NWP Monthly Digest | June 2022
One thing you can be certain of when the stock market starts acting up is a plethora of headlines about uncertainty. Here’s just a small sample from the last few weeks:
Wayfair freezes hiring citing economic uncertainty
Bank profits fall amid uncertainty
Mortgage apps decline 11% amid economic uncertainty
Wall Street’s Losing Streak Ends, but Uncertainty That Drove It Lingers
Economic uncertainty starts to hit tech job market with reports of hiring slowdowns, rescinded offers
I point this out not necessarily because I disagree with it - the stock market and the economy are most definitely uncertain right now - but I write it to point out the absurdity of the illusion that discussing uncertainty means that there can also be a state where the economy or stock market is ever certain.
I’m going to let you in on a little secret: nobody knows what’s going to happen with the stock market or the economy in the future because nobody can predict the future, as much as we would like them to. The only state we operate in is one of perpetual uncertainty. Tomorrow is always uncertain and believing that someone out there has a magical power to figure out what tomorrow will bring can leave you vulnerable to doing something that is not in your best interest.
But the idea that uncertainty is higher now than it was, say, one or two or five years ago is a strange one. It implies that the future was more predictable in the past, before the pandemic struck and inflation spiked and the war broke out. But it wasn’t, of course. The risks were always there. People were just blind to them. ~Morgan Housel, The Collaborative Fund
When we sit down with clients and prospective clients to go through the earnest process of developing a financial plan and an investment policy statement, it isn’t because we’re going to make the future more certain. It only allows us to prepare for the many different outcomes that may happen in the next 10 or 20 years and to help them navigate through the inevitable uncertainty of not just the stock market or economy, but of our lives.
I had a client recently lean over to me and say, “be honest, this isn’t that hard to figure out, right? To figure out where this market is headed?”
My answer was, “oh, ‘hard’ wouldn’t be the right word. It’s impossible. But historical data allows us to have some insight into what might happen.”
That is, at the end of the day, the very best we can hope for. The stock market has provided us with treasure troves of data to analyze and research from the last 100 years, and billions and billions of dollars are spent trying to create the perfect model or black box that will come to understand exactly what happens next, but it will never be 100% accurate because of two immutable laws of the universe: 1) the future is inherently unpredictable, and 2) the market and economy are made up of millions of flawed human beings and their unpredictable nature.
“Everyone's on this 'look for the capitulation' train but this worries me because it shows hope - and to get to a true bottom you have to get to a point where there's no hope left. ~Gina Martin Adams, Chief Equity Strategist - Bloomberg
A few years ago, our research and our investment models started showing some signs that the stock market and the economy were getting overextended, overheated, and a little overpriced, by historical standards. We wrote about it in our newsletter as 2019 was coming to an end, and we gave our opinion that we were getting more and more nervous that things were looking like 2020 would be a difficult year for stocks.
We were right, but we were right for precisely the wrong reasons. We didn’t predict that the market would crash ~35% because of a once-in-a-hundred-year global pandemic. Risk, as the famed financial planner and writer Carl Richards likes to say, is what is left over when you’ve thought of everything else.
So, what should I do about it?
It’s easy to say that the future is uncertain, but saying those words don’t make people feel better about what they should do to protect themselves and their money.
We receive so many questions from our clients that are some variation of “well, what do you guys think we should do with my money right now?”
Human nature has pushed us to react to our environment and to look for ways to fix whatever is currently ailing us. This type of reaction is generally a good one and has led humans to thrive in the world. When the going gets tough, the tough get going! Right?
There’s a saying that is attributed to the great Todd Helton, former first basemen and legendary hitter of the Colorado Rockies. Helton liked to say “in baseball, you can’t try harder. I tell everyone to try easier.”
Baseball is near and dear to my heart, and I have coached the game for years. Baseball is a unique sport that is both team-oriented in nature but requires an individual confrontation between the hitter and the pitcher with every at-bat. When a hitter struggles, it’s easy for fans, parents, and coaches to chime in with advice:
“shorten up and put the ball in play”
“keep your eye on the ball”
“choke up on the bat and just make contact”
All of these pieces of advice come from a good place, but they simply don’t work.
Every hitter is trying to make contact and they’re all keeping their eye on the ball. But when situations get difficult, gripping the bat tighter, gritting your teeth, and just trying harder…is a recipe for failure and more and more bad advice in future at-bats.
The very best hitters are calm, cool, and collected at the plate. They grip the bat like they were holding a kitten. They have incredibly short memories and forget their failures almost immediately. They never TRY HARDER.
“A truth that applies to almost every field is that it’s possible to try too hard, and when doing so you can get worse results than those who knew less, cared less, and put in less effort than you did.” ~Morgan Housel, The Collaborative Fund
When it comes to your personal finances and your investment portfolio, you can’t try harder. “Don’t just do something, stand there!”, as the great John Bogle liked to say, inverting a famous quote.
If you spent your time creating a financial plan and if you spent the necessary time understanding your risk tolerance and developing an investment policy statement (granted, both of those are huge IFs), then you don’t have to try harder. You don’t have to immediately go out and do something to fix something that doesn’t need to be fixed.
When we work with our clients to develop an investment policy statement, we do that work on the front-end to assure that we don’t make knee-jerk decisions in the heat of the moment, because that’s when you’re the most vulnerable to making a costly mistake.
Noble Wealth Pro Tip of the Month
I spent a lot of time in this newsletter talking about financial plans and investment policy statements. If you work with us, you have that in place. If you’re investing on a whim, a hot tip, or just a gut feeling…well, then you’re not investing for the future, you’re gambling.
Heading into June as spring changes to summer is a great time to relax, enjoy some time outdoors, and spend time with your family. And it’s also a great time to evaluate your current risk tolerance and the suitability of your investments.
“Everybody has a plan until they get punched in the mouth.” ~Mike Tyson
Stop me if you’ve heard this one before: investor sees stocks (or mutual funds, or real estate, or beany babies) going up in value and watches all of his/her neighbors get rich. Investor says to his/her spouse, “honey, we’re investing in XYZ company, right?” Investor goes out and buys XYZ company after it hits an all-time high. XYZ company proceeds to drop by 80%. Investor loses 80% of their money, gets upset and sells the stock to realize the loss. Buying high, selling low.
This isn’t a plan or investing. Sit down with a professional, develop a financial plan, and truly understand your risk tolerance. Not just by taking a risk tolerance questionnaire, but by understanding your entire situation and the amount of risk you can afford to take and that you need to take.
Artwork courtesy of Carl Richards, The Behavior Gap (Image purchased legally)
Things We’re Reading and Enjoying
Trying too Hard | by Morgan Housel
AND…
Endless Uncertainty | by Morgan Housel
There is nothing better than a good dose of Morgan Housel when things start to get worrisome. Housel has an incredible ability to make complicated things simple, and I’ve mentioned over a hundred times that he’s my favorite writer on Earth. These articles were huge inspiration for me in developing this month’s newsletter.
“To be nearly sixty years old and still rebel at uncertainty is ridiculous isn’t it?” she said.
It is. But my God, we do. And in strange ways.
As we sit here today – the highest inflation in 40 years, rising interest rates, plenty of tech stocks down 50%+, a war in Ukraine, supply chains broken, a lingering pandemic, China on lockdown, on and on – it feels like economic uncertainty is rising, maybe the highest it’s been in years.
The Storyteller: Tales of Life and Music | by Dave Grohl
Grohl is someone I would consider a “musical hero”, and he’s also someone that I admire and actually deserves that admiration. Nirvana was the most important band of my teen years, and I love the Foo Fighters and everything that Grohl has accomplished in the years since Kurt Cobain’s tragic death. I started this book around New Year’s Eve, but set it down for a while to get into some other things. I also had tickets to see the Foo Fighters in August and thought waiting until later in the summer would be a good idea…and then another tragic death of a bandmate, Foo Fighter’s drummer Taylor Hawkins, made that impossible.
The #1 New York Times Bestseller * Named one of Variety's Best Music Books of 2021 * Included in Audible's Best of The Year list * A Business Insider Best Memoirs of 2021 * One of NME's Best Music Books of 2021
So, I've written a book.
Having entertained the idea for years, and even offered a few questionable opportunities ("It's a piece of cake! Just do 4 hours of interviews, find someone else to write it, put your face on the cover, and voila!") I have decided to write these stories just as I have always done, in my own hand. The joy that I have felt from chronicling these tales is not unlike listening back to a song that I've recorded and can't wait to share with the world, or reading a primitive journal entry from a stained notebook, or even hearing my voice bounce between the Kiss posters on my wall as a child.
-Your team at Noble Wealth Partners
“There is nothing noble about being superior to your fellow man. True nobility is being superior to your former self.” Ernest Hemingway