As markets regroup from their phenomenal start to the year, certain groups have transformed the conversational dynamic. Focusing as I do upon longer term demographics, I have noticed a shift from traditional consumer cyclical brands toward epic “population issue” sectors, such as agriculture, healthcare, energy and infrastructure.
Beyond
the obvious significance of these topics, trading machinations within those
secular themes have transformed during the last year. While traditional trading for opportunity
still permeates, one notices a steadier stochastic pulse to equities within
these sectors, emblematic of a longer attention span. It is possible that these themes represent
more than just prudent asset allocation potential, but also socio-economic
dynamics that might capture our imagination for profitability, innovation, and
forecasting for decades going forward.
There
is no question that austerity is the name of the (current) game. No longer a victim of profligate spending,
businesses are now (as they always were) beholden to the bottom line and to
building equity for their stakeholders.
Nevertheless, certain companies, certain sectors, do this much
better. Without being susceptible to 24
hour news cycles, some industries can simply manage the durability of earnings
based upon real demand, real margins and real socio-economic benefits.
Creativity.
My expectation for rebound in these “secular duration”
sectors keeps my interest high that despite operating within a secular bear,
certain brands might aggressively deliver capital gains in the next year. Although it is difficult to “time” the
market’s turns, one might expect that a modicum of attention paid to these
focal issues could yield attractive percentage increases in their shares.
It
would be foolish to wait for one hero stock to emerge. I recommend, therefore, a prudent asset
allocation strategy amongst those sectors which represent new initiatives
within an old space. Obviously, one must
also be reasonably circumspect about investing either in a declining cycle, or
within companies whose rate of earnings acceleration is dissipating. When planning for the best result, we must
also be cognizant of a worst case scenario, too. As a top down investor, I try to be patient
about allocating funds as well as my expectations for immediate gratification. Both disciplines are slow, deliberate, and
cautious. In any event, one cannot focus
upon capricious, opportunistic risk-taking as a surrogate for scientific method
and discipline.
We
apply a strategic macro overlay to all our asset distribution. While bond yields are at historically low
levels, we have nevertheless found good opportunity in intermediate maturity
scales. This is not to suggest that the
fixed income landscape resembles the halcyon years of the mid 1990’s, but
valuation, dividends and yield can be found with the right mix of research and
ingenuity. Creating value is always a
matter of where you find it. Reducing
volatility risk is as important as monetizing upside potential.
Resolve.
Oftentimes,
so many investment decisions are driven by an emotional appeal, sometimes to
greed, other times to evangelical purpose.
Neither of these values, alone, is sufficient, in my opinion, without a
strong methodological overlay. I am also
committed, as best I am able, to decisions whose long term impact is couched in
a sense of social responsibility.
As
the market breaks for its fourth month pause I am neither distraught nor
worried about a bear market completion.
It is the logical order of things that nothing goes straight up. Therefore, we need to take advantage of
cyclical upswings and avoid at all costs the catastrophe of being unprepared
for times when opportunity disintegrates.
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