Circle the wagons
Two weeks ago, the economic
conversation centered around a successful global recovery (from the pandemic in
2020 and from efforts made since the 2008 Great Recession), a monetary and
fiscal response to nascent inflation pressures, and flux in the job
markets. Today, the entire narrative has
been upended by concern over a new Covid variant, Omicron, and its potential to
disrupt the existing forward trends.
Whereas the emphases had been upon what was going right, the stock
markets were more concerned in the past 5 days about bailing out before
something went drastically wrong.
It’s a fact that we live in a 24 hour
news cycle world. The internet is such
that if someone in South Africa “sneezes” the panic it creates might be felt
worldwide. Was the selloff reaction in
the financial markets appropriate and proportionate? Perhaps not…that is why we must follow the
science and wait for those answers.
However, it has now become commonplace for markets to react more like a
casino than an investment community, dealing the kind of instant pain, or
gratification, with which this era has unfortunately become accustomed.
It has to be accepted that we now
live in a Covid dominated world until or unless the disease is eradicated
completely (not likely) or controlled in a way that it becomes less of a menace
to the workplace, one’s health, or one’s psyche.
Our concern though is that the
investment world conflates headlines with market trends. In a cyclical world, what sometimes is up is
another time down, and what today might be winning could be a “loser” at some
point in the future. You see, the whole
world…especially the stock market…is constantly in a state of flux, moving
parabolically along the course of its trajectories. When retail capitulates, for example, the
drug stocks accelerate. When the economy
slows, oil and gas recede while defensive stocks advance. These transitions occur over time…and time is
the most critical element to any portfolio decision and allocation. In the realm of quantitative science, 24
hours is a grain of sand on a larger beach.
Look beyond
The problem with micro-managing
almost any trend is that the analytics are rendered useless without an
amplitude against which to measure cycle advance, angle of ascent/descent, or
magnitude. One cannot determine the
progress of a patient without a chart indicating a starting point and an
expected outcome in the future. Only
time can provide that perspective.
Investors are in such a hurry to cash
in on the big score that they lose their perspective, and confidence, in a
matter of minutes based solely upon what they hear in a news headline at the
top of each hour. However, in a Covid
world, we must learn to adapt, without panic and confusion, to a changing
landscape…in our homelife, workplace, and society. And I believe we will learn to do just that.
As energy resources dissipate we will
find alternative energy to fuel our businesses; we will discover new medicines
to combat diseases; we will close the wealth gap inequalities which exacerbate
the negative consequences of economic disruptions; we will invest in
infrastructure to diminish the impact of supply chain bottlenecks; and we will
accelerate the progress that we were making in the global economy pre-pandemic.
But mostly, we must step back from assessing
everything in the context of our 401-k valuations each market close and learn
to elongate our perception arc more closely to approximate the real value of
investing in protracted strategies and sectors that impact the world for the
long run. Overall, our market optimism
remains intact despite the overwhelming uncertainty that gripped the markets
last week. As is always the case when
selloffs occur, wreckage lays strewn all around. But this is absolutely the time to be focused
on buying the secular long-term trends in energy, agriculture, healthcare,
infrastructure, and technology.
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