oracle of louisville

Schrödinger’s Market

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Quantum physicist Erwin Schrödinger once came up with a thought experiment to illustrate a difficult conceptual problem. Suppose you have an opaque box with a cat inside. In the box is a mechanism that is designed to release a poison gas based on the random actions of subatomic particles on a quantum level.

Now according to quantum theory, it is literally impossible to know what these particles will do in advance. You cannot even accurately measure what they are currently doing beyond general probabilities. In fact, until you observe them they act as though they are doing multiple mutually exclusive things—including behaving as though they are two places at once!

Hence Schrödinger’s box. Without observing the contents of the box you have no way of knowing if quantum action triggered the poison or not. Thus, until you open the box and look the cat is simultaneously alive and dead: a surprising conclusion, and a difficult paradox for physicists!

You and I can leave that problem to the scientists, but Schrödinger’s box can be a useful metaphor for other unknowable states. The actions of financial markets are theoretically not as complicated as quantum mechanics. But predicting market action is so far beyond our current mathematical understanding that they might as well be.

Like quantum particles, the value of a market cannot accurately be measured without interacting with it. This leads to a great deal of uncertainty and can sometimes make it feel like multiple conflicting realities are true at once.

Reading the financial press you will often be presented with competing headlines declaring that we are simultaneously in the midst of a great bull market and a terrible bear market.

As with the box, we prefer to leave these paradoxes to people with more time on their hands. Instead of trying to time the market, we believe in sticking to timeless principles like avoiding stampedes and finding bargains in the hopes of finding quality companies. We cannot predict what market prices will do from moment to moment, but we can guess at general probabilities.

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

Investing in (Y)our Future

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If you’ve been following along, you know my intent to work to age 92 dates a long way back. Therefore, I wanted a practice that would last that long.

The more we thought about sustainability, the more we realized that mere survival to a certain point in time was not fair to you—nor a sound plan for us. So the goal became building an enterprise that could thrive for decades.

If we automate everything that works better when automated and get human understudies for all the remaining activities, the organization will be more durable. It will work more smoothly day to day, and it will be more likely to last for the years and decades ahead.

The next phase is falling into place. Caitie Leibman has joined the team full-time as Director of Communications. We foresee three main benefits:

  • Caitie will take over some communications-related duties now performed by Greg and me. This will give me more time to work with you one-on-one on your plans and planning. Greg will have more time for investment research.
  • Our communications program could stand improvement in a dozen ways I know about and many more that I cannot now conceive of. Caitie will bring these to fruition. (I’m particularly excited about the blog collections she is weaving into book form. Stay tuned.)
  • In time, Caitie will be writing in her own voice for new audiences, introducing 228 Main to new generations. Making sound planning and timeless investing strategies available to more people is an exciting part of sustainability.

These last several years we’ve used digital communications to stay close when personal circumstances turned time and geography into challenges. The digital presence we built proved to be far more valuable to you and to us than we dreamed; it makes sense for Caitie to become involved in the enterprise in this area first.

I’ll still be writing, of course. Caitie, with her degrees and experiences in writing and a firm grasp of the philosophy of our family firm, will be a major resource.

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

Pain and Gain

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Great thinker Morgan Housel talks about the scene in Lawrence of Arabia in which one man snuffs a match out with his fingers and doesn’t flinch. Another tries it, yells in pain, and asks what the trick is. “The trick is not minding that it hurts.”

Housel concludes “accepting a little pain has huge benefits. But it will always be rare, because it hurts.”

The implication for our business with you is clear. Housel concisely states what we’ve been working to convey for years: “The upside when you simply accept and endure the pain from market declines is that future declines don’t hurt as bad. You realize it’s just part of the game.”

That you have learned this lesson, and tend to live by it even when it is uncomfortable is why we say you are the best clients in the world. We feel fortunate, because it is rare. Somehow we found or attracted people with effective investing instincts, or helped to instill those.

The key to making this work in the real world is avoiding the need to sell at bad times. Cash reserves and adequate cash flow are the things that let us live with short term fluctuations with our long term money.

When we are all on the same page, we spend less time worrying about, and explaining, day to day or week to week market action. Almost all financial market commentary may be summarized by saying “it goes up and down.”

This gives us time to hunt for bargains, think about trends on the horizon, and work on your plans and planning. All of these are more worthwhile uses of our time than attempting to explain why the market went up or down yesterday, or predict what it might do tomorrow.

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

Transitions Mean Change

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One of the hardest things about major life transitions is that many habits, customs, traditions, and ways of doing things become obsolete or counter-productive at once. It takes time to deal with these cascading effects, big and small, on our lives.

One friend who lost a spouse to a fast-progressing illness had to quickly deal with decades of deferred home maintenance, previously a mutually agreeable way of life. Who had time to fix stuff when leisure pursuits or travel beckoned? It was a difficult situation.

Another had to confront a set of retirement intentions that had everything to do with the couple, but zero to do with the survivor. It was like waking up a few years before retirement, with plans that made no sense at all, and no prior thoughts about alternatives.

And many are forced to learn how to deal with things a spouse formerly handled: everything from oil changes to investment decisions. If the spouse had been a do-it-yourselfer in a particular role, the survivor sometimes has trouble envisioning the need to pay for services. Their life experience taught them that paying for that service is not worth it.

That lesson is incomplete, of course. Paying for the service is not worth it if you have the interest, knowledge and experience to do it yourself. But when the experience and knowledge is taken out of the equation, then the DIY course may be vexing and expensive.

Changing circumstances sometimes require a change in ways of doing things. What was done before made sense for the conditions that prevailed then. It can be hard to recognize the things that have changed. Our affection for those who are gone sometimes leaks into a positive view of their way of doing things, even when those ways may no longer be appropriate.

My own life experience has taught me patience and empathy for survivors who are grappling with these things. Each of us is on our own journey. We each make decisions in our own time, when they make sense to us. All we can do here at 228 Main is listen, provide a framework for thinking about things, and support people going through transitions.

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

What Are We Going To Do With All This Future?

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It is tempting to think of the future as a place of endless possibilities, fulfilled dreams, unleashed potential. “What are we going to do with all this future?” is the work of Spanish artist Coco Capitan, in collaboration with the Gucci fashion brand. It seems to capture that spirit of possibility.

Our work together with you is about the future. But when you get down to it, saying yes to one goal might mean saying no to others. We cannot do everything.

Resources are finite. As we think about retirement destinations or second home locations, choosing a Rocky Mountain high might mean that finding your beach is out of the question. Relocating may mean less time with family. Retiring at a younger age could mean getting by with less money.

This is why we invest so much time in striving to understand and clarify your priorities.

Of course, creative thinking may let us meet apparently contradictory goals by making thoughtful adjustments. A more modest home in one location may free up money to travel other places, or even have a second home. (This is the strategy I employ to live in Floribraska, Florida and Nebraska.)

Clients have chosen to retire and work at the same time by making the retirement-age job a part-time or seasonal or flexible hours arrangement in a field they enjoy.

Some couples choose to spend weeks each year pursuing different interests. Golf in the sunshine is hard to reconcile with watching grandchildren play winter sports up north.

So your own answer to ‘what we are going to do with all this future’ may take a lot of thought to get your priorities defined. Some creativity or adjustments may be needed to make the most of it. This really is the first step in long term planning.

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