Philadelphia Reflections

Quaker Investment Committee

Jonathan Rhoads

Charitable institutions and other non-profit organizations occasionally assemble an endowment and thus develop a need for an oversight committee to hire (and occasionally fire) an investment manager, to monitor the fund's management, and to assess the manager's fees. The meetings of the oversight committee could, therefore, be pretty brief, related to two numbers. How had the endowment portfolio performed, compared with some acknowledged benchmark? To these two numbers might be added a brief summary of the investment management fees, compared with the usual benchmarks (40 basis points, or .4%, would be a common standard). However, an agenda so mercilessly sparse seems an inadequate reason to convene a group of worthies for an hour, and quite commonly the committee will chat about investments in general, hoping to pick up some personal pointers. A good tip or two makes the whole effort seem worthwhile.

On one such occasion in 1987, the famous Quaker surgeon Jonathan Rhoads, Sr was chairman of the committee. The manager of the endowment was a handsome fellow whose picture had occupied a full page of the New York Times financial pages just a day or two before this particular meeting. The picture had been truly spectacular, the tailoring was remarkable, and he surely had perfect teeth. As this gentleman entered the room, the committee gathered around, slapping his back and congratulating him on his fame with great jollity. Little did the group know that within thirty days, the stock market would have its most severe drop in almost twenty years. Unnoticed at first by the merry-makers, Jonathan Rhoads had sat down at the head of a perfectly empty long mahogany table, and was intoning to the empty seats, "We will now begin by reading the minutes of the last meeting of this committee". Visibly shaken, the group immediately broke up and took their seats.

Rhoads went on. We were now to hear the report of our portfolio by our manager. Proudly, it was noted that in February we had bought XYZ for 20, and in July we had sold it for 44. And in March we had bought ABCs for 60, and it now stands at 100. When he had concluded, the chairman said, "That's fine. That's just fine. But what bothers me is that point of confusion." Why, what confusion, Dr. Rhoads?

"The confusion between investment genius, and just being in a bull market." Later the same month, the stock market suddenly dropped 22% in one day, thus guaranteeing that no one in the room would ever forget the episode.

Originally published: Friday, June 23, 2006; most-recently modified: Monday, June 03, 2019