Investing Past and Future

​Carter and I recently had our combined hair cut appointment. An older gentleman was coming in behind us, and as we were holding the door for him, he was playfully commenting about his age. I am sure Carter viewed him as a much older person than I did. Strangely enough, I had never met the man, but knew exactly who he was because of the shirt he had on. It was the name of the business he used to own, which was also his, and his son’s, namesake. I reached out and shook his hand and asked if he had a son named David, and our trip down memory lane took off from there. 

​David was a schoolmate of mine whom I hadn’t seen in over 30 years, but detailed memories of the times appeared spontaneously from nowhere. I found it to be an amazing experience, painted in a mix of emotions. I was happy to recall those things from the past, but as you all know that can also be a little sad. It was, however, another startling example of how complicated our existence is, and how awkwardly we seem to exist alongside time.
 
It doesn’t take much for me to want to nerd-out on philosophical things like this, but it fits with another loosely related subject I have been pondering a lot recently. That is the relationship between investors’ beliefs and actions, and the data they receive that influences them. For example, if you look at a chart of the S&P 500, the market is roughly flat year-to-date. However, even though it is flat from point to point, there was a lot of volatility in between, including some impressive drops and leaps. Our memory can be pretty poor when it is tasked with recalling a particular “why” of an event amongst a series of many similar events, and most of us will be unable to look back at the chart of the S&P 500 and explain the reason for any particular squiggle we see. But, very broadly speaking, investors are reacting, in collaboration with one another, to the news of the day.
 
I know that isn’t some miraculous observation, but if you inspect more deeply what “the news of the day” is, it offers us insights into investor behavior that can be leveraged for personal investment success. I am focusing now on the daily news since the beginning of the year, but I believe my observation holds true for most timeframes. That observation is simply this: most news of the present day is data that is usually weeks to months old, or “data” that is nothing more than people’s guesses about the future.
 
Many of you are probably familiar with the ongoing spat between President Trump and Federal Reserve chair, Jerome Powell. President Trump wants Powell to lower interest rates, which could positively affect the stock markets and business growth, while preemptively offering a fix to an impending recession people fear is coming. Mr. Powell says they have no reason to reduce rates yet, because the “hard data” does not call for it, and the focus and attention on risks ahead are based on “soft data.” The hard data referenced are all the economic reports that pull investor sentiments in every direction and can instigate furious bouts of trading in the market. Those reports are almost always reports of data received and analyzed weeks to months in the past. Whereas the “soft data” are usually surveys given to experts and representatives of various fields, such as economists and managers. These surveys create “sentiment reports” that almost always involve views of the future.
 
Again, I don’t believe I am uncovering anything that is revolutionary, but this understanding does give me fortitude when it comes to holding true to the long-term investment plans that are put in place by both me and you. Every day large portions of market participants are changing their investment plans in reaction to reports that are many weeks old, or due to “reports” of possible future scenarios. That truthfully does not seem sensible to me. A plan does require formulating a view of the future, but, outside of luck, when it comes to investing, that view of the future is best served by long-term observation of business cycles and human behavior. That knowledge will offer us the best chance for investment success as opposed to attempting to time the market on one-off occurrences, past or presumed.
 
I believe this quote Warren Buffett just gave in discussing his resignation as CEO of Berkshire Hathaway reflects the point I am trying to make. He is going to keep working because he has a specific, very valuable trait he’s retained throughout his 60-year career at the company.

I don’t have any trouble making decisions about something that I was making decisions on 20 years ago or 40 years ago or 60 years. I will be useful here if there’s a panic in the market because I don’t get fearful when things go down in price or everybody else gets scared… and that really isn’t a function of age.

Sincerely,

​Justin Anderson