Rooted Optimism

“These are times in which a Genius would wish to live. It is not in the still calm of life, or the repose of a pacific station, that great characters are formed. Would Cicero have shone so distinguished an orator, if he had not been roused, kindled and enflamed by the Tyranny of Catiline, Millo, Verres and Mark Anthony. The Habits of a vigorous mind are formed in contending with difficulties. All History will convince you of this, and that wisdom and penetration are the fruits of experience, not the Lessons of retirement and leisure.”

· Abigail Adams to Son John Quincy.

In the past few months I often hear a sense of worry and unease when I’m out and about. Worse than this I will hear hope or optimism in the wrong things. If I do find optimism it is a type of optimism which makes me cringe because it’s attached to the intellectual prowess of certain leaders and the supposed ability of experts and geniuses. And that is not a political statement. It’s an observation. The above quote came back to mind because it is one that my Sister once wrote on the inside of the front cover of my Latin book growing up and it has always stuck with me. Not because I identify with John Quincy Adams but because thus it has always been in the free world amongst free thinkers, but especially in America. We are the freest, most prosperous people the World has ever witnessed and yet, we have never escaped the temptation to despair. It stays with us some 249 years later. I used 1776 as the starting point there. But really you could go back as far as the Mayflower to 1620. So, call it 405 years. Woven in the American spirit is the pursuit of becoming who we were created to be and not accepting our immediate circumstances as permanent. Why is that? Honestly, I don’t know. But we all know it is there. It is the great difference between our culture and all others. We are culture bound together by a few core beliefs and an ethos of pursuing happiness. We are just different. The rest of the world at various moments can hate us, envy us, or trust us and a few are bold enough to join us. We call these joiners immigrants. Because like most of our parents or grandparents, they too recognized the fire deep down in their soul and chose to be bold enough to step forward and claim their portion of happiness also.

So where am I going with all this as it relates to our current situation and wealth management? As I write this, A once Billionaire sits in a Chinese prison, we are witnessing year 3 of an unprovoked land war in Europe, and this week we saw the opening salvos of what could be a long trade war, and markets are swinging violently. I use this lead in because optimism has always been my default. But with time, my reason for optimism has shifted. I believe in the innate ability of humans to thrive. You cannot look at any of the stories of history and point to one which does not lead you to marvel at the ingenuity, grit and determination of free people. Despite the odds, we continue to flourish, grow, prosper and innovate. I bring this up because I think in our modern culture there is way too much faith in technology, experts, government or certain leaders.

Now hear me, I’m not saying that it’s always a direct line to prosperity or that it’s all sunshine along the way. In the words of Sir Winston Churchill: “Americans can always be trusted to do the right thing, once all other possibilities have been exhausted.” Right now, I cannot help but wonder if we are still in the “exhausting all other options phase.” But regardless of my ideals and preferences, for generations our neighbors have always worked with us to serve each other. If you doubt this, remember the last time you experienced a tornado, hurricane, power outage, ice storm, snowstorm etc. If you are like me, you have memories that nearly bring you to tears because of how incredibly meaningful and humbling the acts of love and care were during these moments. I would suggest to you that this happens every day in the free market, it’s just that since we profit from it, somehow, we give it less credence or moral weight. David Bahnsen reminds his readers of this quite often that when we invest, we are a part of a virtuous cycle which rewards consumers, companies, employees, and shareholders. The idea that we get to be a part of this virtuous cycle for the next 3-6 decades should make us giddy but also profoundly humble us. How did we merit such good fortune? In light of that good fortune, shouldn’t we remember our responsibility to invest so that others may continue to prosper just like us?

So, after that shameless plug for optimism, I’d like to walk through a few groups of people give reminders of how to process moments like the one we are in as it relates to your financial planning and your investment portfolio:

Retirees / Financially Independent

If you are reading this and living off your portfolio and you have watched any amount of TV this week…these truly are the times which try your soul. I’ll put the bottom line up front, I’m yet to see financial TV sell optimism. Admittedly it’s a small target market! Unless it’s an ad for hair regrowth. That’s a different category. But all kidding aside, You’ve probably heard me say this before, but times like this are the “super-bowl” for financial media because the natural unease attracts attention. This creates a perverse feedback loop where everyone wants to fit in and tends to be pessimistic and short term focused. My recommendation is the following:

· Turn the TV off and go outside for a walk

· Review your financial plan and cashflow

· Remind yourself how long you could live off the bond portion of your portfolio

· Remind yourself of the dividends and interest generated by your portfolio each year

· Remind yourself how long you could live off one or both of those

· Remember trying to time the market is a poison pill. Please don’t add your name to that Tombstone.

· Now is the time to evaluate the quality of the companies you are invested in. I put this note last for a reason.

I’m going to guess that this process lengthens your time horizon significantly and gives you a moment to take a breath and think practically about your portfolio performance in terms of 5-10 years rather than 5-10 months. If you aren’t a long-term investor, we have bigger issues.

Now, this doesn’t mean you shouldn’t be critical, times like this one are a great time to ask yourself:

· Did I own something because I was afraid of missing out?

· What investing first principle led me to make that decision?

· What did my FOMO cause me to participate in?

· Should I stop participating in that and reallocate?

This moment provides you a great opportunity to recalibrate if necessary around things like historic valuation of your portfolio, yield, and traditional blocking and tackling. If I sound like your high school athletic coach, I’ll wear that title as a badge of honor!

Accumulators (IE you are still working)

I always scroll social media during moments like this to see what “tips” are being given out. Spoiler alert, after doing a little bit of snooping, I suspect that most of those folks are “cooler online” and few if any of them help others manage money. But they have figured out how to pay a digital marketing firm to keep their ads at the top of your news feed! So, don’t fall prey to the same temptation that I referenced above with financial television. Just because someone has a Youtube following doesn’t mean they are qualified to command your attention.

Bottom line up front, these moments are gift. The longer they last the better they are for you because they provide you with a generational buying opportunity because of the bargains which your monthly contributions are buying up. These shares are most likely at lower valuations and prices. Put another way. They are on sale. A little “investment retail therapy” is in order. Now providing that it doesn’t put you in a tight situation from a cash on hand perspective, now is the time to put in even more money into your qualified savings plans and outside portfolio if you can. Provided that you have a good allocation and provided that you are not going to need to the money for 5-10 years or longer, why not increase your equity exposure during these buying opportunities?

This is also a great time to start asking yourself if you could live off the dividends and interest from your portfolio. These moments provide you a natural inclination to start your financial plan if you haven’t started one. Pay someone to do it for you or start the “infamous spreadsheet.” But start modeling what your future financial life might look like. It may not be purely accurate, but it will direct your focus further out than the current situation. When we think in terms of decades rather than quarters our investment decisions tend to be better.

I’ll bring things to a close here. Thank you for joining me today. As we part, please examine what your optimism is based on. Remember to base that optimism on something durable. Lastly, I cannot encourage you enough to share these moments with your kids and grandkids. There is a tendency to shield younger generations from the “big, bad world.” I’m of the mindset that these types of situations are an opportunity. Frame these moments in principles based reality which will serve as an antidote for them when they in turn take the wheel of their own financial lives. Also, a belief and principle isn’t complete until you teach it to someone else.

Have a great week, and please reach out with questions. Please remember that I’m wishing you and your family continued Truth, Beauty and Goodness on the Road ahead.

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