Despite
all fears...
Many would have you
believe that last week's intense volatility was prompted by the global effects
of viruses, impeachment, and market valuations, symptomatic of an urgency to ascribe
blame where none really exists.
Unfortunately, sensationalist business programming on television works
that way but real economics doesn't.
Nevertheless, I am
grudgingly coming to the conclusion that it is
"different this time." No, not
the kind of banality that caused investors in the 1990's to stampede into
stocks, believing that the market had nowhere to go but up, defying
probabilities, math and logic. What I am
gradually coming to realize is that the processes
are changing. Immediate access to information...all the
time...is changing the way we interact with others, view investments, create
values by which we live. The advent of
24 hour constant contact has given us no time to breathe, digest, or evaluate
things.
And it is hurting
traditional portfolio methodology by making the uninitiated feel empowered and
opinionated like never before.
What is the old saying?
A
doctor should never operate on himself.
I am fearful that
information overload is leading the investment community closer to "Fast
Disaster" than to "Fast Money".
I think it is time to redefine what it means to be rich and whether our
quality of life is actually a function of how much money is in our portfolios. Wealth enables the capacity for empathy, not
just the acquisition of toys.
Naysayers will call me
old-fashioned. They might say that
algorithms and models function much better today than in the past. They point to the fact that the market has
quadrupled since the Great Recession (2009).
In response, I will
acknowledge that, in fact, I am old-fashioned.
I believe in serving my clients diligently and comprehensively, by
identifying their specific needs and risk tolerances. Quadrupling one's money in the last decade
hasn't really happened for many anyway.
Why is that?
As for algorithms, many
of you know that I have identified myself as "quantitative scientist"
for over four decades, creating proprietary stochastic data (ArlingtonEconometrics) for portfolio
allocation, securities selection, and risk management for clients. It is not having
the tools that matters, it is how they are used. Instantaneous trading systems can both expand
potential returns as well as destroy them.
How do major banks equipped with this technology, for example, wind up
with the occasional billion dollar trading loss? And who amongst you, my readers, wants the
headache and responsibility of tracking the market minute-by-minute?
Not
to mention...
But this query goes far
beyond "old versus new". The
major change that I am witnessing is how we "feel"
about things: markets, politics, facts,
each other. We seem to be holding on to
a trepidation about things that has taken some of the joy out of those
experiences.
Statistics tells us
that after we reach absolute "bottom" (zero) the only way is up. But today's investors seem stuck on zero
emotionally, perhaps wounded by the injuries suffered during the dot.com
catastrophe or the Great Recession. Yet
still they hope against hope for their accounts, too, to quadruple. These are
the bizarre and troubling conversations and expectations that any money manager
in today's world is faced with. Bear in
mind that I am not comparing the valuations of those times, simply the
attitudes, norms, and extremes of how we evaluate them.
What used to be
unchallenged is now challengeable...in a matter of minutes on one's
I-phone. The levers that used to attach
to decision-making are no longer applicable.
People feel as if they are one bad decision away from disaster, rather
than being on a long journey towards success.
Given two or three minutes we know that all "particulars" can
be refuted or abandoned altogether. But
is two or three minutes really enough time to intermediate between ideas that
might have far reaching consequences....who to marry, what home to buy, what
financial instruments we own? What
algorithm can possibly describe how we feel about life's decisions?
I suppose that we/I
have to get used to a world in which cycles rise and fall much more quickly,
and where the precariousness of bad
versus good intensifies audaciously.
No comments:
Post a Comment