We call it the “trophy” generation. Kids get something even if they don’t deserve it - everything but a spanking.
But now those kids are growing up. They’re running businesses. And, as we’d expect, they’re running those business with the same cavalier gimme-gimme attitude.
They’re failing.
In fact, they’re failing so badly that it’s comical.
You probably heard Dan Price’s story. He made headlines in April when he announced everybody in his credit card processing company would make a minimum of $70,000 per year.
The kids of the trophy generation - many of them writing the stories about the news - gave him accolades. Attaboy, they said. Way to take from the rich and give to the poor.
Yep...
Then his plan failed in a spectacular way. Just as anybody with half an economic brain would predict.
Price now finds himself mired in a lawsuit filed by his business partners and, worse, his employees are unhappy. Several have left the firm for saner pastures.
The New York Times interviewed some of the folks who took their final paycheck from Price’s firm. The comments would make Karl Marx blush:
“[Price] gave raises to people who have the least skills and are the least equipped to do the job and the ones who were taking on the most didn’t get much of a bump,” said Maisey McMaste, who gave up a role as a financial manager.
Grant Morgan quit his job as a Web developer, despite a 22% raise. “Now the people who were just clocking in and out were making the same as me,” he said. “It shackles high performers to less motivated team members.”
There’s a vital investing lesson in Morgan’s quote.
People want to be paid for what they do... the unique talent they bring to the table. And they want to make more than somebody who offers less.
Capitalism treats the job market no differently from how it treats the stock market. The companies that provide something unique and useful will get treated better than those that don’t.
Simple.
Apple (Nasdaq: NASDAQ:AAPL) is the perfect example. It provides products that nearly half of us put in our pocket each day. It sells something truly useful and its shareholders have been aptly rewarded.
Apollo Education (NASDAQ:APOL), on the other hand, is one of the worst performers of 2015. Shares are down over 62% this year. Why? Its customers no longer see the value of its products. A degree from one of its programs doesn’t have the same value as a degree received elsewhere. Its product is not unique or useful... and the markets are valuing the stock accordingly.
But here’s where we beg you to be cautious.
Just as Price tried to ignore the rules of economics, there are forces doing similar things throughout the stock market.
At the risk of sounding like a drum that plays just one beat... Yellen and her troops at the Fed are absolutely one of those forces.
As they pump their funny money into the economy, companies that don’t have those unique or useful products are temporarily benefiting. They’re getting loans to stay alive. They’re getting capital simply because it has nowhere else to go.
In other words, they’re getting a raise despite the fact they merely clock in at 9 and clock out at 5.
As that stimulus wanes, so will these firms.
It’s simply the rule of the economy.
Perhaps that’s why we like the markets as much as we do. Despite our culture’s apparent need to put a trophy in every hand, the markets spit on the idea. Eventually, the winners win and the losers go home empty-handed.
If we want to win our fight against mediocrity, we must first admit not everybody will hold a trophy above their head.