April 20, 2018

Because of Nothing

“Myths almost always start with a state of extreme disorder” – Rene Girard

Professor Girard introduced us to the primacy of human behaviorism, scapegoating. Today the fixation that humanity has shown in its evolution is alive and well throughout the world and as it relates to the purpose of this letter, to find the basis for the obsession that pundits and their community display with finding a reason the stock market moves on any given day. Trouble is, history, ripe with empirical evidence shows only those events, recently characterized as “Black Swan” events, think 9/11, which have a direct impact on the changes in the global equity indexes on a given day. Everything else moves in far slower motion than we are all often led to believe.

The reason to bring this up is my obsession with demystifying my industry and underscore the importance of aggregate economic, corporate and geopolitical data in the effort, not to predict the future but, to be as close as we can to being in the right place at the right time. I can be content with that posture mostly because the efforts in timing markets through the use of quantitative technical analysis or the more popular algorithmic randomization models have succeeded in convincing investors that predicting the outcome of the stock markets is close at hand. I disagree.

So where has that left me? You’ll never hear me utter the word ‘in reality”, or “the truth of the matter is” for the sole reason is I personally believe that the only thing I can be certain of is that I can’t be certain of anything. Which leaves me to rely on information that is more tangible than a forecast. For example, I talk about risk. What is it? Well, if you have cash, your only risk is spending it too fast. But if you invest that cash into Amazon stock, well, that’s altogether a different kind of risk. Can you still see it diminish, maybe? The point is that to me, risk is measurable, and at the risk of over simplification, if I invested in Apple (AAPL) or Bitcoin you would probably guess correctly which is the riskier investment. When I recently invested in Tesla, I received a few calls asking me to explain the risk. To which I answered that I held a position for clients that was big enough to help drive the sector it was in (along with Amazon (AMZN), Home Depot (HD) and Alibaba (BABA)) but small enough to be less of an impact on the portfolio as a whole, in the event it declined,

In the meantime your alternative to investing is living and working. Mine is knowing that much that is reported in the media is conjecture, in our industry the most recent being that trade war is coming so sell stocks, and is often met with stock market ambivalence. That doesn’t meant the stock market isn’t susceptible to added volatility, or even a continuation of its recent correction. But it would more likely happen because, economic data slows down, unemployment increases or interest rates move up faster than the current rate of inflation would suggest. A lot to absorb, but luckily a lot easier to for me to track as well, both historically and in the present.