Own or rent?
There is very little argument about
the myriad number of factors that have coalesced to create significant economic
changes in a post-Covid world. Many
years of monetary and fiscal stimulus, for example, might have some blaming the
Federal Reserve and Congress for hyperinflating the economy, but recent data
suggests that much of the domestic economy has adapted quite well to the
changes… certainly better than the expectations of pundits. In fact, it might
even be hinted that a balance now exists between fixed income and equities that
hasn’t been seen for decades.
Effective portfolio construction is
always about minimizing drawdown and other exogenous risks while highlighting recognizable
facts to achieve point A to point B consistency of return. My methodology, for example, relies heavily
upon earnings acceleration, sector strength, price momentum, and stochastic
outperformance, all of which define the trendline direction and magnitude. These precursors do all the blocking and
tackling well before we sit down to evaluate the “minutiae”.
It is also important to begin with a
macro perspective. Resilience of certain
ideations weaves through the history of mankind, those which focus more upon “what’s
right” and “what’s possible” versus the unintended obstacle about
“what’s wrong”. Central bank’s interest rate hikes in recent
years, for example, might be considered an onerous imposition upon unfettered
borrowing, but they also regulate impetuous behavior in a way that eliminates
future gluts and other crises.
Thus, it is our belief that strong
secular trends are more powerful than defensive and value investing. Leadership is constantly evolving. But the necessities
which bind all humans to one another…stable home; potable drinking water; clean
air; a good education; and strong homeland security…are ineradicable to
building a life……… and one’s portfolio!!
We are not suggesting that the glass
is always half-full. That kind of
mindless optimism blinds one to the important public discourse that goes on
around us. But we are mindful of the
shortcomings in the current social model that could derail a fulfilling outcome
for all citizens, such as a widening wealth gap between rich and poor, a
breakdown in spirituality, inequities in our healthcare delivery, a culture of
gun violence, and a vexing immigration problem.
Do these issues negate the good that inspires innovation? Of course not. But within these divisions are also the seeds
of research and evolving ideology that can produce social and economic results.
Normalizing the variables
The challenge for any investor is to
prepare for the worst, hope for the best.
Tactical asset allocation minimizes the potential for losses and/or any
other surprises that might occur outside the realm of “normal” observation
(Covid, e.g.). Consider that prior to
the pandemic when interest rates were still low our clients had sufficient cash
available in their accounts to exploit future bond buying and equity
opportunities. Asset allocation is
dynamic, ever changing. Observers of our
work have seen how our asset allocation, by class and by sector, rotates throughout
the year. Today, both our equity
exposure and our short term bond portfolios are neatly correlated away from
risk and towards capital gains potential.
We are well aware of the market’s
obsession with inflation and high interest rates and their combined effect upon
prices, production, and consumer sentiment.
We share a wait and see predisposition, also. However, as mentioned above, a pessimistic “glass
half-empty” perspective can lead to a lot of trading mistakes trying to keep ahead
of the headlines. We look at today’s
data with an optimistic prejudice. The
recent upturn in equity markets, along with improving fundamentals in many
sectors, implies that we have achieved a “soft landing” and likely will sustain
that path. Most of our data categories are
showing a positive trendline. Sectors
that we like include alternative energy, healthcare, agriculture, biotech and
pharmaceutical research, infrastructure, and consumer durables.
Above all, our anecdotal observation
is telling us that the planet is eager to tackle improvement and
problem-solving. You cannot downplay the
capacity of one human being to create breakthroughs in products, services,
business and government, and to inspire others.
Our fellow man deserve nothing less than fostering a level playing field
for that person…or persons…to emerge from the pack to make those differences.
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