July 31, 2015

Analyze This

Since the chimes of the recent Chinese and Greek events another somewhat frustrating period came into focus that revolves around companies and the public release of their earnings and expectations. Now at face value this would seem a reasonably enjoyable event assuming of course the investments I’ve made have appreciated as expected or declined with their value still intact, whereby I might hold such an investment for a better day. Or maybe not.

Unfortunately as we finish the past 2 weeks with the US stock indexes negative across the board I have found myself frustrated. Now it’s important to note that frustration on my part while infrequent is not necessarily uncharacteristic of the job. If your Financial Advisor claims to have never felt their pulse rise on the occasion of especially volatile financial markets, they’re not being completely honest. The risk I take for clients is the same risk I take for myself and although for most situations such are global, economic or political in nature that rarely even distract me from lunch (and other important things in life) much of the past 2 weeks has been about the aforementioned earnings. And that is where the markets are not reacting to actual claims on the part of corporations (and so they shouldn’t) but rather how those claims stack up against the expectations of analysts.

Wall Street analysts, we’ve all heard of them, I’m even one myself. And over the years as corporate scandals such as Enron and WorldCom soured the public’s faith in finance, new legislation ushered in what analysts called Full Disclosure. Essentially Full Disclosure meant that publically traded companies had to enable the free exchange of all material facts pertaining to their ongoing business operations.*  So flash forward to today’s markets and with the information highway moving at light speed that free dissemination should be more accurate. Maybe, and when information is brought to the attention of the investing public it is especially odd how good news can take a stock down and bad news can cause it to rally. Hence my occasional frustration.

So while I will probably become as jaded to the above mentioned abstraction as I have to many others       I have also noted in previous comments that to navigate this my style of managing assets is not simply about what I invest in individually, but what the investments look like  in total. Knowing that I need most of my expectations that follow economic and political interpretations, often punctuated by a global crisis or two, to perform at the expense of those ideas I get wrong. That’s why you often hear me talk about risk as my measure of how deeply invested we are and why using ETF’s for example is as much to capture broad interpretations as it is to monetize risk. Simple really, and while I’ve often been told that my strategy lacks style, I’m content with that since I’ve never been one to focus too much on appearances.

As always, thanks for the feedback. I expect volatility to continue through the summer so if there are any questions please don’t hesitate to contact me. Have a good weekend.