History in the Making
I am quite certain that by now, everyone reading this has been bombarded by television, radio, and print media opinions about the geopolitical implications of last night’s election results. Although there is certainly a wide variety of opinion, one thing that we all can agree is that Donald Trump’s victory was an historic event, that has the potential to significantly reshape the landscape of our country and world in coming years.
Of course, this result also has taken investors somewhat by surprise, and many are seeking to make some sense of the implications of the election on the markets. We thought it might be helpful to provide some perspective.
The world is a wonderful place. This quarter, our ‘What A World’ segment takes a look at the upcoming Presidential Election, Fashionable Pessimism and why you should be Optimistic.
“Risk comes from not knowing what you are doing”
– Warren Buffett
In last month’s article, we focused on “humility” as one of the great qualities to adopt for anyone who wants to become a great investor. This month we focus on a similar, but slightly different quality…Great Investors Are Observant
To become a great investor, one must adhere to firm beliefs which are formed by the observation of markets over many years. In our opinion, the diligent observation of market behavior over many market cycles will reveal certain Universal Truths, or Natural Laws which govern investment markets and investor behavior over time, and which the wise investor can attempt to exploit.
“No Issue looms larger for the financial advice industry than demographics and the aging of the baby boomers.”
-Andrew Osterland: CNBC.com
Recently, enormous volumes have been written about the coming transfer of wealth which is likely to occur in the next several years, as wealthy baby boomers begin to die and transfer their wealth to their kids. The media has adopted this topic as a popular theme, and I have seen hundreds of articles like the one below from Andrew Osterland, which proclaims that:
Over the next several decades, the biggest and wealthiest generation in U.S. history will transfer roughly $30 trillion in assets to their Gen X and millennial children, and if studies are accurate, most of those children will promptly fire their parents’ advisors. [from: Advisors brace for the $30 trillion ‘great wealth transfer’]
Indeed, this coming wealth transfer event has become a huge focus for the financial advice business, which is scrambling to figure out how to court the Millennial and Gen X children who stand to benefit from these inheritances.
“A staggering fraud… A bank that is too big to manage”
– Senator Elizabeth Warren, referencing the recent Wells Fargo Bank fraud case
If you have picked up a newspaper or turned on the business news this week, you probably have seen images of the pained face of John Stumpf, the beleaguered CEO of Wells Fargo Bank. Unfortunately for Mr. Stumpf, he has spent his week attempting to explain to Congress why a massive fraud was committed on the bank’s customers under his watch.
Over the last few years, thousands of Wells Fargo employees have been opening millions of unauthorized bank and credit card accounts, in order to boost their sales figures and earn bigger bonuses. In the process, they subjected millions of customers to unwarranted bank fees and interest payments on accounts they never asked for. The result: over 5,300 Wells employees who engaged in this fraud have been fired, Stumpf stands to lose his job, and Wells is being forced to pay the largest penalty fine in history, reported as $185 million.
“When your Values are Clear to You, Making Decisions Becomes Easier”
– Roy Disney
Roy Disney was the co-founder of The Walt Disney Company along with his younger brother Walt, and is largely known as the force behind the company’s success. While Walt was the creative genius, Roy was just as much a business genius, who made sure the company was financially successful.
His quote above is one of my very favorites, and serves as a constant reminder about the incredible power of personal values. In my experience, personal values have tremendous power over human behavior, and I have observed that most people have an extremely strong ambition to enable their personal values in their lives. Our values are like an invisible force which influence every action we take, goal we achieve, and decision we make. When we have clarity about what is most important to us, the decisions and actions which influence our life’s trajectory become second nature, because they are guided by the compass of our personal values.
“As a society, we don’t understand relationship skills. Yet everything is at stake in people’s relationships. Mindset adds another dimension. It can help us understand even more about why some people are able to build lasting and satisfying relationships.”
– Carol Dweck, from the book “Mindset”
Carol Dweck is a researcher, educator and author of a marvelous book called Mindset, in which she discusses the importance of how we look at the world when it comes to success and achievement. In particular, the book discusses the important role mindset plays in the success or failure of relationships. Dweck makes the point that the very best, happiest and most productive relationships are based on the foundation of a similar mindset, in which two or more people have the same way of looking at the world, and what is most important.
“Never make predictions, especially about the future”
– Casey Stengel
In last month’s article, we focused on “chasing performance” as one of the biggest mistakes to avoid for anyone who wants to become a great investor. This month we focus on a similar, but slightly different quality…Great Investors Are Humble
To become a great investor, one must have a healthy acceptance of the fact that investing is essentially an exercise in managing uncertainty about the future, and is an “inexact” science at best. Great investors understand that there is a limit to the effectiveness of analyzing current information about the world, as a means to make future judgements about asset prices. Although hard work and research are critical parts of the investment decision-making process, they do not guarantee a favorable outcome. More importantly, great investors recognize the limitations of their own intelligence, insight and skill as reliable tools in making effective decisions. There is no “black box”, and even the smartest and most skillful investors will struggle with predicting an uncertain future.
No matter how smart, or skilled the investor, it is wise to never overestimate your ability to be “right” every time, and the wise investor makes healthy allowance for the possibility of being wrong.
“Never announce that you are a knight, simply behave as one”
– Ethan Hawke, from his book Rules for a Knight
A Super Performer
On February 1st, 2015, the New England Patriots played the Seattle Seahawks in one of the most entertaining, and closely contested Super Bowl games in recent history. Late in the 4th quarter of that game, with only 6:52 left on the clock, the Patriots took possession of the ball deep in their own territory, losing 24-21. This was crunch time for the Pats – if they were able to mount a long scoring drive, the odds were good they would win the championship. If they came up empty and turned the ball back over to Seattle, it was likely the Seahawks would run out the clock and take the victory.
New England’s Hall of Fame quarterback Tom Brady stepped into the huddle to start the drive, and except for the players on the field that night, nobody really knows exactly what he said to his players when they took the field. However, there is one thing I can guarantee he did not say.
“The Truth! You can’t handle the Truth!”
– Colonel Nathan R. Jessep from A Few Good Men
When Jack Nicholson spoke these famous words in the movie “A Few Good Men”, the line became an instant classic, permanently etched in American pop culture. There is great wisdom in this short quote, as it expresses an important reality: most people actually really can’t “handle the truth” about many things, and that many of our problems in life spring from our insistence upon avoidance or denial of the more difficult realities of life.
I recently read a great article by author and success coach Bill Bachrach, in which he wrote the following: