Wednesday, February 14, 2018

This Week's Message: Feeling At Home In The Markets

Having spent nearly my entire adult life in the investment arena, I must tell you that I feel completely at home in the stock market. That is, on behalf of myself as an investor, and on behalf of my family's financial well being, there's virtually no amount of volatility that rattles me. And it's instructive for you to know why.

But before I explain, I must confess that on behalf of myself as an adviser I can indeed get a bit rattled by volatility, but not in the sense that most others do. As an adviser, I tend to take on in some measurement the anxiety, or my perception of the anxiety of our clients.

Now, just so you don't feel too sorry for me, as I mentioned in Friday's video, only two clients have thus far reached out to me directly with confessions that they were truly shaken by the volatility of the past few days. I strongly suspect, however, that there are, or were, more who are/were feeling the stress of what turns out to be the first bout of notable volatility in an unusually long period of time. Hence, all of our blogging on volatility (much of it before it even began).

So why do I do it? I mean, why would I allow myself to suffer, to any degree, the emotions of the markets when I could simply sell my chunk of the practice (or hand it off to Nick), and live out the rest of my days enjoying the investing process (man! I really do enjoy it; the ups, the downs, all of it!) without anyone to answer to but myself?

Well, frankly, while that may seem like a great question, and I expect that someday my years and acuity will inspire a different answer, I think life is much more than simply catering to one's own needs and desires. And I believe that if one has been blessed with certain innate tendencies that draw one passionately to a specific line of work, if it's something that others need, or aspire to, and one caters to their needs, or aspirations, one will feel a tremendous sense of worth that has absolutely nothing to do with one's net worth. And, besides, I really like our clients, and I am thrilled by my son's aspirations, passion and instinct for the business, and I really like the folks I work with!

Another question, one we ponder from time to time within the practice, might therefore be, why not expand the firm? Why not, as so many other firms have done, go on an acquisition binge and buy up smaller practices ($50 to $200 million [assets under management] firms are for sale galore) and become a billion-dollar AUM organization?

While I may indeed live long enough to see our assets under management reach the 10-figure mark, I assure you, it will not come by way of gobbling up smaller firms and taking on the tutoring and babysitting responsibilities associated with the bringing of other advisers to our way of thinking. If it comes at all it'll come through carefully managed growth resulting from appreciation in client portfolios and from being extremely careful and discerning when taking on new clients. I.e., a new client has to be a very good fit (for us and for them), and we have to be in a position to give them our very best without detracting in any way from the work we do for the folks we've already committed to.

So back to this week's main topic; me feeling at home in the financial markets:

When it comes to stocks, honestly, my comfort as an investor is quite simple to explain: On any given day, whether the market is up, down or sideways, I gotta get out of bed in the morning, I gotta take a shower, I gotta eat, I gotta drink coffee, I gotta put on clothes, I gotta drive to work, I gotta have a place to work, I gotta have a chair to sit in, I gotta have a desk to put stuff on, I gotta have a computer to compute with and to show me stuff, I apparently gotta have a cell phone to communicate with and do virtually all the stuff a computer does, I gotta keep the office warm in the winter and cool in the summer, I gotta .... insert any structure, vehicle, good and/or service needed to keep a person breathing, and moving, and working, and communicating, and enjoying. 

Start with the shower, for example: The facility itself; the glass enclosure, the handle on the glass door, the tile under your feet, the drain in the middle of the shower floor, the soap holder, the bar of soap, the package the bar of soap came in, the shampoo, the bottle it came in, the materials, and the chemicals in the materials, needed to make the bottle it came in, as well as the materials, and the chemicals in the materials, needed to make the shower floor and all the other stuff I have and haven't listed yet. We could back up to the bed, or move forward to the tires on the car, or the wheels that hold the tires, or the road the car will drive on, or the ..., or the ...., or the ...., or the ...., or the ...., and on and on and on and on ad infinitum!

So, to say the least, I am more than comfortable owning the companies that make, and store, and sell, and deliver the stuff -- and provide the services -- that, at a minimum, get me (AND 7 BILLION OTHER HUMANS) out of bed in the morning and off to work (or wherever) without exposing the folks I come in contact with to my body odor.

Of course, as a discerning investor -- based on how I view the prevailing economic state of affairs -- my exposure to certain types of companies will change as general circumstances change. Meaning, when people are working and feeling good about their prospects, i.e., when they have extra money, I want to own the companies where they'll be spending that extra money. Or when I hear that a given country's roads are 32 years old on average, and I see the political will to spend a boatload of taxpayer money to update them, I want to own the companies who'll be paid to do the work and provide the materials. Or when it appears that at long last interest rates are rising, and the economy's doing well, I want to own the companies (the financial companies) that'll benefit from such circumstances, and avoid the companies that won't. When, on the other hand, people are losing their jobs and feeling lousy about their circumstances, I want to own the companies that provide the bare necessities: I mean folks always gotta eat, and they gotta poop, and they gotta turn on the lights so they can see, and they gotta go to the hospital when they break their ankles, and so on.

Of course the stock market can be a very fickle thing; there will be times when my portfolio gets drawn down a notch, or twenty notches, when share prices don't gibe with general conditions. I can get excited, scared, frustrated, whatever, when that happens, but my, what a colossal waste of time! I mean, all I gotta do is pay attention to the data, look around and see what folks are doing to know whether I should stay the course with what I got, or whether it's time to rotate to what conditions call for. Over time if I simply do that consistently I believe I'll do quite well; have to this point anyway.

So, yeah, it would be so easy and, frankly, stress free to simply call it quits and do what I love to do just for myself and my family for the rest of my mentally-able days. But, like I suggested above, at this point in my life I feel I'd be missing out on what I find so fulfilling -- sympathetic stress notwithstanding -- which is helping our clients navigate through, and make sense of an activity that most people find daunting, yet one that I utterly enjoy and embrace: Investing in the financial markets of the world.

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