Presto Magic

Part 5

Finally, I found the whole submission of the personal phone conversations unnecessary. I hated trading public stocks (still do). Their daily volatility, paired with the passive style of investing, just never sat well with me. I like investing in things that I can exercise at least some degree of control over. I prefer to be in situations where I’m not subjected to the irrationality of others. Yes, I see the irony here. And yet, despite my disdain for the public markets, I convinced myself that I couldn’t be considered an upstanding, straight-A student from Wharton without having at least some public market exposure in my personal portfolio. I also convinced myself that I didn’t need an arms-length financial advisor because the fees wouldn’t be worth it (again, straight-A student from Wharton with very big ego). So, I sought out an investing system that would give me exposure to the public markets, but with the least amount of brain damage and the least amount of time investment. After all, at the time, I was an extremely stressed out Analyst. I didn’t want to spend any more time thinking about the stock market than I had to. I wanted to pour all of my attention and energy into crushing it at my job in order to make my bosses happy and perform at the highest level. Opposing principles, opposing identities, coming into conflict with each other. I needed to have public markets exposure in order to satisfy my Wharton-educated-I-know-how-to-build-a-personal-portfolio-all-on-my-own identity, while also seeing the truth that thinking too hard about public stocks was a gargantuan time and energy suck. Any amount of public market returns, no matter how sophisticated and superior they were, was going to be dwarfed by my first year bonus. And then further dwarfed by my next year’s bonus. So, my time was better spent crushing it at my task of investing in private companies. Also, adopting this singular focus would have the duel benefit of aligning my attention and energy expenditure with that of my collective (my team at the firm), rather than just benefitting my personal pocketbook. So, I sought out an investing system that would give me exposure to a well-balanced public market portfolio with the least amount of brain damage. I also wanted to time diversify my injections of capital into the market. Maybe it was a product of staring at those pre- and post-‘08 Recession charts during college, but I was really afraid of the idea of investing my money in concentrated chunks. However, time diversifying, rather than batching, my investments clashes with my identity as an Efficiencist. Because it means that I would have to login to my cash management app, transfer money from my Checking account to my Brokerage, then place a trade, every single time I just wanted to put money into a basic ETF. It seemed so inefficient to me. Luckily, a founder agreed. As I lamented the inefficiencies that I faced, I discovered a service called M1 Finance that managed this whole process for me. They would do something called a “cash sweep”, which would automatically pull cash from your Checking account and then automatically invest it into a Brokerage account, according to investment parameters that you preset. You could setup the cash sweep to be at any interval you wanted. So, I could say that I wanted to invest 2% of my biweekly paycheck in the public markets, along with the parameters that I wanted to invest 60% of my portfolio into Public Equity ETFs and 40% into Public Bond ETFs. Then, even accounting for movements in the value of the portfolio since the last injection of capital, M1 Finance would make the trades on the basis of these parameters. I thought this was genius!!! I was so excited about the service. The only issue was that I didn’t see M1 Finance on the list of our compliance department’s approved brokerage services. This was OK. I figured that since the company was still a growth-stage ScaleUp, our compliance department just hadn’t heard of them yet. So, I emailed our compliance team and requested that they build a connection to the brokerage service. I even informed them that I was so excited about the service that I’d reached out to the founder to setup a call about exploring an investment in the business. I mentioned this because I wanted to see if we could expedite the connection process, so that I could do some investing before hopping on the call with him, so that I could provide the founder with some useful customer feedback. I figured our compliance department would be all for it. After all, we advertised ourselves as an investor in the world’s best and most innovative tech companies. Here was a company that I viewed as disrupting the clunky brokerage industry AND the unnecessarily-expensive financial advisor fee. And I was enthusiastic about the product as a user AND an investor. This is the exact situation that I was trained to look for! But, then, I got a heartbreaking response from our compliance department: “No. You may only use the pre-approved brokerage services.” I felt as if they hadn’t listened to a single word I’d said. But I stayed positive. “Maybe they just misunderstood me. Because if they understood the full extent of my argument, then they would certainly build the connection in a jiffy.”So, I sought out a compliance leader in-person. I figured a 1-on-1 conversation where the intention is mutual understanding and where both parties focus on interests, rather than positions, would be productive in bridging the gap of understanding. I laid out my argument in-person, but the response was the same: “No. It would be too much work to build a new connection with them. You may only use the pre-approved brokerage services.” So, I walked away feeling defeated. I thought I’d done everything right. I went to the compliance department to request a connection. I thought I was going to put us in a great position to build a personal relationship with the founder of an exciting company. I thought I was going to free up my own mental capacity by investing through a service that would invest for me. I thought I was proposing a solution that could ultimately be a benefit to our whole company. But, all I heard was a “No. It would be too much work…” I understand that the compliance department had their reasons for sticking with their old systems. I just thought that they might be willing to “invest the time to setup connections with a potentially industry-changing, cutting edge technology company.” After all, that was a perfect encapsulation of my own job description. And I thought we were all on the same team, trying to support each other the best we could. But, once again, I was exposed for my naïveté. I learned that not everybody is solving for the same things, even if they’re working inside the same company. So, I initially walked away defeated. But, ultimately, I refused to accept the Standard Operating Procedure of the system that I found myself in. I invested my money via M1 Finance anyway. I didn’t report the existence of this Brokerage account on any of my compliance reports. It was a blatant lie every time I checked that lil green box that said, “Please confirm that the Brokerage accounts, along with the trades that you’ve submitted are true and accurate.” Every single time I checked that box and clicked “Submit”, it was a lie. But, I never lost sleep over this one. Because I knew that I would have never lied about it, had the compliance department simply built the connection. I knew that what I was doing was in the best interests of the firm. I was freeing up my attention, time, and energy to make more money for my team and our investors, rather than allocating that attention, time, and energy to optimizing allocations in my personal portfolio. I knew that I had nothing to hide. I knew that I was doing nothing wrong. I knew that I wasn’t insider trading. Even if, upon launching their full-scale investigation, the existence of an unregistered Brokerage account certainly did make it look that way.

Part 7