Every once in a while, a new movie is released, at just the right time, to help us form an accurate perception of an important event or issue. Other times it makes more sense to watch a classic from the past to understand the current environment. Which brings me to one of my all-time favorite movies, “Being There,” starring Peter Sellers, as Chance the Gardner, AKA Chauncey Gardiner, released in 1979.
To summarize, the story revolves around the life of a simple-minded man who has spent his entire life as the gardener at a wealthy estate. Chance the Gardener never leaves the estate and learns everything he knows about the world through what he watches on television. Literally by accident, Chance is placed in the care of a well-connected business mogul and the rest of this hilarious movie is Chance the Gardener becoming misnamed and mis-interpreted as Chauncy Gardener, economic and political advisor to powerful politicians, including the President.
Reality is not static, it continues to evolve, and is constantly reshaped by perceptions. Moreover, one person’s reality might be viewed as complete nonsense by someone else, leaving both sides confused and frustrated. And that, in a nutshell, is the state of our country. We are all trying to figure out the new reality. The questions we are faced with, from an economic perspective, are almost endless. Here are a few important ones:
- Will more government stimulus help the economy, or will it only worsen the debt situation leading to financial disaster?
- Will an increase in minimum wage have a net positive impact, or will businesses dependent upon minimum wage workers be forced to reduce staff?
- How long can the Fed keep interest rates low?
- When will rising inflation be the party-killer some pundits expect it to be?
- What tax increases will we face and what will be their impact on the economy?
The answer to these questions will largely drive the markets in 2021 and over the next several years. Over time, we will discover the real economic answers. Then, only in hindsight, will we be able to evaluate the predictive accuracy of today’s political narrative or agenda.
I suspect 2021 will be a year for guarded optimism and valuation discipline. Within equity portfolios, our focus will be on incremental changes, not magic moments to make extraordinary portfolio bets. In other words, it may be a year to focus even deeper on individual company fundamentals and less on macro developments or political rhetoric.
Which brings me to another all-time favorite movie, also starring Peter Sellers – “The Pink Panther Strikes again. In this fifth film of The Pink Panther series, Sellers plays the bumbling Chief Inspector, Jacques Clouseau. (I highly recommend them all). Throughout the movie we are left wondering whether Clouseau is really a brilliant crime solver or an imbecile. There is ample evidence on both sides of the debate, so, like today, it depends on who you ask.
While it may be better for our mental health, or at least our disposition, to watch Peter Sellers movies, instead of the nightly news, we must remain engaged even if we vehemently disagree with the dialogue. With a new administration and Congress, changes are coming. Some may help the economy and markets, some will not. Virtually every decision made by the President or Congress will be applauded by half the country and despised by the other half. There is just no getting around the fact that the country remains deeply polarized. The goal here is not to pick a side but figure out the economic impact of every change and then adapt portfolio strategy accordingly.
So, here it is, our overall investment strategy for 2021…
- Be incremental and disciplined, not emotional and reactive
- Stay engaged and objective, searching for truth not spin
- Maintain perspective, balancing risk and opportunity
- Stay informed, be discerning, and occasionally, watch a Peter Sellers movie.
Laughing can be good for the soul.
Michael Kayes, CFA