2017 Outlook – Navigating a World in TransitionJanuary 25, 2017
Early this month I was privileged to speak at the annual conference of the American Chesterton Society in Pittsburgh. The following day I walked into a luscious Pennsylvania wood, to a stream flowing over rock, and to a waterfall that perpetually laughs with joy at being alive. Over and above this waterfall stood the most beautiful house I've ever experienced. It was Frank Lloyd Wright's masterpiece, Fallingwater, built in 1935, timeless art. I walked in, through and around it. It was so beautiful that my eyes teared repeatedly. For me it is THE house, organically perfect, nourishing, in harmony with man and the surrounding natural glories. It had been on my wish list to visit one day; I had no idea what an appointment I had with Beauty.
I wrote once about how Mark Twain was not taken seriously by the literary and academic establishment until very late in his career. His genius wasn't widely recognized till after his death. The problem was his wide popularity - and his humor. The credentialed guardians of public taste could not grasp how this author, whose works were enjoyed by janitors and bar tenders, could possibly be worthy of informed approval. Heaven help us - Twain had not even been to college. I was surprised that a similar thing happened to Alfred Hitchcock. Film critics saw an entertainer, a reliable box office draw, not a groundbreaking artist. He was nearly dead before his creative genius was legitimized by the industry he helped build. Greater than Hitchcock was Orson Welles. He so dwarfed Hollywood's best and brightest that envy, politics, and clashes with his monolithic ego assured him a near permanent position as a tribal outcast. Nietzsche, Van Gogh, Edison, Pasteur - the list of outliers is endless.
Frank Lloyd Wright also suffered disdain from his accredited peers - he had no degree in architecture. His eccentricities, marital history and massive ego (it was not larger than his talent) did not help his reputation. Even today, it is common that architectural students receive a routine measure of anti-Wright dogma. I told a young architect how much I admired Fallingwater. "Yeah", he said, "but those extended terraces began to sag eventually." Never mind that the house is 80 years old and the gentle sagging was fixed with no change in appearance. Above all, never mind that millions of visitors drive out to remote Pennsylvania farm country to see what is widely acclaimed to be the most beautiful structure in America.
Of course being scorned by the intelligentsia is no proof of genius. For every Nietzsche, Edison, Wright, Pasteur there've been thousands of ambitious crackpots convinced that their unique genius is tragically unrecognized - yet they remain crackpots. And I concede the academic world surely has its creative giants. But most professors and scholars exist to record, critique, and teach about the creations of the Masters. The Masters exist to create. Their unique powers are apparently a gift from God, who bestows them on the unlikeliest of souls. My favorite reprobate, Jerry Lee Lewis, is so wonderfully gifted that no one has ever been able to produce anything more than plastic mechanical imitations of his music. They reconstruct the bones, but there is no life. When asked who taught him, he invariably drawls, "GOD gave me my talent. He can cut my water off anytime". Anyone who doesn't believe JLL is a unique musical genius has never gotten acquainted with his work.
There is a parallel to all this in the investment world. There are only three kinds of people managing money today: crackpots, educated monkeys, and gifted people who know what they are doing. Crackpots, to steal a phrase, will always be with us. Greed, vanity, and lack of moral compass generally describe them. They often sell newsletters promising to save you from impending crisis - and make you rich in the process. They alone have the critical knowledge, available online for just $19.95 a month. The educated monkeys are the more prevalent and more dangerous type. Many are in academia teaching investment theory, many serve on endowment boards or pension funds, thousands boast an MBA or CFP and hang out a shingle as "investment advisors" or "retirement consultants". The monkeys watch and imitate one another in order to keep up with the current fads. Today those fads include futures contracts, credit default swaps, short selling, "volatility wedges", indexed ETFs, and tactical timing techniques. The most amusing, if they weren't so harmful, are the insurance salesmen, disguised as securities professionals, who bulk mail slick invitations for free steak dinners.
I'm not being cynical, nor the least bit angry. I'm just telling the truth based on thirty years' experience. And the people who know what they're doing? They are discoverable; but in a wide and noisy marketplace, theirs is a narrow way and few are they that find it (another stolen phrase). There are no short cuts to doing it right. Fundamental security analysis, careful selection, changes driven strictly by valuation, much patience, and a deaf ear to the media hype, pretty well sum it up. We do our best. Thank you for entrusting us to guide you.
Meet our new associate, Anders Storvik, who joined us in July. Remarkably bright, easy to talk with, and thoroughly licensed for our industry, Anders is already a proven asset to us. He will assist with financial planning, portfolio management, as well as internal process management. His job is to make us more proficient. Ours is to mentor him long term to make a seasoned and competent investment advisor.
A graduate from the University of Tennessee, Anders was a standout swimmer, earning All-American, Letterman and Southeastern Conference accolades in addition to achieving Olympic trial qualifying standards in three events. He earned his Master of Business Administration from the University of the Incarnate Word.
Originally from Austin, Anders has lived in San Antonio since 2012 where he began working at a financial management firm serving employees of nonprofit institutions. He actively volunteers for Big Brothers Big Sisters of San Antonio and Junior Achievement. Anders loves the outdoors, playing sports and still finds time for swimming.
"I joined Brent Forrest & Associates", he says, "because I was impressed with their integrity, their business model, and their deep commitment to clients. I immediately connected with the staff, and soon discovered the clients are like family. I am young, and this is a tremendous opportunity for me to learn. It's also a happy place to come to work. I love it here".
The Elephant in the Living Room
I can't get away writing a newsletter that ignores the presidential race. I also can't come up with sufficient answers to allay every concern. I have yet to talk with anyone who doesn't have something to say about this election - and say it with considerable emotion. Opinions run wild. The last thing you need from me is another one. Instead I'll try to address the elephant (or donkey) in the living room as it affects your investments.
First, the tendency to believe that "this time it's different" is one of the most common errors investors make. An honest look at history shows endless examples of crazy threatening people and events that could frighten most anyone out of their investments. In one sense, yes, it really is different now, but it is not crazier, more unpredictable, or more threatening than many times before. What doesn't change, what isn't different, is that each time, there is always something threatening us. Vast wealth has been built these many years despite all the folly, stupidity, greed, and meanness of those in seats of power.
Second, there is no consistent link between the big events in the news and how stocks behave in response. That may sound preposterous, but it is true. In a blind test, having been given a precise timeline of historic events - wars, depressions, elections, catastrophes etc, volunteers were unable to draw an accurate chart of market movements. The actual movements, up or down, did not fit their commonsense expectations. The real world examples of this are limitless. We've seen stocks go up on bad news, and down on good news. In December 1941 while we fought Hitler in Europe, the Japanese decimated our pacific fleet at Pearl Harbor. The future could hardly have been more uncertain or bleak. Markets were in hell and sinking. What would you have done? Would you have owned or avoided stocks? So what happened? With dividends, the Dow Jones was up more than 11% in 1942. It earned an additional 40% over the next two years. That's amazing. Easy to accept looking back on it now, but looking forward no one would have believed it.
Third, presidents barely count. I'll take the proverbial nickel for all the times I've been told, "if so and so gets elected, I'm gettin' out of the market". Or, "if so and so gets reelected - I'm outta' here". Truth is, if we insist on avoiding investing during difficult times we will never find a time to invest. President Obama is a lightning rod for criticism, yet he presided over an incredible bull market from early 2009 to the end of 2014. Our stocks rose 160% in those five years. Was that because of Obama? Or in spite of him? I say, "neither". Markets have a life of their own. Politicians don't, as they often proclaim, "create jobs". They also don't fuel the engines of commerce. We, the people, do that. The world of work, invention, trade, and commerce is larger than we can get our minds around. And it is, thank God, larger than our politicians.
Lastly, our influence is limited and our single vote with only a binary choice can feel unimportant. While it’s good to express our views and to vote, it's not good to extend our emotional anxiety beyond our circle of effectiveness. The most important part of life is lived at the lowest level. It is easy to talk of loving mankind; it takes work to love one's neighbor. In God's economy things are upside down. The smallest things done with love have great and lasting power. The large things done with political pomp eventually fade to dust. Seen this way, our lives are large, powerful, and vitally important. We have a calling and a duty and for most of us it is very close at hand. – Brent Forrest