vision

Building a Faster Horse

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There is a quotation often attributed to Henry Ford: “If I had asked people what they wanted, they would have said faster horses.”

Biographers and historians have never managed to find any evidence that Ford ever uttered this statement, so it remains apocryphal. But the sentiment remains true to Ford’s reputation as a stubborn visionary.

For investors as well as consumers, sometimes there is a difference between what we need and what we want. We all want stability in our portfolios: why not? But stability often comes at a cost of lower income or growth potential. If you are sure you have all the money you will ever need, it makes sense to invest for stability. If you need your money to work for you, though, you may have to hold your nose and accept volatility.

If you really want stability, you can bury your money in a hole in the backyard. It will never grow, but you know that if you dig it back up you will still have what you put in.

The same is not true if you invest in volatile holdings. The value of your portfolio can and certainly will go down sometimes. As painful as that is, if you can afford to wait there is a possibility that it may recover over the long run.

If you just buried your cash in the backyard, there is no chance that it will suddenly produce more wealth. A long time horizon can smooth out the risks of a higher volatility portfolio, but it will not produce more gains from a more stable portfolio.

If we asked new prospects what they wanted, many would probably say they wanted stability. But that is not what we are selling. Not everyone has the same risk tolerance, and different amounts of volatility are appropriate depending on financial circumstances. We still generally think that learning to tolerate volatility may be more useful than seeking stability at all costs.

Clients, if you have anything to discuss, please call or email us.


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

What’s Next?

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Fifty years ago, comic strip hero Dick Tracy’s famous 2-way wrist radio got upgraded to a 2-way wrist TV. Forty years ago, visionaries were talking about telephones that would fit in a shirt pocket. Instead of each home having a phone number, each person would have one. In between those dates, the country’s only telephone company introduced push-button “dialing” as an alternative to the rotary dial.

You all know the rest of the story. In many respects, what seemed like science fiction or fantasy in decades past has become a routine part of everyday modern life. The same is true in many aspects of our lives.

There are constants in life, of course. We each seek to make a difference, to be happy, to provide for ourselves and others, to smile and be smiled at, to connect with our fellow human beings. Many of our most fundamental impulses remain unchanged since the dawn of time.

So the conditions of our world are a mix of unchanging things like human nature and the sun rising in the East, and rapid change in other things. All the way back in 1970, futurist Alvin Toffler wrote about “Future Shock,” a perception of too much change in too short a period of time. If anything, the pace of change has accelerated since then.

In life, we suspect that being grounded in the enduring truths help equip us to adapt to change.

In the field of investing, we believe that understanding the unchanging aspects of human nature help us understand and deal with change. The ever-evolving landscapes of the economy, markets, companies, and technology produce constant and unpredictable changes. But no matter how different the world may seem, new changes will still produce reactions and over-reactions, fads and manias, and varying amounts of fear and greed.

We will admit it. We are entranced with the conflict between simple eternal principles and the endless complexity of the world. Making sense of it to help people in their real lives—that’s why we wake up and get to work every day. If you would like to talk to us about your situation, write or email us.