To
get the right answers....
The markets turned their attention to
quarterly earnings results last week, beginning a new chapter confirming which
sectors will or have been leading and which will disappoint. And while the past
twelve months radically changed habits, perceptions, and experiences, we expect
that economic growth will continue to rebound.
The trajectory of layoffs is receding, while some “sequestered”
corporate and personal cash on the sidelines began last week to infuse into the
retail markets. Finally, as the weather
begins to improve there should be a spillover effect into our collective
psyches. Overall, the week was capped
off by more mileposts in the industrial and financial sectors.
There remains some concern however
that low interest rates continue to fuel the rush to buy stocks during a time
in which there are few investment alternatives for consistent return.
In the wake of a horrific Covid
experience, traditional portfolio allocations, like the customary 60/40 split,
have been upended forcing portfolio managers to reconsider their convictions
and attitudes about what constitutes risk management in the short and long
term. As government steps in with
additional fiscal packages the landscape of economic permutations is changing
constantly.
Identifying these new probabilities is
not as straightforward as “do I buy,
sell, or hold?” Managers are compelled to look at market
valuations and risk mitigation through the eyes of the "human factor"
more than ever before, and to determine a timeline from which the prospect for
success can be stretched out.
We see a multitude of industries
poised to capitalize on this new timeframe, including renewable energy, healthcare, food and agriculture, infrastructure, and
biotechnology. Modernizing their efficiencies,
these industries should impact positively upon the economy as well as portfolio
capital appreciation expectations. No
doubt that the tailwinds now developing from the past year are changing the
equation for companies aligned with a “new normal”.
.....you
must first ask the right questions
Making a portfolio bulletproof from
outside influences is akin to dodging raindrops during a storm. Putting money to work involves quantifying
internal (subjective) alongside external (objective) data. As noted above, the world changed radically
last year for most of us, primarily due to those "external" factors
imposed upon us (virus, disease, death).
As a result, not having the right investment strategies or risk controls
in place put a huge sum of capital in jeopardy.
The recent resurgence in equity valuations creates a new reckoning that
must be considered: are the financial
markets at a significant inflection point of hyper-valuation or can the linear
price recovery continue unabated?
The answer is allied to one's time
horizon, risk profile, and intrinsic investment methodology.
It would be simple to dismiss the
question altogether, but because the answer involves mathematics, facts,
theory, execution, and emotion it becomes critical to appraise all the
components synergistically. This we know
to be true: time is one of the single
greatest variables attributable to portfolio expectations and success. It is crucial
not to compare portfolio progress to the evening news or a neighbor's braggadocio. These
comparisons become irrelevant and not at all related to how comfortable you feel
about your own prospects over time.
In a year marred by fifty percent
pullbacks and fifty percent recoveries, my metrics only saw excessive
volatility, excessive risk, and poor strategic planning. Going forward, our attitude is that the
economy and the financial bourses will always give us reason for optimism and
something to buy. Being distracted by
everyday stressors deflects from the mission at hand....to rebuild confidence
and to plan for the long term.
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