Wedbush: Cheap as a Fox

“He truly is the cheapest man alive.”

-A Wedbush employee, who spoke on condition of anonymity, citing a fear of retaliation from Mr. Wedbush

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Within the financial industry, there is this tendency to draw the wrong conclusion from a specific data point. Whether it is the nature of Buy & Hold, or misapplying info in the the wrong context, it seems to be an occupational hazard on Wall Street.

But away from market observations and asset management, there is an especially idiotic belief circulating amongst some firm’s management. It has found fertile soil amongst a handful of ill informed executives and business managers. Their new mantra: Being ultra cheap is somehow a virtue.

We’ve seen this most famously with Ace Greenberg of Bear Stearns, who used to lambaste employees for mailing documents with paper clips (hey, those things add up!). The great irony is that while Ace was busy counting pennies, the rest of the firm was assuming massive and ill advised risks, which ultimately led the firm to hemorrhage billions of dollars. (Way to keep your eye on the ball.)

Our boy Buffett famously lives in the same tiny house for 25 years. I have long suspected Berkshire bought NetJets so that Warren could fly private without giving up that aww shucks persona. “Hey, I’m not jetting around in a G5, this is due diligence!”

Its not as if these things are what make a firm successful or not. The counter example is Bloomberg LLC — they are exceedingly generous with their staff — lots of free food, soda, coffee, cappuccino — and it hasn’t prevented the firm from becoming worth tens of billions of dollars. The same can be said for Google, and half of silicon valley.

One can even argue they are silly distractions when running a sizable business. Perhaps it would be best if Chief Executives spent less time obsessing over the tiny things and more time focusing on the big items — you know, like the firm’s survival.

The latest adherent in this virtue of cheapness is Edward Wedbush. A rather amusing man-in-the-news piece is in the LA Times. It reveals him, despite being worth about $150 million, as some0one who is “compulsively frugal.”

Excerpt:

“He refuses to issue company credit cards to his employees. He personally signs expense-reimbursement checks, just to remind subordinates that he’s watching every dime they spend traveling or entertaining clients. He brings his lunch from home and drives a 1992 Lincoln Town Car.”

Its not the pennies that allowed the firm to prosper, it was avoiding the heavy leverage, speculating in risky investments, and sticking to their core competency —  namely, brokerage and investment banking businesses. It wasn’t the $500 a month they saved by eliminating a monthly pizza lunch for employees — it is that the company is debt-free.

Speak to people who use Wedbush as a clearing firm, and you will hear stories of mediocre technology generations away from the cutting edge. What the hell, it works, and its priced right.

I find this worldview perplexing. I grew up hardscrabble, put myself thru college and grad school, and once I came into a little coin, never hesitated to enjoy it. I cannot imagine looking back from one’s death bed, and gratefully remembering the nickels and dimes that were saved by eating brown bag tuna brought from home:

“I am about to shuffle off this mortal coil, but at least I never wasted any money on a flashy car.”

The full article, about an odd, eclectic, cheap man who built a solid firm over half a century with billions under management, is worth a few minutes of your time to read . . .

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Source:
Edward Wedbush’s roof leaks, but his wallet doesn’t
Walter Hamilton
Los Angeles Times November 16, 2010  
http://www.latimes.com/business/la-fi-wedbush-20101116,0,3710239,full.story