Losing Your Job by Trying to Save It

After the stock market "dot-com bubble" burst in 2000, a financial industry vice president directed me to a study on mutual funds. A fund is created by a group of people who give money to an experienced stock market professional. This manager takes care of the investments: he is paid to use his expertise to monitor the stock market and make sensible trades. In this way, a mutual fund should earn more money than a savings account or investing as an amateur. Mutual funds should also out perform the stock market indexes which measure the average success. Yet this study showed that virtually all mutual funds actually performed as bad as or worse than the indexes. Having a professional manage your stock trading seemed to have no advantage. How could this be?

The study concluded that most mutual fund managers knew the market was changing but were afraid for their jobs. Nobody wanted to be the first to move money out of tech stocks. The mutual fund managers are paid by actual people whose only interest is increasing their wealth. When the funds are doing badly, the people panic and pull their money out and the manager loses his or her job. If the manager tried to pull the money out of the tech stocks before the stocks crashed, the investors would say, "Hey, why are you pulling my money out of these great tech stocks, you idiot! You're decision is costing me money." So some fund managers are paid to make bad decisions with short-term thinking.

In the book "The Big Short" by Michael Lewis, Lewis explained how fund manager Michael Burry found this out the hard way. Mr. Burry, a reclusive man with Asperger's syndrome, was a successful stock market trader. He started a hedge fund in 2000. He recognized back in 2003 that the new subprime mortgage-backed bonds were poor quality and in 2005 he invested against these bonds, knowing that in a couple of years they were doomed to fail. As the bonds became popular, he held to this long-term strategy. In 2006, other large fund managers called wanting to know more of his strategy. But as the years passed, the fund investors panicked as others made money on mortgage-backed bonds but they did not. Mr. Lewis describes Mr. Burry's experience this way: "Businesses either thrived or failed. Loans either were paid off or were defaulted upon. But these people were incapable of keeping their emotional distance from the market. Watching the frenzied trading over these worthless bonds, his investors were upset that he wasn't joining in to make some quick cash." Some accused him of running off with their money to a foreign country. Fearing the worst, Mr. Burry used a legal loophole to stop people from pulling out their money and caused worse panic. By the summer of 2007, the Wall Street firms began trying to hide that the early bonds were losing value. Mr. Burry's investors wanted their money back as the fund wasn't showing progress, wondering why he wasn't following the popular trends. "When do you see an end of the bleeding?" one asked.

When the bond market finally crashed, Mr. Burry's bet paid off: his fund was an astounding victory and his market research, long-term strategy and his efforts to keep the investors in place more than quadrupled their money...but his fund wasn't found on the financial industry's "best of" lists. "Nobody came back and said, 'Yeah, you were right," he said. "It was very quiet. It was extremely quiet. The silence infuriated me." So it was that the first professional who recognized the problems that would lead to the U.S. economic collapse, had perhaps the year's most successful fund, also had to close his down that fund because of too many angry clients who thought he should have made bad decisions with short-term thinking, even when his long-term thinking was proven to be the strategy of survivors.

I once had a conversation with a project manager who was faced with a delemma. He was aware that his company was in trouble and there were layoffs coming. Big layoffs. He was responsible for a number of long-term, strategic projects that could save a lot of money and give the company a chance to reposition itself in the marketplace. If the projects succeeded, many jobs would be spared. However, these projects were kept hidden from company owners who did short-term thinking. If the projects failed, his position would be put at risk: the owners would blame him for doing work unrelated this month's profit targets at a time when layoffs would be begin.

He decided that he had to look after himself and his family: he decided to block the long-term projects.

This was short-term thinking and it's typical in a lot of many workers in North American companies. According to HR magazine, when afraid for their jobs, 80% of employees surveyed say they withdraw from others and avoid teamwork (HR Magazine, "Insecure employees reject teamwork to protect their own jobs", March 2009). Instead of rising to the challenge and collaborating, they panic and undermine their own support network. By trying to save their jobs today, they lose them tomorrow.

In the Japanese cartoon "Planetes", Episode 18 ("Debris Section, The Last Day"), the assistant manager is promised a promotion with good pay. He phones his kids and tells them he will buy them anything they want. But the kids ask him why he is leaving behind a job that saves lives. For his final assignment, he must chose between his promotion and saving lives. He decides that he is a better father if he leaves his kids a legacy of heroism instead of money. With a cry of desperation, he sacrifices the promotion he worked so hard for, doing it for his children.

There are no guarantees of job security. When the chips (or stocks or servers) are down and the situation is tough, it's better to plan ahead, figure out what's at stake and think of successful, long-term solutions. When you go for the long-term, you need to be a part of a team: we form groups because the groups can accomplish more than the individual. Maybe you can all work together and save the company. Whether you do or do not, your job will end someday...and all jobs will end...and you are left with a support network and accomplishments. That is a tremendous advantage for your next position as well as leaving a terrific role model for you kids.

September 18, 2010