paradigm

Pioneer Mortality and The Osborne 1

© Can Stock Photo / scowill

In April 1981, Adam Oborne debuted the very first portable computer. His company was the fastest growing in Silicon Valley. You can see how popular the idea of portable computing got by visiting any coffee shop any day of the week. Laptops, tablets and smart phones are all descendants of the Osborne 1.

Yet Osborne Computer declared bankruptcy thirty months later, and disappeared completely by 1986. This is fairly common in the history of commerce, the story of the pioneer that did not survive.

Portable computing as a concept was separate and distinct from its first manifestation, the Osborne 1 computer. This is a key to understanding subsequent manias based on pioneering technologies or concepts.

We humans are a creative, inventive species. There always seems to be an exciting concept or something new that will really change things. Steamships, railroads, petroleum, airplanes, automobiles, telephones, radio, television, cell phones…something new is always on the horizon. These things have created new ways of doing things and reshaped our lives and society.

But with each of these revolutionary ideas, there was a difference between the successful path of the idea, and what happened to the first manifestations or demonstrations of that idea.

The Osborne 1 computer was a twenty-four pound beast with no battery, a three inch screen, and now-laughable technical specifications. The concept of portable computing was worthwhile, revolutionary, and eventually changed the way we live and work. But the first manifestation did not even turn out to be sustainable or successful.

Just as the key uses of the internet took time to emerge and evolve, the most important uses of any new idea probably do not exist yet. In the internet boom of the late 1990’s and early 2000, some investors made the mistake of confusing the powerful concept with its initial manifestations. It did not end well for them.

There are powerful ideas circulating today based on revolutionary concepts. They may eventually reshape our lives, institutions, and society. When you come across one of these intriguing situations, please remember the lesson of the Osborne 1. Clients, if you would like to discuss this or anything else in more detail, 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.

 

A New Way of Looking at Your Wealth

paradigm

A paradigm is a typical pattern or example of something, a model. It is a set of concepts or mindsets. We frequently find ourselves at odds with the old paradigms about investing and finance, as you know.

One of the most irksome things (to us) about investing is the use of the terms ‘aggressive’ and ‘conservative’ in describing an investor’s investment objective. The industry-standard scale goes from conservative to aggressive in five steps, with prescribed mixes of stocks and bonds for portfolios at each step. At the conservative end, the portfolio would be nearly all bonds; at the aggressive end, nearly all stock.

But is it really conservative to expose wealth to the long term risk of purchasing power loss and missed opportunities that accompanies investing in fixed dollar portfolios of bonds and cash? We don’t think so.

An all-fixed income portfolio is typically suitable for short time horizons, where it is important to know that portfolio value will remain relatively stable. So in place of ‘conservative,’ we would use ‘short term’ to describe that end of the spectrum.

By the same token, is it really aggressive to invest for growth of capital over extended periods? As difficult as it is to make one’s money last a lifetime, growth may be handy for long term investors—for many, it can be crucial to financial success.

So instead of ‘aggressive’ for the other end of the scale, we would say ‘long term’ makes far more sense. Thus, instead of the ‘conservative to aggressive’ axis, we believe the continuum should run from ‘short term’ to ‘long term.’

It is a new paradigm, so to speak, for describing investment objectives. It replaces abstract and unclear terms with simple, easily-understood phrases. And it avoids the unfortunate connotations of conservative as prudent and aggressive as stupid. (Doesn’t ‘aggressive driving’ really mean ‘stupid’ driving?) All in all, we think this is a more useful way for you to think about your wealth.

A related issue confuses the conventional wisdom. The old paradigm mistakes volatility for risk. That may be at the heart of the misguided use of the word ‘aggressive’ since long term portfolios necessarily do fluctuate. (We explained why we believe that aspect of conventional wisdom is counterproductive in this short essay.

The bottom line: we always try to think about the best way for you to meet your goals. We look at the world and strive to see it as it is, not in accordance with some stale textbook written in a different age for different conditions. We cannot know that our view is correct, and we have no guarantees. But we do work at gaining a better understanding of how to grow your wealth.

Clients, if you would like to talk about this or any other aspect of your situation, 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. All performance referenced is historical and is no guarantee of future results.

No strategy assures success or protects against loss.

Stock investing involves risk including loss of principal.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.