September Commentary: What are you afraid of?

GRWP Hot Points of Discussion:

  • We have been heavily defensive long enough. It’s time to start looking optimistic and bullish, both in the near-term (next 6 months) and the long-term (over 3 years).
  • The first half of this year was very challenging for markets, and while it had its own unique characteristics, it was not totally unexpected or especially unusual.
  • As we look forward, our fear is missing an opportunity. That doesn’t mean we throw risk concerns out the window, but instead just means we pivot from defense to offense.

It has been nothing short of a crazy year so far! Whether you watch markets or headlines, it is near impossible to keep your sanity these days. And add a midterm election cycle and inflation concerns and it really feels like nothing can go right....... And that makes me so positive on what is going to happen next! Seem crazy? Maybe not, give me a chance to tell you why.

To give some context here, I want to share a bit of a rule system that I think makes for a great investor. Bobby would hit me over the head if I got technical on this, so these rules are left in the laymen.

  1. The K.I.S.S. method......Don’t overthink it! Markets are down, and history has taught us take advantage of lower prices.
  2. So much bad news is baked into the cake. Sentiment is a major factor in what happens with prices.
    1. When sentiment gets too positive, things tend to get more difficult. Good news is expected, and bad news comes as a major shock.
    2. When sentiment gets too negative (as it is now), bad news is shrugged off. Good news becomes unexpected, and causes big swings to the upside.
  3. While we all want to make predictions about the future, we have no idea what will happen (no one does!). So with that regard, please refer to rules 1 and 2.

So here we are, in an environment that is decidedly negative, with prices that are lower, and an environment that is as unpredictable as I can ever remember it being. But think about other times where the outlook was bleak:

  • 2001 after 9/11: the tech boom went bust, and America was at war with a new enemy; Terror. There were predictions that people wouldn’t fly anymore, and even worse, would not leave their homes. Analysts were all over the news predicting the next terror strike; maybe a mall (my sister, an author, actually wrote a great series on this concept), or hospital, etc. We seemed to persevere and move on.
  • 2008 and the financial crisis: this one hit home for me as a guy who works in NY finance; we really had no idea how things would play out, and it seemed like the world of capitalism would crumble on its own greed. Even if you bought on December 31st, 2008, when the market would drop another 20% through the end of March, you still would have been ahead of the game by May of 2009.
  • Covid 19: The market dropped 30% before making an immediate turnaround. This one probably feels more fresh, so it is important to ask ourselves, didn’t all the bad things we feared the most happen? And yet here we are, over 50% above the lows of the pandemic.

So what is the point of this trip down memory lane? The point is to not put too much emphasis on your ability to predict the future. While it makes for great discussion, and while you may feel vindicated in some concerns, remember that things tend to get better quicker than we anticipate and without warning.

That brings us full circle to what our greatest fear is, and what we hear from our clients and pundits on what their greatest fear is.

  1. Our clients are concerned about further volatility. "What if things get worse?" Fair question, but what if things get better? In our view, the risk is greater that the news gets more positive.
  2. Pundits are concerned that we are in a new cycle. "The whole game has changed, and the way we think about investing must change, too?" Is that a prediction on the future I hear? No one knows what comes next, but these same pundits will tell you the most dangerous phrase in investing is "this time is different". How does the idea of "the whole game has changed" differ from "this time is different"? If they are not the same, they at least rhyme.
  3. We are concerned that everyone has gotten way too negative. We don’t dispute the general concerns:
    1. Inflation is high and seems stubborn
    2. Global diplomacy seems to be a thing of the past
    3. Recession risk is everywhere
    4. The easy money days are behind us

No objection to the above. But here is my retort:

"Spend as much time thinking about what can go right, as you do thinking about what can go wrong....."

It is a powerful way of thinking. We are "yes" people at Green Ridge Wealth Planning, always thinking about things in terms of opportunity. This philosophy has served us well over time.

We continue to stay focused on risk management, but as we stated above, we think now is the time to consider a different playbook......Keep a strong defense where necessary, but give the offensive a better chance at scoring by giving it more opportunity. LET’S MAKE THAT MONEY WORK FOR YOU!

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