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Fairy Tales and Facts

“The ancients knew very well that the only way to understand events was to cause them” 
                             Anonymous Quote                                                                                               

I’ve generally favored expository reading materials in my life and ignoring Fiction often at the expense of missing the value of a story. But over time I’ve come to two important conclusions in my life. First, as the internet has grown and so much information is disseminated without any defined measure of accuracy I’ve come to accept, reluctantly, the value of a story as a premier tool of persuasion. Which leads me to the second, I no longer state that I don’t read fiction, because it’s all fiction. 

I bring this up because as an investor I prefer an event over a good story. This is because in much of the financial services industry stories come in different packages. For those who sell product I find a good story to often be “The world is coming to end” therefore you should buy this Annuity. But I’ve also often encountered the use of a story to better transmit a stock investment to a client. Now, not being a natural salesman, except for selling myself, I can see value in helping clients understand the value of an investment rather than simply assume that understanding. But at what point does a story tell more about the aesthetic of a company and less about the potential events in store for its future. For example, do I care if the earnings of a company disappoint the pundits? No, because the only disappointment comes from the earnings missing what “the street” analysts forecasted. So if earnings are bad should I be upset with the company or the analyst? To me, the former has more to prove than just earnings (story), it has to prove momentum, its survival (event).

I prefer to pay close attention to words, written on the websites and spoken in public statement. I’d rather invest in a company because I think that they might sell an underperforming division, be preparing for a merger, taking a division company public. I like to watch for hidden assumptions that may be valid. Not the implicit assumptions regarding companies reported results that only coordinate in their own proper setting. Historical growth, attractive industry outlook, experienced and transparent management all catch my attention and I look to back up what I find with technical analysis of global currencies, commodities and interest rates. All trackable in real time.

This is because the portfolios I mange aim for low turnover and the requisite patience. The list of equity activities such as the aforementioned mergers, acquisitions and spin-offs, also includes restructurings, buyouts, and my favorite of all price appreciation. And the best part is that covers as much reason to initiate a buy as to be a trigger for a voluntary sale. Even fixed income activity such as changes in credit status, in defeasance guidelines, in interest rate policy, and in interest rate assumptions, can be a trigger for a voluntary sale

As the markets continue to climb higher seemingly in the absence of any particular story, and there are external events that are open ended for increased volatility. Interest rates are rising to levels not seen in over a year, jobs and inflations haven’t decisively moved so far this year, but job growth is up anyway and steady inflation isn’t declining inflation. A lot to watch, a lot to digest and more than enough to keep us prepared when a correction occurs, not just the threat of one.

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And as I peered through his bad hair weave, and “coke bottle”” glasses I realized he was right.

Nowhere in our collective memories do we ever fully understand the workings of our mind. Driven not by the collective accumulation of information but rather defined by the processes eternally influenced by the random cocktail of chemicals in our heads and poisoned by the principles we carry around in our back pockets with all smug confidence.