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Living in History

By: Devan Robinson

"The correct lesson to learn from surprises is that the world is surprising." -Daniel Kahneman


Picking up where we left off: the S&P 500's Coronavirus-comeback marches onward.  Bears are melting down over markets melting up.

Past performance may not be indicative of future results. Indexes are not available for direct investment.

Markets move fast and are hard to predict in the near-term.  The past few months highlight the importance of being invested in a portfolio built for the long-term.

Living in History

2020 is wild.  A virus outbreak, closed economies, a vicious bear market, record unemployment, a vicious bull market and it's only June. 

Then a new plot twist: the tragic death of George Floyd.  If you had told me a month ago COVID-19 would be pushed out of headlines I would've laughed.  I suppose that's how history works.  History is all those things we didn't see coming.

2020 is why we diversify portfolios.  Diversification is boring but it's how you insulate against the constant push-pull of history.  Markets move fast and are incredibly hard to time.  If you build a portfolio anticipating wild years they are less scary when they arrive. 

What is risk?  

Like history, risk is what you don't see coming.  Russia & Saudi Arabia starting a price-war in oil markets.  Lehman Brothers not finding a buyer.  Saddam Hussein invading Kuwait.  Hijacked commercial airliners weren't unfamiliar to counter-terrorism minds.  Hijacking a plane and using it as a weapon?  That was new.  That's risk.

How do you deal with risks you can't see coming?  By expecting them and having strong assumptions.  Risk is always lurking around the corner but all too often we don't notice risk until it's in our face.  Here are some assumptions that underscore my portfolio process:

Assumption #1: The world is risky. It's better to understand risk is always there than to learn it in real-time.

The world gets wild once or twice a decade.  This is so regular it's almost spooky.  Look it up.  Military, economic, political, social or all of the above.  Big, frightening, global-events happen on a pretty regular basis and the world keeps spinning.  Expect them.

Assumption #2: Capitalism works.  There are more people who wake up each day wanting to improve their situation than people that don't.  That is the engine of American progress.  Millions upon millions of people trying to be a tiny bit better at their job, become more educated, earn a promotion, have better relationships, save more money and so forth.  If not for themselves than for their children.  It's slow, it's boring, but it's why our economy progresses slowly over time.

Sadly those that harm get more media attention than those trying to do better.  This only gets amplified by the press and social media.  There aren't too many stories about the family that hunkers down, works hard, and saves money.

A durable portfolio paired with sound advice can pull you through the inevitable storms of history.

Past performance may not be indicative of future results. Indexes are not available for direct investment.

Humility

A mentor once told me humility is the most important trait in business.  

If I'm honest I didn't get it at the time.  It sounded nice, of course, but I didn't internalize it.  "Sounds kind of basic" I remember thinking.  As a young know-it-all conqueror I knew the key to success was obviously skills like public speaking, sales ability, accounting etc.  Those are helpful but humility makes a great investor.  (I will be the first to admit I am still no beacon of humility.  I am trying to trend in that direction.)

As I get older I understand that wisdom more and more.  

Humility keeps you hunting for all of the reasons you might be wrong.  Humility urges you to never stop learning.  Humility helps you hone in on those traits you excel at.

Diversification asks for humility and history.  Humility allows you to be uncertain in the short-term.  History allows you to be confident about the long-term.

Thanks for reading,

Devan

The foregoing content reflects the opinions of Fairlead Financial Group LLC and is subject to change. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.

 Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful, or that markets will recover or react as they have in the past.