Calendar
During the course of our January
portfolio reviews with clients one lamentable feature of those conversations
keeps coming up, namely the calendar. More
specifically, the use of anniversary dates such as January 1st, or July 1st,
for example, as landmarks of portfolio progress. Without question one needs lines of
demarcation...for tax purposes, portfolio numerical comparisons, etc.....But in
the real world of science, artificial markers
are antithetical to the long term goal.
Consider, for example, whether those heroic
bio-pharmacists developing the Covid vaccine ever stopped to think what date on
the calendar it was, or whether the vaccine's effectiveness would be measured
only on January 1st, or any other date specific? What is commonplace in portfolio conversation
is unheard of in most other sciences.
Of course, we accept that for purpose
of evaluation year-over-year, or against common benchmarks, it is necessary to
apply a "standard" by which to judge the path and effectiveness of
any given strategy. But we need to
stress that portfolio management is an active
endeavor, not specifically beholden to an artificial timeline. Moreover, the imposition of a deadline
necessitates obstacles to the analysis of trends, and sometimes destroys
conventional norms with an obsession for manufactured projections. In that regard, quantitative analysis is a
reactive discipline, responding to integers and their cycles rather than trying
to lead going in with an expected outcome.
Asset allocation, sector rotation,
and diversification by asset class are evolutionary, and otherwise
non-correlated to a clock or calendar.
What's
really happening
There is no doubt that the pandemic
wreaked havoc upon the global economy.
However, those strains at the margins were festering for decades
prior. The crises were only magnified by
the intensity and acceleration of the virus. Last week's first week of trading
in the new year exemplified the stop/start inertia that can overcome traders
when worrying about taxes, presidential (impeachment) politics, social unrest,
and legislative agendas.
Our overview shows that there is a
major shift taking place, reverting back to fundamentals. The words “profit”
and “valuation”
are becoming synonymous with “demand” and “equilibrium”. The
markets are seeking recalibration and redefinition whereby deploying capital should
be both a statement about creating wealth as well as protecting the welfare of
the common good. Investors need to cut
through the noise to identify where nuance meets innovation.
The financial market is a pseudo
reflection of the events and needs of the population. What if the trading bourses were a “unit
investment trust (UIT)” of the economy?
What sectors would be highlighted?
Where would the momentum reside?
Would Wall Street's definition of “earnings” be companionable with Main
Streets' definition? It is notable how
the evolution of business in the last few decades has taken their model further
and further away from the population it seeks to serve.
The landscape is replete with
potential avenues to answering these questions, ranging from the technological
revolution, to alternative energy, solving hunger and poverty, rebuilding
infrastructure, reimagining healthcare, restructuring education, and narrowing
the massive financial gap between the wealthy and the impoverished.
Global economic expansion offers
enormous growth potential for portfolios.
Recovery is time-consuming, costly, and sometimes frustrating. But building roads and transportation
infrastructure, farming the fields, discovering renewable energy sources,
stocking the store shelves, connecting to new technologies, exploring the
heavens, ensures entry into a new generation of wealth building and social
cooperation.
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