It’s probably an understatement to say that there’s vigorous speculation going on in financial markets these days. We notice that, but being investors rather than speculators, we mind the gaps and simply offer three promises.
We promise that there will be Surprises.
From the depths of the last collapse in 2009, we’ve been surprised by one of the longest bull markets in history. That’s in spite of fears of just about everything- relapses, getting too far ahead, China, the downgrade of U.S. debt, Ebola, China, government shutdowns, the Trump election, melting glaciers, million-dollar homes in ordinary neighborhoods, China, Covid, inflation, and so on. We promise there will be future surprises.
There are two antidotes for Surprise.
One is to build in a generous margin of safety. This is not a new thought from Stanford or Goldman Sachs. Ben Graham wrote it in Security Analysis in 1934.
The second is diversification. A great buffet (remember those?) has many choices that allow you to craft a nutritious meal. Maybe you’re not crazy about some of the things. But you know they’re good for you. Financial portfolios work the same way. We wrote about Nutritious Personal Finance last February.
Both of these antidotes are ignored during periods of widespread speculation. They’re remembered and relearned after shocking Surprises.
We promise that Change will happen.
All periods of speculation have eventually collapsed. This one will, too. But the reasons, circumstances, or triggers can’t be identified beforehand. We wrote A Sea Change is Upon Us in September, 2020, and that There’s No Tide Table in January, 2021. Risk is what we don’t see. This time is always different, we think.
The key antidote for Change is flexibility, the ability to be light on your feet. These days, it’s called a pivot.
Resistance, denial, and stubbornness in the face of Change serves no useful purpose.
Another possible antidote is to have a financial sandbox. That’s where a small amount of the portfolio, maybe 10%, is put into something entirely different from the core holdings. It might be precious metals, an annuity, something crypto, commodities, whatever. You decide. It’s your money.
We promise there will be Failures.
Most forecasting is some version of projecting current conditions and beliefs forward. Whatever is happening right now seems like it will just keep on happening. It’s called recency bias. That’s why forecasts are typically off the mark.
We don’t have to write about failures, whining, and complaining. The daily news and your social media feeds do it for us. Actually, a news diet might be a good thing.
The antidotes for Failure are acknowledgement, acceptance, learning, grace, and humility.
Financial plans are crafted through ongoing reviews, iterations, and adjustments. Like steering a ship or flying a plane to their destinations, course corrections are essential and continuous. That’s what we do here.
This is a good time to be a Tiger. We wish you good luck, good fortune, happiness, long life, and love.
James Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315
Evidence-based. Rules-driven. Policy-focused.
