extending far into the future, and it looks like it will be many years before he sees any return.And when Wall Street has a bad quarter, he tells his father that he, Jones, is to blame for the decline in Wall Streets performance. For after all, when Jones chews Wall Street out, Wall Street loses confidence in Jones and finds it hard to perform well. Confidence is, after all, everything. So Jones has promised to provide additional incentives and to try hard not to ever criticize Wall Street. The outlook is still rosy for Wall Street and we do believe that he will prosper. We do.