I've heard a variety of reasons given for market behavior this year, ranging from Middle East turmoil, global inflation/deflation, to horrific winter weather, Congressional inertia, higher interest rates, and failures of the global banking system. While each reference, individually, might have merit...and all collectively are powerful...I attribute market performance to the generational cycles which naturally ebb and flow to explain the "how and why" of economic prognostication. Last week's volatile results notwithstanding, the economic trends are still improving.
While
Wall Street shudders and recoils on an almost daily (hourly) basis over current
events, the curve is unstoppable, and usually a better arbiter of potential
portfolio probabilities.
24
hour news cycles are to investing as gnats are to a migrating herd of
elephants.
Indeed,
secular shifts are generational prototypes for prudent risk management and
asset allocation sciences. They are
reflective of socio-economic mores that impact politics, economics, and civic
customs for decades hence.
It
is always easier to "look back" and observe generational evolutions after they have occurred; much easier, in fact, than
trying to predict what might happen in the future. But we know, intuitively and
methodologically, when certain conditions align to create strong inferences and
possible conclusions that later become a part of our social landscape.
Remember
the mania that surrounded the dot.com era?
Yet, despite the calamitous shakeouts, failures and bankruptcies, and
market crashes, technology endured, forging ahead with new innovation and
staying power. Recall, there was no internet
or email 25 years ago. Today it's
ubiquitous.
Not like before
So, where are the discoveries and innovation that will govern the next half-century? What are the sources of potable water, replenishable energy, quality healthcare, civil and military protections? Theorists, politicians, investment bankers, ethicists and religious leaders, market strategists, and business tycoons are all wrestling with those questions. The answers lie in how we dissect the social and moral infrastructure of the human condition. It depends upon unbiased, non-political, scientific analysis.
As
a portfolio manager, my job is to analyze any and all information at my
disposal, to reconcile fairly disparate data into an actionable portfolio
methodology. Ultimately, my goal is to
build a basket of capital gains outperformers for the next decade(s) which
emanate from earnings and price expectations.
While it is hard to avoid personal biases towards (or against) certain
sectors, one's mood is insignificant when digitalizing organic, objective
events into a coherent market strategy.
That
is not to suggest that markets are always predictable or quantifiable. But what we do know about certain
groupings, about sector leadership, about basic
human needs can be a good place to
start. Remember, the goal is profit
potential and capital appreciation.
Another
element to creating capital gains opportunities is to adhere to a sustainable
discipline that reveals earnings standards and characteristics of successfully
enduring cycles. For example, it is
always helpful to begin with a hypothesis about consumer demand, corporate
pricing power, and capacity production.
Without those three, cycles come crashing down.
All
of these theories become less significant to portfolio performance, however, if
investor's are psychologically reticent to purchase shares or make financial
commitments. The markets, after all, are
a representation of our attitudes at the
time of purchase, about our place in the world right now, and our feelings
about fiscal and financial certainty in our home life.
Without
question, the first baby steps towards reviving global economic integration are
being taken. How long those cycles last
are fodder for my quantitative statistics.
How quickly the public "buys-in" to those statistics, however, is the great question yet to be determined.
No comments:
Post a Comment