Mark Twain once wrote about a growing number of do it
yourself writers, offering that he could have learned to write without a
teacher, but it would’ve been risky given his self proclaimed natural
clumsiness. In my opinion, analyzing and investing in the global markets
presents a similar dilemma for today’s army of financial advisors and coders.
Investing is a tricky sport. It has all of the earmarks
of a gamble, but with hints buried deep in balance sheets of the corporate
targets. Enter technical analysis, in tactical models as early as 1935 (Elliott
Wave*), drawing on a handful of discoveries focusing on sequential numbering
found both in science and nature and toyed with by mathematicians (Fibonacci*)
as early as the 12th Century. Now we come to the 21st century and
much of the previous strategies founded on technical and fundamentals analysis
have been poured into computers (algorithms) and instructed (through protocols)
to join the game. Hence today we have customary market volatility made more
forceful via the speed and clumsiness of high frequency output. Made so because
while knowledgeable in the computer sciences those programing the systems, as
with our social platforms, are for the most part uninformed of the historical
failures of believing one can artificially predict the behavior of the markets,
let alone of its participants, leaving the result a curious mix of confusion
and unruliness better ignored than reacted to.
This week saw the broad indexes complete a decline from
last week of almost 5% of the S&P 500 and then stumble from a meager
recovery. While this created an overall opportunity, many of the underlying
stocks that would customarily be bought on such a decline were not priced as opportunistic
as one would expect. This outcome probably had as much to do with the reckless
interpretation of external events, such as trade with China or tensions with
Iran, the former hurting Industrials and Materials and the latter keeping the
energy markets firm. Whatever the resolution of these events I can’t help but
assume the crowd pundits will be on to some other juicy piece of irrelevance
spread in their customary jargon infested manner. I can wait.
This is why holding cash and maintaining exposure to
investments that focus on the consumer and pay decent income as well make sense
right now, to me. The summer months is when the social mood is traditionally
more focused on consumer options due to an increase in discretionary spending
during the warmer months and including travel. And with the strong dollar there
will probably be fairly robust tourism in the urban centers as well. Perhaps
not a total driver for GDP, but in my opinion, stability is better than not,
and if opportunities present themselves, we’ll be ready to increase our “skin
in the game”.
