“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.
