A client asked me to describe the “aha moment” I had as an investor. It’s a two part answer. First there was the ‘aha’ that even with all the smartest people and best resources on Wall Street, we kept coming up short for our individual clients. Then there was the second enlightening ‘aha’ moment that I had to start Osbon Capital to do better for those individuals, because Wall Street never would.
“Why can’t you beat an index?”
In 1998, US equity markets were roaring ahead. It was the third of what would become four consecutive years of 20+% gains. The first index ETF, SPY, which tracked the S&P 500, had been created 5 years earlier and it was making us look bad.
For all our expertise, experience, big budgets, sincerity, and mystique at Morgan Stanley, we couldn’t even match the annual return of SPY. Furthermore, we were generating big tax bills for our clients with frequent trading, as favorite stocks joined and left the sacred “Focus List.” How could this happen? Well, it was happening, and explaining it away got harder and harder.
As a distraction from subpar performance, we substituted “complexity” (derivatives, CLOs, CDOs, structured notes!) for common sense. Clearly, something wasn’t working right. Meanwhile, ETFs were as unwelcome as ants at a picnic in-house. They were starting to eat our lunch. Even worse, there was no money in ETFs for us. No commissions, fees, carries or trailers. No juice.
Too big to do the right thing
February 4, 1997 was the worst day of my professional career, up to then and since. “Morgan Stanley and Dean Witter in a merger of equals.” I thought it was a joke headline, but it wasn’t. I stayed until I couldn’t stand it anymore. In 2002, after 20 years, I left. When I joined Morgan Stanley in 1982 there were 1700 employees. In those days it felt like we were something special, and so were our clients. When I left, there were 65,000 employees. How could this be good for clients? It couldn’t and it wasn’t.
More of the same
I subsequently had two brief stints with other name brand firms. They were turnarounds. I did my job, moved on, and got four years of contract pay for 18 months of work. That’s Wall Street. It was lucrative, but miserable work. Now it was 2004, boom times with no end in sight.
The second, happier, aha
My first aha made me realize that Wall Street was never going to give investors what they needed. My second aha was that I could.
I committed myself and our family money to creating Osbon Capital, a place where investor interests would always be first and foremost. Relying on the fast-growing universe of index ETFs, I set up Osbon Capital as a registered investment advisor, meaning a fiduciary commitment to clients and no product sales. No Focus List or complex hocus-pocus.
That was 11 years ago and I haven’t looked back once. When son Max Osbon joined Osbon Capital in 2013 we had the multigenerational structure that matched our investment philosophy and timeline. When Max became an equal partner in 2016 I knew Osbon Capital would be in great hands for decades to come.
We believe clients deserve a choice, and should raise their expectations. Now, I get a chance to promote that approach and to enjoy Osbon Capital for a long time. When asked to describe Osbon culture we say, “Treat everyone like an owner”. (Thanks, Ariel, for the question!)
John Osbon – firstname.lastname@example.org
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