We'll
get through
Investors are perplexed when
considering how to make sense of such variant and volatile news they encounter
each day. Whereas anecdotes might be evidence of certain representations, anecdotes
themselves are not the evidence. Thus,
it is up to each of us to make sense of the stories we hear and read, and to
delineate between their subjective personal interpretation and their larger
objective secular meaning.
Doing so allows us as market
participants and analysts to create an investment narrative whose redundancies
are supported by arithmetic weighting.
The measure of an anecdote, a narrative, or a statistic can only be
determined over time. Thus, knee-jerk reactions to the market, or
by the markets, are capricious, and dangerous.
It is only through recurring patterns that a really successful portfolio
can be constructed in harmony with a client's goals.
Rational
economics does not imply, however, that all of our behaviors are rational; only that
data can be quantified as to their duration and magnitude. Since we all feed from the same trough of
information, the only reality for each one of us is how we interpret those
quantifiable redundancies.
Is all market behavior rational or
irrational? Of course not. That would be too simplistic. All actors are free to draw their own
conclusions about objective facts. To be
sure, socialization draws us all a little bit further away or little bit closer
together when engaging politics, economics, or social justice.
Currently, though, I perceive that
investors are maximizing the anecdotal content while minimizing the significance
of the bigger picture. For example,
daily virus totals tend to accelerate negativity in stock market numbers. Employment or retail figures, the kind that
drove market performance last week, strengthen the chorus of joyful speculators. This
is exactly the kind of pull and drag we see each week that makes jumping in and
out of stocks so risky. But this type of
overreaction is pointless when discussing portfolio wealth building. The herd instinct is usually
counterproductive to market performance, particularly when panic or crisis
ensues. Moreover, when reacting without
limits or guideposts, purchasing or selling stocks and bonds becomes disjointed
and irrational.
Competence
and intellect
Even acknowledging that these
convulsive behaviors serve a function for some, the discord that they sow upon
the markets is unnerving and unnecessary.
People react to things according to their strongly held beliefs. But I have said before, today's beliefs are
being challenged in the town square, the courthouses, parliaments, communities,
households, and boardrooms around the globe.
"What we value" is changing exponentially and right in front
of us. Once upon a time economies
flourished by trading animal skins. Then
it was metals. Fabrics and fine silks
followed. Today, currencies. Value systems are as fleeting as the epoch,
and so too are trader's instincts. How
do we really feel about clean air and water? Hunger and poverty? Sustainable energy? The internet?
Wealth equity and inequality?
What we require at this point in
time is a structure and process which creates best possible long term outcomes
for portfolios and for citizens at large....a new social compact. Intelligent, well-informed trading tends to
do best when those doing the speculating, capital formation, and investing have
more than just their own self-interest at stake.
(please
watch for our next publication, Quarterly
Market Commentary, July 1, 2020)
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