Not why, but how
Current events conversation is
punctuated by a lot of headlines and analysis about why things are as they
are...inflation, supply chain bottlenecks, unemployment, poverty, social
change, stock market records. But investors
really need to focus not so much on the why
these things occur but on how to mitigate their negative impact upon
portfolio performance. And the best way
to do that is to be consistent in applying an investment discipline which best
matches one's risk tolerances. In our
case, advancing from point A to point B is a function of strategic asset
allocation, cycle and phase measurement, and statistical analysis of macro
trends. Our quantitative discipline is a
paradigm not only for identifying potential winners in their space but also underweighting
laggards especially those challenged to keep pace with vast generational
changes in the global realm.
There are many risk management
strategies, the most successful of which rely upon preparation and preparedness
in advance of inevitable twist and turns in the
economy. Something as simple as buying a
stock might entail hundreds of factors.
Every macro silo can be evaluated for its durability and long term
social relevance. Couple those data with
client preferences about risk aversion and you ultimately create symmetry
amongst all the asset classes and choices one has to make. Once again, our guiding thesis is that asset allocation, itself, plays a greater
role in the probability of portfolio capital gains than does any individual
security within that portfolio. For example, there is a greater appetite for
socially responsible themes in today's marketplace than at any time in the past
two decades. We attribute this to a
change in values brought on by the horrific effects of the pandemic and society's
greater appreciation for personal responsibility and caring for others. Thematic investing also organizes the
marketplace into secular ideas that cut across specific sectors, geographic
boundaries, market capitalization, and political ideology. We see areas such as water, agriculture, life
sciences, alternative energy, ecology, and infrastructure as having that
impact, particularly in emerging markets as they mitigate the headwinds caused
by the global health crisis.
Bear in mind that the Wall Street
firms have also metaphorically “found religion” during this time and are
saturating the media with commercials featuring walks on the beach, retirement
homes in secluded mountains, and using earnest Senior Vice President
spokespersons looking directly into the camera telling you how much they care
about you. Online trading platforms make
a feverish pitch to convince you that it is “simple” to trade your way to
prosperity, as if making money is...and always will be...a straight-line
riskless endeavor. Be forewarned about
any gambit that tugs at your heartstrings when you feel most vulnerable.
Fool
me once...
Media perpetuation of these stereotypes
would be amusing if it weren't so sad that the real percentage of clients who
have the means to effectuate these “riskless” wealth building strategies is
such a small number, while the rest of the population are feverishly trying to
keep pace with household finances, mythical benchmarks, their neighbors, and
other unrealistic expectations about how the other half lives.
Successful outcomes in life requires
patience and discipline...something in short supply right now. Let me give you a personal example: if you watch the professional golf Tours on
television, a showcase for the best players on the planet, you come away
thinking that you, too, might achieve a modicum of success on the golf course
just by going out and teeing it up on any weekend. And yet the hours and years of practice
required to attain their proficiency is lost on most of us who go to the
driving range and beat balls, without guidance from a professional, believing
that it's “easy” to master the game.
Some people understand the limitation
of their abilities. Economics and market
strategy is the same experience. Wealth
building does not come easily or without study of trends, portfolio allocation
methodology, and a strong dose of social consciousness. When collaborating with a professional the
money management relationship can be rewarding and profitable...but most
definitely not compatible with a “must have it now” culture so many are seeking. Breaking any big process into several small
attainable steps is key to imagining what the ultimate result might look like.
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