Putting events into perspective of a 100 Trillion dollar economy: As we have previously explained in person to some of our clients, such phenomena as a virus breaking out are quite common BUT insufficient to derail the worlds economies. These things are simply NOT grounds to be getting alarmed about. The world economy is over 100 TRILLION DOLLARS. Such things as this virus outbreak, hardly move the needle.
I would like you to visualize an economy as large as one hundred trillion if you can, and that may help matters. Even 100 billion dollars is NOT significant in a 100 Trillion dollar economy.
THEREFORE, We encourage everyone to stay ALERT and not ANXIOUS. DO NOT panic! Panic equals false alarms. False alarms yield bad outcomes, such as moving into cash and waiting for things to settle down.
I must remind you that we look at events very carefully ourselves. At any such occasion, we ask the simple question. How will we behave with our own money? And we do for you what we would do for ourselves. We would NOT get frightened over this. We would NOT move our money around. If anything we would use the weakness to buy more. Why, we actually looked at some travel companies to buy moving forward.
Our very long track record: Please remember that we have a VERY long track record of going through such events and although the media has called for the sky to fall. No, it did not fall! If we had ever acted on such news, we would have hardly any money left – It really is that serious!
We want to draw your attention to this ever present phenomenon that there is NEVER a shortage of doomsayers and people for whom the sky is forever falling! We laboriously and continuously outline why such thinking is unwarranted and usually the analysis is shoddy at best. You should NOT get frightened! You should be skeptical. Most of the time these headlines are designed in order to drum up subscriptions or clicks for their channel/website/newsletter!
Study for yourselves: We have given you the long term charts of the stock market. Please plot the various outbreaks on them and see how the market reacted. Would you have made any money by selling and moving into cash at those times? You may google events such as SARS and see what happened. Even one of the worst viruses, HIV, has not been able to kill the world economy. Would it have been wise to sell when the news surfaced of entire villages being effected and destroyed in African countries? Do you know that AIDS has taken more than 25 Million Lives? Has that stopped the world?
While you are at it, may we also request you to plot the second world war, inflation, high interest rates, Greek default, Russian default, Brexit and Trump! Markets are not that easy to kill! It always would pay to be optimistic. We want you to have a glass is half full approach for it is essential to money making. And the proof lies in that 92 year old chart.
Next time, someone asks you to go to cash, please be aware. It may sound assuring but it is VERY costly.
Dangers of linear thinking: The economies did not collapse because mankind with a lot of its resourcefulness responded. All those who thought the sky would fall were proven wrong. It was just linear thinking. It did not take into account how innovative and resilient mankind can be.
Waiting for things to settle down!: This is a very appealing concept but highly misleading. We would be remiss if we do not point out that almost 100% of the time there is no one to ring a bell that says that things have bottomed out. Almost 100% of the time, investors miss the upside and money that could have been made is NOT made. Such thinking, we know is a disaster! We do not even want you to consider it for a second. Please ask the questions we outline below.
You should ask the simple questions :
-What skill set do you really have to be making such decisions?
-You have tried making decisions yourselves in the past and how accurate were they?
-Did you even make any money?
-How much money did you make? Was that enough?
-Was that luck or skill?
-Do these journalists that are writing these articles or those that you are following as a source of advice have any real track record of making you money or themselves any money?
-What skill set do you have in telling market bottoms?
-Were you able to identify the 2008 bottom?
-The 2011 bottom?
-What about the bottoms of the numerous corrections we have had even over the last ten years!
You MUST critically evaluate the track records of everyone offering their opinion/advice at the very least.
All this may sound harsh but if we do not point out these questions to you then who else will. We want you to ask these questions every such occasion that you feel like taking an action or want to pay attention to someone.
Our role as discretionary managers: I also want to remind you that we are discretionary managers. In this arrangement, we make decisions in your portfolio according to guidelines agreed. In our case, it is to grow the money the way we would do ourselves. We therefore have NO capacity to be acting on unsubstantiated/unreliable sources’ whims and feelings about events. It would be contrary to our fiduciary responsibility where we suddenly start acting on analysis that we describe as half-baked, linear, and dysfunctional.
Adamant behaviour and snappy judgments: We are very aware of people’s adamant ways. We are also aware of ‘snappy’ judgment calls by investors and advisers. Such phenomenon is well documented in behavioral finance. We also know it is very costly. It is for this reason that I outlined a list of questions that one must always ask. The list is much longer and varies from event to event. But in essence sound decision making involves a lot of questions. Investors need to answer a LONG list of “then what?” and often circular “then what” questions. The process can often leave one’s head spinning if one is not used to it. For this reason, people do not ask the questions and resort to snappy, knee jerk, adamant behavior. I would encourage you to at least ask the questions I outlined to anyone who is being adamant or judgmental about investing.
Just holding steadfast is a strategy that is very powerful by itself! The impact of words, phrases and dramatic presentations.: This has been well documented in Finance that such items (dramatic presentations etc) do have an influence even on professional investors and even they get sucked into bad decisions, even when the analysis is half baked and shoddy. Of course the popular press/media is full of it. We deliberately avoid the popular press just in case some dramatic presentation sway us against our better judgment. We have our own professional sources. Almost all of them are CFAs and quite used to circular “then whats”. We then apply our own critical thinking to what we have received from these other Analysts to arrive at our conclusions. After all, we are CFAs too.
You may NOT agree with us: We would repeat that you would be wrong because your analysis and resulting decision making is NOT correct. Harsh as it may sound, if you or your sources turn out to be correct, it would be akin to a broken clock that does indeed give correct time twice a day. But please, do not follow that clock for it is wrong the majority of the time.
For us, the answer is very clear. We will not be moving into cash for ourselves OR for our clients. Our response is rooted in best practices and procedures of effective decision making as embodied by legends such as Peter Lynch or Warren Buffet.