Sunday, September 25, 2016

Don’t Let Your Current Perplexity Slip You Into a Comfort Zone


One of the better market analysts (who like the rest of us analysts, can chant history) just sent me an email saying that the current market conditions are not like those of our fathers or grandfathers but more like that those that faced the founding fathers of the US. I interpret this reference to be understanding that we are now in a period of great experimentation, unlike anything in history. It also means that there are opportunities both to lose a lot of money/purchasing power or to make a great amount for ourselves and heirs, be they be personal and/or institutional.

Having my first lessons of analysis attempting to figure out at the New York racetracks, l am continuously looking how to improve my odds of both surviving and winning.

Rules to Survive

1.  Get over your successes. Many years ago as a young security analyst, I had a great year. I published six stock reports all of them significant winners. Institutional clients of the brokerage firm for whom I was working were bypassing my senior analyst and wanted to talk with me directly and wanted to compensate me for my ideas. I did not fully appreciate both how politically unwise this was and the minimal odds that I could keep the streak going. I should have fully remembered that at the "track" and various professional sports arenas all streaks come to an end. Mine did and I learned to compete again at other firms.

2.  Like all streaks, the status quo also does not last. Today bond buyers around the world are believing that the "lower for longer" in terms of interest rates will persist, and/or that they can jump out and avoid the losses when bond prices fall.

3.  Not to believe that you know everything worth knowing. Recently not only did the "experts" get the Brexit vote wrong, but many also did not recognize that the new smart phone from Apple could have market-moving positives. We should always expect to be surprised and to be alert to elements that could prove that our beliefs in our superior knowledge are less than what we tell ourselves.

Rules for Success

In his most recent weekly blog post Teddy Lamade (who also advises clients) has listed very sensible suggestions for investors who wish to be successful. These are as follows:
1.          Resist the temptation to sell.
2.          Control spending to build predictable cash flow for investing.
3.          Be willing to look different than peers.
4.          Be comfortable with a concentrated portfolio and accept more volatility.

The Big Elephant in our Room: Lack of Sufficient Retirement Capital

This is not a new topic for our discussions, but one with some additional information. The current issue of The Economist quotes a study by Citigroup. In this study of twenty OECD countries, the size of the public unfunded pension liabilities is $ 78 Trillion. Nine of these twenty have a liability in excess of 300% of their GDP. (The liability is a multiple year obligation whereas the GDP is an annual estimate of a country's production of goods and services or an income account where the pension liability is a balance sheet obligation. All of these governments have assets that could be used to pay partially or all of the obligation which may be what has to happen as the net savings of these countries could probably not pay off the obligation in under fifty years.) With the success of medical science and modern agriculture, people are living longer. An average 65 year old man in 1960 had a life expectancy of eleven to thirteen years, now his life's expectancy is 18 to 19 years more. Women's life expectancy has been extended by twenty to twenty-four years. Several CEOs of life insurance companies have told me that there are some people already alive that have a life expectancy of 125 years.

In most large population countries during this election season, it is wise to remember that many of the young don't vote, but their grandparents do.

You can see my motivation in creating the TIMESPAN L Portfolios® to meet these and other needs.

In Conclusion

We will be dealing with different strains and opportunities sooner than what may be comfortable for investors. We will need to free our thinking from our experienced-driven mind set to survive and eventually profit.
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A. Michael Lipper, C.F.A.,
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