A path forward

Welcome to August! As we continue to march through a remarkable year, I hope that all of you are doing well and can see a path forward.

First, a little financial update – although the GDP –
(Gross Domestic Product – is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. They take the total value of goods and services created, total that up, use that as a broad measure of overall domestic production, it serves as a scorecard of the country’s economic health)
– took the largest dive in recorded history, the markets continue to be relatively stable. Unemployment is still climbing, 32% of the population didn’t make their house or rent payment last month, and we have a presidential election coming up that is bound to be filled with controversy. There is plenty going on that could cause additional swings in the market, but I’d have to say that things are performing better than many are expecting them to.
One of the challenges of uncertain times is that they produce a healthy crop of F.U.D. FUD is Fear, Uncertainty and Doubt. During a season of FUD, bad actors sometimes appear that take advantage of that fear and uncertainty. That activity (and our ability to stay away from it) is the key point of today’s post
We live in a world with a 24-hour news cycle and instant on demand access to nearly everything. With that kind of access, businesses feed on that mindset by trying to create an impression of scarcity. If a business can’t generate the level of interest needed on product merits alone, then tapping into the ‘fear of missing out’ seems to be a healthy motivator for many people. Common marketing messages related to ‘You must act now’ or ‘only available for a limited time’ attempt to drive behavior that perhaps you wouldn’t normally have pursued. That kind of emotion should never be the driver in your investment decisions. This kind of rhetoric also seems to be strongest when an investment is at the top of its cycle or when there is fraud or false detail in the offering.
Think about these examples – Gold is a good one right now. When people fear currency failure or instability they often flee to precious metals. News programs and pundits make comments like:
“Gold is simply going crazy! It’s never been this high before in the history of our record keeping. You’d better jump in now because it may never be this high again!”
Look at that last sentence. Never be this high again? Never been this high before? So…if I have a ten year investment time horizon then my chances of the asset staying at the highest level in history are not good. Gold doesn’t innovate. It doesn’t create new value. It doesn’t employ people. Its high because of demand. When demand begins to decline, so will the value of the gold. Now, precious metals are often appropriate in a portfolio but if we consider the principles of don’t put all your eggs in one basket, and buy low – sell high. Neither of those principles can be met when Gold is at its peak. The time to buy gold is when its cheaper than at any time in history. The desire of the purchase is being manipulated by the ‘only available today’ mantra and that doesn’t help us with long term planning.
Here’s another.
“A friend of mine just called and his Uncle is this incredible hedge fund guy. He’s building a fund that’s leveraging all of the money going into these pharma companies that are building the pandemic vaccines. He’s allowing just a few outside players in, but you have to act this week. The minimum deposit of $25,000. My brother is putting in 50k. Let’s both take advantage of this – I think we could do very well but all of this is being kept quiet and the money has to be in this afternoon. Are you with me?
Your very first question should be related to how this fits in with your carefully thought out long term investment plan. If it fits, then do you have 25k that can be used as shear speculation money? What do you know about the Uncle? Is the hedge fund real? What is the person hedging against? What are the mechanics of this transaction? How will it make money both now and in the future. You might look at this and say to yourself, “well, anybody that would do something like that is just foolish” but unfortunately, it happens all the time. The uncle or the friend is a trusted and respected resource, perhaps they are a member or leader in your church, perhaps you’ve heard them on the radio.
In the end, it doesn’t really matter who they are or what the opportunity is. Don’t let emotion drive your investment decisions. Thoughtful planning. Careful review. Seek trusted counsel outside of the transaction. Don’t make urgent decisions with long term money. Leave the millionaire overnight stories to the movie industry.
Good investment planning is focused on longer term growth and income strategies that meet your financial objectives. Folks that promise amazing returns or an incredible deal but you must act today are a quick path to nowhere.
Keep smiling! If I can be of service to you in anyway, please reach out. Talk with you soon…
Todd Sirrine – todd@colwyninvestments.com – 801-839-7086