Roadmap
Crises cause uncertainty, and
uncertainty translates into volatility.
At present, we are in the midst of a great deal of the former, and a
mighty helping of the latter. The highs and lows of 2020 have, without a doubt,
been on each end of the volatility spectrum. Economic activity registers in bear territory,
despite all the cheerleading for it to be otherwise. Capital expenditures and budget cuts are causing
us to think twice about earnings profiles of several industries going
forward. Many of the traditional
correlations between consumer confidence and business profitability have been wrecked,
at least in the short run. The
correction in financial asset valuations is not yet over.
The traditional cadence of the
financial markets has been measurably interrupted by the lead up to the
Presidential election, the aftermath of the voting (including challenges and
lawsuits), and a delay by the current occupant of the White House graciously to
acknowledge the final tabulation. While
we have stated before that no individual holds direct sway over the amplitude
of financial cycles, we are witnessing that the malfunction of our Presidential
transition traditions might possibly carry over into policymaking and a lack of
cooperation later on. The negative effect
of gridlock and petulance upon executing fiscal policy will be irrefutable.
The most successful portfolios are
those which focus upon economic fundamentals, preservation of capital, risk
aversion, price patterns, and common sense. Protecting oneself from the headwinds of
exogenous risk influences should always be a part of the calculation.
This is proving to be a time of reversion back to the mean. We
must widen the aperture of perception from daily current events into a much
wider, longer macro framework.
Prioritizing those things which lead to portfolio success...such as earnings patterns, price
performance, and relative strength rankings....is an excellent place from
which to start. Those factors, alone,
allow us to “block and tackle” the unknowns which predictably derail the
uninitiated. Instead of relying upon
stock picking and value hunting to rebuild from the chaos, we are choosing to erect
our path carefully. It matters not the
capitalization, geography, or sector...only that we comply with conventional
probabilities that govern performance over time.
These data also allow us the
flexibility to ignore outside “noise” from industry, political party, or
individual. We are currently finding a
finite and distinctly limited number of candidates from which to choose, but we
have outperformed most benchmarks in the past because we are committed only to
the science of quantifying those factors enumerated above which we believe lead
to a higher probability of positive outcomes.
By far, the pandemic has been the ultimate stress test upon any
discipline or methodology trying to navigate through a myriad of threats.
No matter the government's ideological
affiliation, we do remain bullish about market performance in the coming
months. Our most pressing social and economic issues should take precedence in
the new Administration, including healthcare,
poverty, hunger, water, ecology, infrastructure, education, technology, and
energy. These are the issues whose solutions can bring
us together irrespective of political party.
The assignation of their success is non-denominational, owing only to
each of us and our desire to tackle them for the sake of our next generations
and the planet itself. These issues
offer us a better understanding of where every person belongs in the dialogue,
how we got here, and how to rewrite history.
Portfolio management at its core is
really quite simple. Trends become
outlined, hierarchies are constructed, and securities are selected based upon
how we respond to questions about our values, behaviors, our security, and our
commitment to others.
Happy Thanksgiving!!
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