Isn’t it absurd:
·
if your auto
mechanic were to blame you for your car’s broken gaskets?
·
if your doctor
were to blame you for having an arthritic hip?
·
if Wall Street
were to conclude that your ignorance causes them to feast at the trough of
greed?
And yet, certain studies
commissioned by the securities industries governing bodies have recently
concluded that terrible things happen to people who are too ignorant to know
better. It’s amazing that your
confidence and trust could be so obfuscated as to propose that an economic
tailspin was your fault.
While there is no doubt that
most consumers have limited, or less, knowledge of the subject matter than the
experts to which they turn, it is blatantly false to blame the uninitiated for
what they don’t know. The
findings of these surveys contain self-serving, yet unsustainable, conclusions
which serve only to absolve the wrong-doers of blame.
A frightening picture begins
to emerge about why, and with what degree of frequency, these cataclysmic
events occur.
Given the rather hefty return
of the financial markets this summer, most all discussion has dried-up about
who was/is to blame for what ails the economy.
Let’s consider ourselves lucky that the psychological damage wasn’t too
severe. However, we must be mindful that
portfolio performance and economic fundamentals are not always synchronized,
nor necessarily one and the same. Thus
far, annualized performance has exceeded our expectations, but was limited in
its breadth of participation. Do we
therefore expect the laggards to catch-up, or the leaders to retreat?
Stay Cautious.
My overall investment process
emanates from an earnings-driven, success-driven, methodology. We cannot, nor should not, try to reveal an
undisclosed secret to a company’s failure to perform, but rather just move on
to one which does. The current climate
of earnings accelerators derives less from unit volume increases (demand) than
from efficiencies created through layoffs and technology, and from extremely
low bases of comparison from one year ago.
Therefore I might conclude that demand is not as critical for near-term
valuation expansion as speculation and psychological enhancements. If, in fact, we were to get a global
equity expansion it would be fed by a reversal of negative sentiment as much by
a reversal of negative fundamentals.
Currently, corporations are
playing coy with their capital. Buoyed
by aggressive speculation in their shares, some corporate boards see little
reason to deploy cash for new hiring. As
much about good governance as disdain for social or moral compass, these
executives are likely to stand pat and allow cyclical swings in pricing, as
opposed to seizing upon this moment as the turnaround inflection point for
their growth. Like it or not, they too
hold you accountable for what ails them.
The empirical evidence for
buying stocks is quite compelling, however.
Despite a level of mistrust which exists between you and
corporations/corporations and you, we are significantly nearer a time when a
reversal is anticipated. Short cycle
concerns are less significant to our evaluation than the broader secular
(generational) themes. Today, we are
indeed at a political, financial, psychological, geographical, and moral
inflection point. Quite simply the needs
of all citizens rest upon a coalition of opportunistic leaders who strive to
“get it right.”
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