Get Busy.
In any endeavor, stasis has a way of robbing motivation and desire even as it suppresses optimism. Movement creates motivation and motion towards a goal. Even when the correct path is not so obvious, getting started reveals a direction towards what to do next.
Patience is frequently the correct answer in the investment world, now being a notable example while we wait for the Federal Reserve to finish its inflation fight. But patience is different from not knowing which tool to pick up. Synonyms for “stasis” include both equilibrium and tension and, while patience during the former is usually acceptable, inaction, blockage, and confusion gone unchecked lead to the latter. And tension in investment decision-making frequently leads to doing the wrong thing at the wrong time.
Almost any advisor can describe to you a “trade about nothing”. Selling Pepsi and buying Coke is an apt example; we might want to sell Pepsi to capture a benefit but still be invested in the industry, so we’d buy Coke. The trade itself left the industry participation essentially unchanged. Also, selling Pepsi and buying Coke may reveal a next analytical step and action which, when combined, are better than just holding Pepsi. (These are examples, not recommendations.)
At WWM, we battle the effects of stasis with action on two levels. First in the model portfolios that we manage and, concurrently, in the personalized allocation to those models for each individual client. Both operations require diligence against stasis.
Last December, our model management team reset portfolios for events scheduled in June, just weeks from now. Our attention on the Federal Reserve and interest rate policy drove those decisions and The Fed has been relatively clear, even through their normal “Fed-speak”, about their rough time frame. Now the model team is focused on the next major event when interest rate cuts are on the table, in our minds, early next year.
The periods in between these major exogeneous events is when stasis can take root. To fight the comfort of inaction we, of course, continually discuss economic events, corporate earnings, and market-moving headlines. Frequent investment policy meetings prompt review and analysis processes that may reveal a marginal action to take while not changing the overall strategy. But sometimes doing nothing is best and staying busy at repetitive actions helps fend of stasis and stimulate discovery.
At your portfolio level, you and I set the policy. We determine the exposure to stocks, bonds, and cash alternatives, we set implementation schedules for new monies coming in, and our understanding of your station in life helps guide us in creating a portfolio that matches you. My market hunch may be to keep all clients holding x-percent of cash, but your situation calls for y-cash. That decision doesn’t affect the management of the model portfolios.
I’ve held firm over the years when staff, and sometimes clients, give me a little guff for expecting that almost everything we do to be systematized with a written process. But to beat the complacency of stasis I learned long ago to rely on the process that got us here as a guide. And the best way to advance and grow from there is to do what you did, only better.
Being lazy, or getting distracted, or even not being certain enough to pick up a hammer instead of a screwdriver are the grease that lets model portfolios and client allocations get run over by stasis. Out of date positions or mis-matched allocations can wipe out the advantage of a correct market call. So, especially when the market is stable and static, or we’re waiting for a key event like Fed action, the rigors of our processes always help us stay busy to prevent stasis from becoming temporarily-comfortable inaction.
“Stay Busy” is just as important to us as “Sounds Crazy, Might Work”.