Wednesday, August 3, 2016

Uncrowded Waters

The business I'm in, at least for me, is a 24/7 365 affair. This past week I've learned that a cell signal can be had at 9,000 feet --- if you're in a clearing and there happens to be a hot springs resort within 20 miles of your location, that is.

Yes, if there's a single filled bar followed by a "4G" reading in the upper left corner of my phone's screen, I'm gonna know what the dollar looks like against the pound, I'm gonna know if gold's trending, and I'm gonna know how U.S. utility stocks are reacting to Japan's latest stimulus package (yep, there's potential correlation there). 

I catch flack from clients/friends (synonyms to me [when your business is a 24/7 365 affair if your clients aren't friends you have no friends]) for staying connected when I'm supposed to be otherwise. But (I pinch myself) I absolutely love what I do! Me not checking the dollar, or futures, when I have a signal is like an avid golfer not golfing when he finds himself at the first tee box after having paid the green fee. Or, for me, it's like standing in the middle of the upper San Joaquin River, rod in hand, a number 12 green woollybugger at the end of my 6x tippet and not casting into the crystal clear pool above my feet (if that jargon makes sense to you, shoot me an email and you and I can share fish pics [i.e., brag]).

All that said, pondering markets and economies at elevations where the air is thin  seems to conjure up a whole different perspective versus when I'm near sea level, sitting at my desk, staring into 27” monitors, wearing shiny black shoes, with plenty of oxygen to breathe. In fact, I find that in the silence and beauty of nature (or on the 4-wheel drive road getting there) market metaphors abound.

It occurred to me the other day that when I'm behind another vehicle on a single lane, crazy-twisty, rock and pothole infested road that meanders along the side of one of those don't-look-down cliffs I feel much more secure than when I'm white-knuckling it all by my lonesome. Why? Because --- I'm ashamed to say --- I know that if there's one of those crazy jeepsters barreling down from the other direction, the poor soul in front of me is going to.... well, Yikes!!... instead of yours truly. Please know that I would never wait along the road for someone to take the lead for that purpose, it's just one of those realities of high mountain roads. But, you know, I've noticed that when I don't feel the security of others on the road to my destined trout stream; when, in fact, I encounter nary a single vehicle in either direction, when it's scary treacherous, when it appears that only the most foolish flyfisher would find himself on such a journey I virtually always catch more and bigger fish.

Such a journey this past week landed me along an amazing stream with sandy banks that were entirely void of human foot prints. And, yes, the results were incredible! 

BTW, this amazing creature survived our battle beautifully and made his way right back to the shelter of the submerged boulder I coaxed him from.

Ok, so what does this have to do with markets? Nothing really, just felt like bragging; remember my "friends" comment above? 

Just kidding :)

On the way to that beautiful trout's beautiful home, it occurred to me that following the crowd in investing is like following a caravan of jeeps down a twisty single-lane road. You think if everyone's doing it, it must be safe, it must be profitable; or else everyone wouldn't be doing it. When, in reality, folks always crowd where the fishing was good, not necessarily where it is good. Hence my commentaries leading up to the latest rally: You'll recall that I showed you what little bullishness there had been among individual investors and how actively managed mutual funds had been overweight cash and bonds, and underweight U.S. equities. I.e., everyone seemed to be staying off the stock market road. And here we are, at fresh new highs! 

We, in my view, can apply this logic to non-U.S. investing as well --- per my video from two weeks ago. By and large investing outside the U.S. has been relatively out of favor for quite some time --- as the road has been battered by relentless storms (think European debt crisis, Brexit, China currency and economic concerns, Brazil's populist politics and, thus, disaster of an economy, etc.) and appears to the crowd to be too risky to attempt --- which, therefore, has allowed opportunities in those uncomfortable places to grow ever larger. So then, if we can emotionally survive the twists, turns and turbulence that have kept most folks on smoother pavement these past few years, I believe our odds (no guarantees of course) of coaxing above average returns into our portfolios will improve exponentially. 

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