Up
is down
The pandemic playbook for managing
portfolio volatility requires strong will and an appetite for looking for
trouble . The future holds more of the
same. Last week's multi-hundred point
swings in either direction on the Dow Jones was symptomatic of the anticipation
and trepidation that surrounds reopening the global economy; the potential for
more infections; and its impact upon consumer demand, earnings, and corporate
viability for the long-term.
Perhaps a knack for recognizing a
vast diversity of scenarios widens one's approach to seeking capital gains, but
it might also muddy the waters and dilute clarity. The objective is to be as target-specific as
possible while understanding that different theories, differing sectors, don't
always intersect. Having just achieved
the US market's "best 50 day period
in history" underscores the extraordinary disconnect between Wall
Street and Main street.
As bills mount and uncertainty
persists, smaller businesses weigh survival for just one more day versus
closing altogether and losing their customers, their livelihoods, and their
aspirations permanently. Still looming
large, recall, are the uncomfortable memories of the last recession (2008) during which people lost not only their jobs
but their homes, as well.
Best 50 day period in their
lives...? I think not.
Absent a sustained episode of jobs
re-emergence and other industrial improvements we are likely to be sitting at
levels which compete with other major economic depressions of recent past.
No doubt, I welcome the portfolio
relief derived from the market's current extraordinary rally, but I fixate
instead upon the economy's fragile condition for the "average guy". Look, the economy and the financial markets
will return. Of that I have no
doubts. But as steward of my client's
investment assets I must also orchestrate a meaningful sequence which makes for
a sustained and successful outcome. The
current social fabric, wrought with racial tensions, global pandemic, and
economic wealth inequality, has changed the game plan irrevocably.
Keepers of their true beliefs before the last 80 days may find their views and
hopes changed afterwards. There are issues yet unaddressed such as
climate change, hunger and poverty, infrastructure, ecology, healthcare, etc.
that might reshape the value system of the globe. The truth is that we cannot change the social
trajectory "like a rocket ship" upwards....despite the incredible
flight of the stock markets from the nadir of their last condition. You want to play the markets like a slot
machine? Be my guest. You want to be an investor in the long term
progression of life on this planet? That
might be another thing, altogether.
Down
is up
Why didn't we jump in at the
bottom? First, you tell me where, and
when, the bottom is...before it occurs....and maybe we should reverse
roles. Secondly, the speculators who bought
on the way down come from a different breed.
My role is to protect clients from the ravages of panic selling before
the damage becomes too severe by laying out an asset allocation which
diversifies against risk. These
dichotomies represent two different sides of the coin with entirely different
mindsets and methodologies. I like to
believe that a balanced perspective creates an advantage that doesn't allow for
trespass or exogenous influence.
Let me offer two very simplistic
theories for your consideration: either the markets precede the economy, in
which case the market is telling us that everything is alright and we should be
fully invested; or the markets lag the economy and we should be very worried
that fundamentals might not sustain today's valuations. I cannot predict the future, nor are the
scenarios posited above the only choices.
But I do know that using science and data-driven methodologies to blend
the two alternatives most often derives a quality outcome for clients in the
real world...those who worked hard to accumulate wealth and wish to safeguard
it as best they can.
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