A Tale of Two Cities

Today’s Wall Street Journal carries an editorial titled “How Washington Defriended Investors.” The piece dissects how the recent private equity position taken in the social media company Facebook by wealthy clients of Goldman Sachs put at a disadvantage the ordinary investor of much more modest means that was not afforded the same opportunity to purchase shares. They attribute this to the burdens imposed by the Sarbanes Oxley legislation passed several years ago in the wake of the dot-com bubble bursting which “…forces managers to spend time on audits and accounting that is better spent developing new products and services.” In striking contrast, today’s New York Times carries an editorial titled “Can You Trust the Market?” That essay suggests that since investors withdrew a collective $320 billion from American stocks in the last 4 years, legislation protecting investors is lacking. So, who is right? As professional investors, we would suggest both newspapers have grains of truth in their commentary. Indeed, investors (ourselves included) tend to shy away from markets where and when the rule of law does not prevail. Similarly, an overly burdensome regulatory regime does hinder capital development and the flow of needed funds to developing companies. Hopefully, Washington will attempt to strike a fair balance as they weigh any future legislation.

Robert M. Bilkie, Jr., CFA