Not easily dissuaded
In the last decade, making money and
building net-worth through investing has been relatively “easy”. A proliferation of growth opportunities
prompted an influx into the markets by seasoned and novice players, alike. The love affair between investors and
financial speculation grew even stronger as portfolios expanded and
alternatives contracted. For those with
sufficient capital means, double digit annualized returns were the payoff of
their fortune hunting.
There is a new paradigm taking shape
as a result of the pandemic and other cultural/philosophical shifts in the world. Until last year, the financial markets were
not as much a “life and death” issue as they have become today. We are forced to think about and deal with
our mortality and our place in the world, including our beneficial wealth. Most notably there is a change in mind-set
when interpreting data because the ticking clock on our existence places that
information into a time constraint that heretofore had not been part of the
equation.
Make no mistake, our secular
overarching view remains unchanged: the
financial markets are now and will continue to be performing at record pace. Nevertheless, one must be proficient at
balancing macro optimism with the realities on the ground. Unexpected events and their consequences are
always a part of planning for portfolio building.
Historically, the most opportune time
to invest is at the “bottom” of a (parabolic) cycle. And while valuation today remains quite high,
a collective sigh of relief after the pandemic ends might be just the elixir we
need to recalibrate the velocity for the next wave upwards.
When
and how?
Another big shift in the markets today
is a focus upon sustainable, socially responsible assets. For too long, these sectors have been
relegated to the back burner (energy, commodities, cyclicals) in favor of the
sexier, more popular trends (technology, healthcare). However, efficiencies in data analytics make
it difficult to ignore the anecdotal and quantitative probabilities that exist for
these sectors which improves the prospects for investing in education,
infrastructure, utilities, agriculture, and other categories which, previously,
had been under the radar. It is
increasingly obvious that business
without conscience is a lost leader
when taking into account the long term value of capital gains. While it is always difficult to look past the
obviously recent choices, it is also important to mitigate volatility and risk
by looking further down the road than instant gratification from the here and
now.
The last decade of economic expansion
was punctuated by significant shifts in productivity and employment. The secular bull in place now is well
supported by capital spending, investment banking, sufficient cash reserves, and
prolonged earnings expansion that makes likely a developing business cycle for
several years hence. As mentioned
earlier, there will always be unique “negatives” that apply, but none are
sufficient, we believe, to derail a cyclical bull phase with any
intensity. At worst, we expect the data
to be supportive of new business initiatives and problem solving for the globe's
ever expanding needs.
The loss of life, property, and
financial valuation caused by the business recession and pandemic have been
particularly catastrophic to the psychology
of investing. But a decade of base-building cannot easily
be eroded; perhaps all we might be experiencing is a net-zero impact when we
look back on the carnage. Monetary
conditions are extremely favorable worldwide and profit acceleration will
continue to underpin positive probabilities for wealth-building. The process
itself, however, requires patience, discipline, methodology, empathy for
others, and conscience.
