What’s an investor to do? Climatological and economic tsunamis
dominated the news last week, dulling the senses, if not heightening the
apprehensions, to fundamentals, facts and long term perspective. Everything has become micro analysis on a less-than 24 hour cycle. Sometimes the perception doesn’t quite match
with the real story.
As an analyst, and money
manager, I must put the focus back on methodology, science and substance for my
clients, elevating the dialogue to a higher plane than simply rumor or
inference.
The starting point is the
facts. Inflation is rising due to cost
push in commodities; valuations are likely to descend as a result of severe
magnitudinal increases since 2009; neither equities nor bonds represent “safe-haven”
from elongated cycles; and politics dominates the fiscal discussion turning
nuance into black or white, opinion into Democratic or Republican. Globally, the same political debate centers
around austerity or socialism as the polar choices.
When the volume gets turned
up, as it does in our instant communication world, the sheer magnitude of
expectations cascades negatively or positively within seconds, devoid of any
perspective or long-term strategy. Clients need more balance and science in
their analysis and thinking.
Risk.
No one disputes the necessity
to trade the markets or to engineer boardroom-level merger and acquisition
conversations. These activities are the
foundation of the capital markets, securing the efficient and profitable
exchange of money, and delivering useful coefficients of productivity.
But there has been an unusual
amount of focus upon deal-making almost to the exclusion of efficiency, simply
to give the impression that someone’s awake at the helm and using capital at
low cost to acquire “stuff.”
To that end, clients do suffer, finding their equities violently fluctuating based not
upon long term fundamentals, but short news cycles and speculation. Such activity
numbs the average investor into submission causing them to throw up their hands
saying “What can you do?”
I sense, when talking to
investors, that they now feel there is no good news, particularly if it affects
their investment future.
Both the markets and the media
need to do a better job retreating from the “fast money” concepts and to return
to a sense of long-term, strategic methodological science. I am happy to try to do my part in that area.
Insight.
So what’s an investor to
do? Do you stop investing
altogether? Absolutely not. Markets are cyclical and show a tremendous
resiliency in the long term to represent the trend accurately. The key is the trend. In a bear, be defensive. In a bull, take the offense. The same is true with sector rotation, avoid
the Cyclicals. In a poor economy, buy
the defensive sectors.
Use the value of quantitative solutions to calibrate
and codify basic trends and the probability of maintaining their magnitude. Avoid, or sell,
losers. Be patient acknowledging that
asset allocation might have more of an effect upon the likelihood of your
portfolio making money, than the potential ill-effects of one-size-fits-all, or
one stock, being your “home run.”
If enough is enough, trust
your instinct. But rely on science, not
hunch, to deliver the goods.
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