September 6, 2024
Blind to the Elephant
We can be uncomfortable facing reality and our own demons. Sometimes this can emanate from culture, upbringing, abuse, predisposition, and any other obstacle which might impede one’s ability to get to the crux of the matter.
We make excuses. We blame others for our own failings. We ignore, brush off, or deflect, or we spend time on short term gratification to make us “feel” better. Anything to avoid facing the elephant in the room. The elephant is there, but we either cannot see it or want to avoid acknowledging it. This is the cause of a remarkable amount of stress and anxiety for many of us.
Often, I gently suggest that one’s feelings or personality do not define us; they are just feelings or traits with which we must work. Too much focus on our feelings or our own predisposition often mislead us; they make us blind to reality. Our own behaviors can make a challenging situation worse as we act on our feelings instead of acting toward obtaining best outcomes. If we can consciously acknowledge in a reflectively objective way, we will live more fully, more completely, and more peacefully. The more clearly, we can see the elephant in the room, the better our ability to recognize situations that need to be addressed.
The elephant is there, and it’s not going away. Ignore it at your peril. Eventually you will face it one way or another. Facing it early and adjusting behavior can be difficult but it usually brings forth a more peaceful and productive life experience. Avoiding it often leads to discomfort, stress, and a confusing and anxiety filled life much of the time.
How do I know?
I have lived both sides of this experience. When I was young, I skipped along the surface of life. Avoiding reality, making excuses and being defensive towards anyone that might help me try and see. Providers of constructive criticism were perceived as a personal attack on my character. Despite the efforts of close friends or bosses at work that lovingly pointed out the elephant in my room, I was blind and defensive. This negatively affected every aspect of my life. I was hitting below my ability in my profession, as a husband, a father, and a friend.
For me, an epiphany occurred with the help of a muse. Five conversations with this wise woman illuminated the reality I could not see.
I am extremely grateful for having the perspective of being blind and getting to the other side. I am also grateful to the people that helped me see, and the wisdom obtained to continually face realities head on. It is this perspective that allows me to help others both professionally and personally.
Usually, and perhaps unfortunately, a painful adjustment process is the only way to transform. Not everyone is ready to take ownership that they might be part of their own problems, but without ownership, recognition and change is unlikely. This can lead to damage in their own lives and in the lives of those closest to them.
Wisdom Can Be a Lonely Path:
My personal frustrations often stem from my emotional attachment of desiring positive outcomes for others. But it’s foolish to think I have any control over the actions (or inactions) of others. Their path forward will be unique to them. Often, a painful experience is the best and only path for someone to see that elephant, and I need to accept that. The best I can do is to gently guide or suggest perspective which may help, but ultimately it comes down to one’s ability to see the elephant and to do something about it.
For my own personal growth, letting go of the temptation to try and control outcomes or protect someone is a challenge. I realize more and more that I must meet people where they are at, and emotionally detach. People need the space to make their own mistakes; this is sometimes the best way to learn. I suspect most parents can relate to this.
We can sometimes fool ourselves by saying we “care deeply” or “care more”, and this is why we put so much energy into “helping or guiding” outcomes. But I know this is a selfish need to control. The best we can do is gently guide someone with wisdom and allow them the time and space to (hopefully) recognize the elephant. If you give someone energy that will be wasted, or you get a defensive reaction to an objective observation, it is wise to let that person go. If they matter to you, you can let them know you are always there with love and support, and they can engage when they are ready. But to waste energy that will not and cannot be utilized will drive you crazy with frustration and take away from your own life. Do your best, hope for the best, and let it go. None of this guarantees good outcomes, but it does allow you to be at peace.
Points of extreme stress are where you will find the benefits!
If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment.” - Marcus Aurelius
Times of extreme stress can crystallize our focus and allow us to see the root of our problems to make positive adjustments in our own lives. There is no time to procrastinate, no time to think too much, it’s time for survival only. From my own personal experiences, this is true, and many historical examples can be cited for society. One such period is the great depression in the U.S. during the 1930’s. Morgan Housel in his book “Same as Ever” points out that history books focus on the dark side of the 1930’s, but rarely mention that it was one of the most productive and technologically progressive decades in U.S. history. Economist Alex Field wrote that by 1941, the US Economy was producing 40 percent more output than it had in 1929, with virtually no increase in the total number of hours worked. Everyone just became more productive.
Elephants and August Wealth:
People go to great lengths to avoid situations that make them uncomfortable. People get used to being comfortable in their current situation. Their lives may not seem to change day to day, but we know that their situation is always slowly changing. So, we help address issues such as:
Trust and Estate Planning. Death and taxes are a certainty, failing to prepare is preparing to fail.
Discomfort in talking about money even when they have a lot of it.
Emotional attachment to investments or approaches to investing.
Control issues which result in behaviors not congruent to their wealth goals.
Everyday behaviors that are producing stress and anxiety.
The most important part of our mission at August Wealth is to develop plans that help you achieve your goals based on your current situation, your desires, and the available set of laws and market opportunities available. As your situation changes, the laws change, the markets change, we help you adapt and adjust to ensure behavior congruent to what you are trying to achieve.
Where are the Elephants in the Market?
Listed below are some of my personal observations and hypotheses; they may or may not reflect the reality of the market. However, in my observing, reading, and speaking to others globally, I attempt to gain insight into what may be driving markets today and how developments may take shape in the future. Additionally, I add some general comments around some of the gradual shifts we have made across most portfolios.
Artificial intelligence and computer-generated models are operating (buying and selling) in financial markets with a speed unlike I have ever experienced. The below chart shows the change in the Nasdaq over the past 3 months (as of Sept 4, 2024). It is essentially unchanged over a 3-month period (+1.45% to be exact). However, the “prevailing narrative”* of many market participants shifted from the beginning of July from solid US economic growth to a “narrative”** of weakening growth and possibly a recession, likely helped spur a 15% decline in less than one month. By the time participants became negative on US equities, the prevailing “narrative”*** shifted again toward one of expected Federal Reserve interest rate cuts. The Nasdaq then recovered approximately 10% in 2 weeks. My observation is this (this is only my opinion, and it is formed from many different factors and inputs):
Large amounts of capital are being allocated by algorithmic and Ai generated trading models.
Computer power and internet speed results in near instantaneous market price adjustments to new information deemed to be relevant to impact prices across many different asset classes.
The Elephant in the Room: Human fund managers competing in these short-term time frames are likely to be at a significant disadvantage to algorithmic and Ai trading models today compared to 10 years ago.If you made a successful career as a human fund manager operating within these time frames in the past, you may be:
Unable to acknowledge or realize this change.
Fight against this change and continue trying because this is your “winning” strategy.
The point is, you’re likely to experience pain and frustration (and loss of money) if you don’t see the elephant and try to do business as usual. What was successful in the past is unlikely to be successful today.
If we know that the situation has changed, and we need to acknowledge and address it, what actions are we taking?
Firstly, and luckily, our focus is developing plans to target longer term wealth creation. So, although I have a personal interest in this field, it is not within AW’s mission.
Extending the time frame to investing for the coming years instead of the coming weeks and months gives a higher probability of success because economies and profitable companies tend to grow over time. This should allow for higher valuations and prices eventually.
Understanding that these Ai systems are causing nearly instantaneous price changes allows us to take advantage of these price movements. It is what an ex-colleague of mine referred to as “time horizon arbitrage”. We use short term volatility to our advantage to enter (buy low) and exit (sell high) positions in the portfolio at what we deem to be advantageous prices.
It seems ridiculous for me to state what is obviously a very simple adage; “buy low, sell high”. But this has nothing to do with the approach many people take by trying to pick winners and sell losers or time the market. Most of what we are doing at August Wealth has to do with ensuring we always have an investment game plan we deem appropriate to reflect the following:
Your financial situation, your needs, and your goals.
Solving for market uncertainty through diversification across asset classes, within asset classes, across
geography, and especially across time.
Over and underweighting certain portions of the portfolio when market opportunities present themselves.
Example: underweight bonds in 2021 when interest rates are low, and overweight bonds in 2023 when interest rates are high.
None of this is too complicated, but the finance industry tends to spend most of its time trying to figure out things like:
Will we have a recession this year?
Will stocks go up or down in the next few months?
When will the first fed rate cut be and by how much?
Will the U.S. deficit cause interest rates to rise because nobody will buy our bonds?
I have the answers to all these questions: here it is, wait for it:
I have no idea, and neither do you!!
How do I know that is the answer? The elephant in the room told me!
Without going through all the noise from financial experts on TV, social media, and the Press, I think it’s fair to say there is a lot of debate recently about the possibility of recession. We see all kinds of statistics and indicators that “predict” recessions. But in the modern era (which I will call from the time I graduated high school, 1986!), there have been four recessions in the U.S. (see chart below). It is obvious to anyone that has taken a basic statistics class that four observations tell you almost nothing about whether or not certain indicators are good predictors of recession! What’s the elephant in the room?
Energy is being wasted on trying to predict something that is almost impossible to predict. Some investors will sit out of the market because of their indicators tell them a recession is coming and stocks are going down. Here’s the thing, they might be right, but even if they get it right it’s mostly luck!
This seems irrational to me, but many people make investment decisions based on information that statistically does not have predictive value. We at August Wealth are very thankful that they do because we use these short- term market gyrations to invest in our goal of long-term growth.
I have quite a few other thoughts, but this piece is long enough. I will just give some bullet points on them below. Clients that would like more information, please feel free to reach out to obtain more information on:
China and changing global supply chains.
Mining companies looking priced for recession.
Ai uses and adoption opportunities.
“Their eyes cast down
Fixed upon the ground
Their eyes cast down
I'll keep my eyes fixed on the sun”
Shake me Down
Song by Cage the Elephant
Thank you for your support. We could not do what we love without you!
Joe Cardello
i Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor. Stratos Wealth Advisors, LLC and August Wealth Advisors are separate entities.
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