big picture

A COHERENT COMPOSITION

A sunset over a body of water

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On my morning walk recently, I captured a sunrise scene. Colorful clouds with interesting texture reflected perfectly in one of the Louisville lakes. I am strictly an amateur, but a good picture jumps in front of me once in a while.

Pondering later what goes into a successful photo, I came up with this list:

  • Choose a pertinent subject.
  • Frame the key elements, focusing on the important stuff.
  • Keep it centered and level.

The more I thought about it, the more I realized that this same formula is what goes into writing a blog post or telling a story. And it’s what we strive for in our work with you.

There are a thousand things we could talk about or think about, but you and I work on your highest priorities—the most pertinent subjects. Our goal is to frame them so you can make effective decisions. By keeping it level, we can use a balanced approach.

Clients, if you would like to work on your story, email us or call.

Slow and Steady

photo shows blue, partly cloudy sky and brown stalks of rice plants

I’ve got something to say—about rice.

I know. I’m not a foodie. This is not a food blog. But hear me out. Recently, a retired client and amateur nutritionist opened my eyes about rice.

I’ve always had issues with white rice: I generally want to eat the whole pot. It’s handy, it cooks up so quickly, but to get full from it, I keep eating and eating.

“That’s not what you need,” the client told me. “They take the good stuff out so it will cook faster.”

Brown rice isn’t “minute rice.” It’s 45-minute rice, but the slow route preserves the stuff we really need. We don’t throw out the good stuff for immediate gratification. And if you want to think about the big picture, remember that this grain has been a food staple across the world for thousands of years. No wonder. It packs a punch, if only we handle it responsibly.

We are not nutritionists (although when you and I visit, you may still hear me talking about brown rice!). But this lesson is still paying off in other ways. Did anything sound familiar as I relayed all this?

In their rush to get in on the action, some new investors head for day trading. It scratches an itch, but it’s focused on the smallest time frame. Investing for the long haul? That’s where the good stuff is, we believe. (No guarantees.)

There are benefits in the waiting. Preservation, patience—sometimes we need a dash of each.

Clients, email or call to talk about this or anything else.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

 

The Book of Life

© Can Stock Photo / photocreo

Books have chapters, each one a thread that is woven together with the other chapters to tell a story. Characters come and go, things happen, the plot advances. When a character’s part is finished, they do not appear in future chapters.

They were there for a reason; we remember them through the rest of the book. I’ve come to see that life is like that, too.

Our lives are a book with different chapters. In the hardest times, it helps to think there are more chapters out there. It will not always be the way it is now. The current chapter is not the whole book.

And in the best times, the same framework reminds us to be grateful for the moment, for what we have.

The way things unfold for some people, it may seem like half or more of their lives are in a single chapter. When the chapter ends, one might wonder if life is ending. But the chapter is not the book. (Or at least it does not have to be.)

C.S. Lewis noted we cannot go back and change the beginning, but we can start now and change the ending. Our sorrow is that we cannot change the prior chapter, but there is joy in being able to change the next chapter. This is why we make plans for the future!

Clients, if you would like to talk about this or anything else, please email us or call.

Can You See the Forest?

© Can Stock Photo / Elnur

The old saying, “Can’t see the forest for the trees,” refers to the difficulty we humans have in maintaining perspective, of keeping the larger context in mind. Our current challenges bring us reminders of this.

Recently we were discussing the prospects for investing in a food processing company. Market disruptions have knocked the cost of $1 of annual earning power down to $10 – an earnings yield of 10%. (Another way to say it: a price-earnings ratio of 10.) If one can purchase durable earning power in an enduring industry at valuations like that, the holding might be owned a very long time.

(No guarantees – there are a lot of assumptions in that last paragraph.)

A colleague asked us whether we were concerned about the impact of processing plant shutdowns. After agreeing that any shutdowns would likely be limited to a matter of weeks, this seemed to be one of those problems of perspective.

For none of the past few decades have the plants been shut down for a virus. Apart from the next few weeks, it seems unlikely that virus-related shutdowns will be much of a factor in the decades ahead.

The forest is that we humans will still need to eat in the future, and there is probably money to be made by meeting that need. The trees are the virus and the shutdowns and the disruptions. One of our key roles is working to see the big picture and striving to act accordingly. We need to be able to see the forest in spite of the trees.

Interestingly, the challenge of maintaining perspective may play a role in creating bargains. Investors who get too wrapped up in transitory effects may push prices to levels that don’t reflect the long term value. When current conditions fade, as they will, that value may become apparent. Again, no guarantees.

Clients, if you would like to talk about this or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The Pain Up Close and the Big Picture

© Can Stock Photo / PongMoji

This is personal.

I was visiting with a client the other day about the inevitable rebound to come in our economy, and the opportunities that are developing now. The conversation turned to concern for those we know who might not survive a COVID-19 episode, and the grim scenes and stories from tragically overburdened hospitals.

It was a reminder, again, of the duality of our existence.

On the big scale, it is almost mundane. Demographers estimate that 108 billion humans have been born in all of history, and 100 billion of us have already died. Death comes to us all. It happens to everyone.

Yet when you get down to cases, what could be more unique or personal than our experience of the loss of a friend, lover, parent, brother, sister?

It may seem impersonal or cold to compare a projected death toll from our current troubles to some past pandemic, to talk about economic recovery and market rebounds. But we have to think about the big picture in order to make plans for living. We need to avoid emotional reactions to issues which would benefit from reasoned consideration.

I am only going to say this once. I feel the pain up close, intensely. Less than a year ago I learned first hand what happens when the ventilator loses the battle to keep a person alive.

I’ll not be apologizing for trying to figure out how to make the most of what we have to work with. Cathy wrote me a note in her last hours. It said “You have a lot of wonderful life left.” That’s the big picture. 330 million of us will survive the virus in this country. We have a lot of wonderful life left.

We need to feel our feelings about the pain up close. But we owe it to each other to think our thinking in the big picture.

If you would like to talk about the big picture or anything else, please email us or call.

Rocks, Pebbles, and Sand

© Can Stock Photo / Elenathewise

I recently heard the simple lesson about rocks and pebbles and sand again. You probably know it.

If you take an empty jar and fill it with rocks, you can still add pebbles and shake it until it is full again. Then you can fill it again with sand. The pebbles fit in around the rocks, and the sand fills in around the pebbles. Everything fits.

But if you empty it the jar and try to refill it first with the sand, then the pebbles, and finally the rocks, it comes out differently. The rocks will not all fit.

The moral of the story: focus on the big things, and do not let the little things get in your way. We each are happier and more effective when we have thought about our priorities and acted on them first. When we have time to take care of less important matters when they fit in. When we aren’t focused on little things that just bog us down.

We have rocks – priorities – in our personal lives, in our relationships with others, in our work or business. Our best lives may be when we can put all of our rocks from all parts of our lives into the jar, thinking about priorities and taking action. And keeping the sand out of the works, no matter the source.

Narrowing the focus to you, what are the rocks in your financial plans and planning, the big priorities? Let’s work on them first, and get to the fine points later.

In our work for you, the rocks are doing our research and taking care of portfolios, handling the service you need so your money connects to your life, and communicating with you every way we can.

Rocks – pebbles – sand. Clients, if you would like to talk about this or anything else, please email us or call.

The Long View

© Can Stock Photo / iofoto

The unemployment rate dropped to 3.5%, a fifty-year low, according to the Labor Department’s report for September. Like clockwork, some observers were quick to find the clouds around this silver lining.

That got us to thinking about life fifty years ago compared to today. Looking at the facts, it is hard to think of it as anything but unimaginable progress. In 1970, more than three quarters of homes lacked air conditioning. Televisions were only in 61% of them. 38% had washing machines. One in twenty lacked indoor
plumbing. There was about one land line telephone for every two people.

More startling are the things that nobody had in 1970, because they had not yet been invented. Mobile phones, digital cameras, post-it notes, email, video games, inkjet printers, MRI scanners, fiber optics, personal computers, GPS, and the internet, to name a few of them.

Median household income, adjusted for inflation, grew 37% over that half century. The rich got richer, but the average household made a lot of progress, too.

However, life isn’t all puppy dogs and rainbows, as an older acquaintance of mine likes to say. The economy grew and shrank in its cycle of expansions and recessions. The stock market, measured by its major averages, also went up and down year to year, sometimes sharply.

In between the record low unemployment rates at the beginning and end of the fifty years, we had three episodes of unemployment in excess of 10%.

We have noticed that when times are bad, some have difficulty imaging a recovery. And when times are good, some can scarcely think about the possibility of poor times returning. We humans like to believe that present trends and conditions will persist, good or bad.

The bad news is, the economy and the markets will continue to go up and down. The good news is, over the long term we have made amazing progress on almost every front. The past is no guarantee of the future, of course. In our opinion, there are many reasons to believe our progress will continue.

Clients, if you would like to talk about this or anything else, please email us or call.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Letters To Our Children #8: Keep Your Eye on the Horizon

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We wrote before about your three investment buckets, each with a different time horizon. Here is why that is so crucial.

Business founder Jeff Bezos highlighted the key thing about time horizons.
“If everything you do needs to work on a three-year time horizon, then you are competing with a lot of people. But if you’re willing to invest on a seven-year time horizon, you are now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.”

The investment parallel is clear: just by lengthening the time horizon, you can live with the short term volatility that is inherent in the pursuit of long term investment results.

Those with a short time horizon—an insistence that market values be stable day to day or month to month—can generally expect meager returns. Stable values and liquidity both cost a premium, and if you want both you’re not left with much room for returns. This is good for your short-term bucket, but may hamper you anywhere else.

Behavioral economists have a theory that the preference for stability is very strong, part of human nature. If the demand for stability is high, then the price of stability may be high—and the rewards for enduring volatility may prove to be large since fewer are willing to do it. This is based on our opinion, no guarantees!

Bottom line: we believe in investing for the long term with your long term money, and leaving short term strategies to your short term bucket. It pays to understand volatility, and its role in your investment returns. No matter what, you should be able to live with your chosen strategy, even when (especially when?) it is uncomfortable.

Clients, if you have questions about this or anything else, please email us or call.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Making Sense of the Data Flood

© Can Stock Photo / SergeyNivens

In the 21st century, information seems to be a thousand times more abundant than we could have dreamed of just a few decades ago. An insight into the olden days may be the best way to illustrate this.

When I first became qualified to work with investment securities, I would maintain a list of topics to research. It might be a specific company or an investment product, or some aspect of the economy. Day by day, new items would go on the list.

Every other week, I spent a morning in the library. Stock reports from S&P Marketscope and ValueLine were available there, in large binders. The financial newspapers and other reference works were available, too. I would chew through the items on my list all morning, then make telephone calls that afternoon and evening to report my findings.

No internet, no email, no cell phones.

Now, of course, we interact with economists and research analysts and portfolio managers in real time via webinars, Twitter, and conference calls. Research on thousands of companies is at our fingertips. Data and analysis subscriptions supplement the expert resources made available by LPL Financial and our other institutional partners.

Instead of writing research topics down in a notebook to be studied in the library days later, we often can respond to client inquiries almost instantly, and always quickly.

The key element in our approach is not the flood of information available. By itself, that flood would drown anybody. Instead, it is in the experience and knowledge we bring, in order to understand the narratives and themes lurking in the data. Context and perspective is vital.

When you have read thousands of pages of research, annual reports, and SEC filings, you develop an understanding of what is pertinent, and what may be disregarded. Greg Leibman, in his ninth year here, does a lot of the heavy lifting.

We are fortunate to be alive in this day and age, able to take advantage of the opportunities to operate more effectively on your behalf. Clients, if you would like to talk about this or anything else, please email us or call.

Connect the Dots

© Can Stock Photo / bradcalkins

Do you remember the “connect the dots” pictures for children? By drawing lines from one dot to the next, the players discover that a coherent picture emerges from a seemingly disorganized collection of dots on the page.

Likewise, our work involves creating a picture that makes sense out of all the things going on in the world. In our version, though, there’s no handy numbering guide to draw our attention to the relevant dots.

Instead there seems to be an infinite number of dots in the world. So our first task is to do some sorting. For example, a vast mass of information is available about the day-to-day movement of the stock market. We can sort out any dots that fit into the category “the market goes up and down”—and then discard them. They are not pertinent for long-term investors.

Time horizon plays a large role in sorting as well. There is a wealth of opinions about nearly any investment alternative. A short-term technical analyst may have an opinion that is useful to a day trader but worthless to investors who are thinking in terms of years or decades.

But our work involves more than sorting out what to ignore. We frequently need to dig deeper—to read SEC filings, to research what happened in prior cycles years ago, and to look up many years of operating results. In other words, we still have to be able to find some of the specific dots we know are needed to complete the picture.

For example, we believe that inflation in the next few years will exceed consensus expectations. There is little information from the past decade supporting this view, in our opinion, but as we dig deeper, the patterns going back many decades suggest we may have it right. (No guarantees.)

Another way of saying all of this is that perspective, context, and background matter as we try to connect the dots. We are fortunate to have time to think deeply—and clients who value our methods and our work are a big plus. Together, we’ll create the picture.

Clients, if you would like to talk about this or anything else on your agenda, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.