A lot has transpired in the interval since our 2014 Annual Forecast Issue, and it appears that market action is now heating up again. Are you prepared to dance to “The European Shuffle?”
The last six months have been extraordinarily busy for our firm, with a focus on transitioning clients to the Portfolio Managers that we approved and hired in late 2013. While making major changes of any kind is never easy, early success (solid investment performance) following the transition has confirmed the prudence of our decision to hire new investment partners. I like it when the first steps taken together are in a positive direction.
It’s really quite remarkable how easily one can discern lower stress in hindsight. The proverbial frog that boils to death in a slowly warming pot cannot adequately perceive its own peril simply because the change is gradual, not unlike Jim Dines’ laser-focused expression, “Those inside the bubble cannot see the bubble.” Thank goodness for those who care enough to pop our own bubble when they see what we cannot or will not perceive.
Those with the courage to stand tall with us even when it gets messy are a blessing. This leads to a series of curious questions for readers:
- When it comes to managing your financial wealth, whom do you trust to help you see your blind spots before they lead to a fatal blow? Is it a talking head, a favorite investment newsletter, a trusted long-time advisor, or someone else?
- Whom do you trust enough to protect you from your own very natural human imperfections, especially during periods of mass fear or mass greed?
- What kinds of checks and balances do you have on yourself in respect of money management, including cash flow management and investment decisions?
- Have the financial and emotional wounds inflicted by having trusted sincere but ineffective/incompetent/naive people led you to find someone trustworthy as well as effective, competent and wise…or have you decided that no one else is trustworthy?
- What are you doing to heal those old money wounds?
- Whether you are self-managing or delegating investment decisions, how will you know when a refusal to change a current tactic is based on an “assertion of unhealthy ego” or prudence and discernment?
- What specific checks and balances are in place to override strong opinions that evidence is proving to be inaccurate?
- Whether it’s money or anything else that we identify closely with, how do you discern between those who are primarily focused on “getting it right” versus those whose ego demands “being right?”
- Who rises above the surface to advise you when your money is riding the ocean currents and winds…and who is your trusted fixed beacon on shore, directing you safely into harbour? Who is your Lighthouse?
- If you are open to finding your own Lighthouse, does it make the most sense to do that for the first time in the middle of a storm, or perhaps explore this issue before the wind, rain and swells threaten your vessel?
These questions literally just flooded into my consciousness as I sat down to re-connect with readers through this newsletter. As I review them, I realize that they all speak to allowing ourselves to be vulnerable…and that these questions apply to our broader lives, not just to money management.
Vulnerability is likely one of the most frightening words in the English language, especially for males, since we usually associate vulnerability with weakness and/or inferiority. As you read the word vulnerability, how do you feel? Did you notice a knot in your chest or stomach, or did you immediately go back into your head to the relative “safety” of your rational thoughts?
Brene Brown is a leading global authority on these matters. Though I’ve never met her, I consider her work to be a great gift to me and my family. In my experience, you cannot trust anything or anyone without some measure of vulnerability.
As I’ve stated many times in recent client meetings, our working hypothesis of the financial markets remains intact as of today. In plain terms, our view is that U.S. equities remain the asset class of choice for over-weighting in portfolios for the next 16-20 months.
We appear to be in the early stages of a normal seasonal pullback in stock prices in North America. Following a 14% rally (excluding currency gains) between Oct 8, 2013 and April 2, 2014, some rest is in order for the S&P 500, while the Nasdaq 100 is already stumbling after an exhausting sprint.
From my vantage point, the Euro (pean) socialist experiment is starting to quiver under its own weight, primed to implode via its own sovereign debt crisis. Will the catalyst be a seemingly inevitable outright invasion of eastern Ukraine, escalation of tensions involving Syria, a derivatives-based implosion of a major French bank, or further scandalous revelations of “elitist privilege” (read: corruption) involving IMF head (and former Obama legal colleague) Christine Lagarde? Or will it be something totally different and apparently un-related?
Irrespective of the catalyst that eventually becomes consensus, the time is nigh for raising the quality of defense being played in investment portfolios. We all need to have reasonable expectations around managing downside risk, but where’s the harm in realizing some big gains on the more aggressive elements within a portfolio? What would be so bad about locking in some recent gains with the intention of re-deploying that capital when equities are once again available at cheaper valuations than today?
It’s always easier to find a ready buyer when there’s some meat left on the bone…otherwise why would anyone else want to buy it from you? After all, the purpose of investing is to make a reasonable risk-adjusted gain when the winds are favourable, and then protect those gains wherever possible. If one is habitually focused on selling the exact top tick and buying the exact bottom tick (i.e. perfectionism), then an unhealthy ego is likely getting in the way. The truth hurts when it ought to.
Japan is also starting to shows signs of an impending sovereign debt crisis as well. Domestic bonds usually rally when domestic stocks falter…based on capital flows. Given the recent stagnation of the Nikkei index, Japanese Govt Bonds (JGB’s) should be stronger. Simply put, JGB’s are not receiving significant inflows while major capital is quietly flowing out of their stocks. Destination: U.S. large cap equities.
Though I am not usually drawn to literary fiction, I am compelled to recommend a title that I am currently engrossed in. One Great Year is a brilliantly-woven tapestry of human struggle, the great wisdom of ancient indigenous peoples on many continents, and of course love. If a man named Bubba can win the Masters and bawl like a child in unrestrained joy while the world cheers and tears up with him…you too can enjoy a great story that just might open your eyes – and heart – to the wisdom of the ages! The co-authors of One Great Year – Rene and Tamara – are fabulous people, too!
Patience, Discipline and Love help you manifest wealth, health and happiness, so focus on these.