Psychology

How to Make Better Decisions for Fun and Profit

When the CPAs outnumber me — a CFA-sporting comparative literature major — by three to one, you can bet I’m not going down without putting up a good fight. When I ran my money management firm, I found myself in that very situation, huddled with our ops team, weighing the pros and cons of participating in a stock-lending program.

It all began when we sold a position that happened to be heavily shorted.

Though it all went well in the end, the settlement process was not its usual smooth sailing, and one of our portfolio accountants wanted to know why he’d had to endure a couple of miserable days.

Nosing around, he discovered that many of our clients lent out their stocks. In this case, that meant their custodian banks had to get the shares back from the borrowers, delaying things just a wee bit. This led him to wonder what this stock lending business was all about and, to his credit, whether there was gold in them thar hills for us.

That’s when I stopped the meeting.

Before talking about the return we could generate from stock lending (and the risks involved — no such thing as a free lunch, remember?), we needed to start at the beginning.