Sage Advice in the Age of Descent

I despise social media.  This admittedly archaic viewpoint was reinforced after I read a quote from the website, “The stock market took a nosedive this week, but TheStreet founder, Jim Cramer, has been offering up plenty of sage advice on Twitter.” (emphasis added).

Twitter limits communications or tweets to 280 characters. Sage advice, invaluable in the pursuit of prudent investment decision making, is not available in a tweet.  It takes a little more time, a little more in-depth analysis to navigate safely through the suddenly volatile stock market environment.

After suffering through multiple 1,000+ point drops in the Dow Jones Industrial Average, the overall stock market rallied this past week and is now back in plus territory for the year.  Despite the recovery, I suspect we are not out of the woods regarding the current struggle between two powerful, opposing forces.  On the positive side, global economic growth is accelerating, which bodes well for future growth in corporate earnings.  On the negative side, interest rates are rising, reflecting increasing fears of higher inflation.  Most likely, these opposing forces will battle it out over the remainder of the year.  Volatility, which had been absent for most of 2017, is back with a vengeance and is likely to remain elevated, which actually is a good thing.  Let me explain.

Volatility, particularly in the short run, is often a product of emotional imbalance.  Going forward, the market is likely to experience multiple periods driven by either excessive fear or irrational enthusiasm.  This rollercoaster of emotions will drive the market too far, too fast, creating opportunities for the disciplined investor.  This may sound logical, even simplistic, but it is very difficult for most investors to remove emotions from investment decisions.

Let’s blame Twitter…  My best advice to someone striving to eliminate harmful emotional investment decisions would be to unplug.  Disconnect from all social media and turn-off sound bite television.  I am absolutely convinced that doing both things would not only improve investment decisions, it would probably lower blood pressure, reduce crime, and force Congress to sit down together to relearn how important true, selfless compromise is to solving all the problems that exist in our country.  Did I mention that I hate social media?

I am currently reading a very interesting book – “Time To Start Thinking – America in the Age of Descent” by Edward Luce.  In the book, the author describes a disturbing trend in the current approach to corporate R&D through the eyes of a leading scientist from Georgia Tech, Ajeet Rohatgi.  According to Rohatgi, our shareholder obsession with quarterly earnings has altered the focus of corporate R&D in the United States, from leading edge to routine.  R&D is the lifeblood of future innovation, long a strategic advantage of our country.  But today, as we continue to lose this advantage, it has become another sign of how superficial our culture has become.

There is plenty of blame to go around…  While social media may weaken our ability to think deeply and focus on what is best for the long term, Washington deserves a great deal of the blame.  Immigration policy, over regulation, our education system, and the impacts of crony capitalism, all play a role in our Age of Descent.

How about a brief comment on the Winter Olympics to end on a positive note

The current medal count:

  1. Norway 28
  2. Germany 20
  3. Canada 17
  4. Netherlands 13
  5. Olympic Athletes from Russia 11
  6. USA 10

At some point we are going to get tired of coming in 6th place.  Aren’t we?

Michael Kayes, CFA