Every morning of every day
that the financial markets are trading, investors awake to the belief that “today might be the big score.” Oh, come on and admit it, you’re hoping for
that one big massive uptick that makes you fabulously rich, or, at the very
least, validates your investment commitment.
By measuring your securities against a mythical benchmark, you’re either
up or down at the end of the day, and today, by golly, might be the big one!!
This affliction sounds a lot
like the psychosis which permeates Gambler’s Anonymous, but hey, that can’t be
us because, after all, we wear suits and ties to work – we’re above gambling
away the family mortgage, aren’t we?
This yearning is also hard to
kick because of the immediacy of feedback we get through technology. (I hate to admit it, but I come from a
generation where we used to check the next
day’s morning paper for stock prices from the previous day!!). Today, investors trade by the minute, for the
minute, hoping for an impressive uptick.
If the goal is to build portfolio net worth using a
long term aperture and solid mechanics of portfolio management, then perhaps
immediacy destroys the endeavor altogether.
Investing is not, nor should
it be, “a big score” enterprise. By
working towards standards of achievement and perfection that are statistically
improbable, most investors are setting themselves up for failure and
disappointment.
My thoughts about this emanate
from my observations of mood swings of colleagues and clients whose self worth
seems so indelibly bound to their portfolio worth. I think we need to divorce ourselves from
subjective modeling and apply a different standard to our review.
When watching a great athlete
or performer, one is struck by the ease and grace, the simplicity, with which
they execute their craft. What we don’t
see are the fits and starts, the failures, that embody their practice in
preparation for that one moment of grace.
It doesn’t just happen, and it’s never perfect, but it does occur, not
because they wish it to happen, but because they work, prepare, and plan to
execute.
Investing is no
different. Discipline and methodology
are the forebears of success, not the goals or end product.
So?
Global equity markets are
doing a poor job of mirroring the fundamentals of our time. Simply because we wish stocks to go up is not
sufficient justification for them to do so, particularly as economic
fundamentals fail to keep pace with our accelerating desires.
Unfortunately, my work is forecasting
a “resistance line” for the equity markets above which it might be difficult to
go in the short-term. For me the key to equity performance is
earnings acceleration. Despite
year-over-year improvements from their depths one year ago, real integers are still down from their
highs, and not likely to show any improvement without marked top-line demand.
I am, therefore, continuing to
underweight equity exposure even as certain individual
companies become more attractive from a valuation standpoint.
As has been proven many times
over, the “big score” is elusive and untrustworthy.
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