By: Douglas G. Ciocca
This past week, Kavar Capital Partners celebrated our 10-year Anniversary. I will resist any clichés as to how fast it has passed but would clock it comparable to a sideline-streaking Tyreek Hill.
As with any retrospective, there are certain prominent points that punctuated the past decade: the Arab Spring, the rise of Social Media, the collapse in energy prices, the dominance of Big Tech, cryptocurrency, Brexit, legal cannabis, yield curve inversion, a trade war with China and then something about a pandemic?! Collectively these events occupied more colorful lines of code than Andy Reid’s play sheet.
Each of the aforementioned items/issues instigated intermittent volatility and yet, the capital markets found their way forward. Be it from economic adaptability…and/or intervention integration…and/or stimulus subjugation…whatever the contributing factors: the underlying attributes of the global economy make it harder to tackle than Travis Kelce in the flat.
Most asset allocators invoke the wisdom of both William Shakespeare: “What’s past is prologue,” and Mark Twain: “History doesn’t repeat itself, but it often rhymes” to overcome recency biases in portfolio management. This reduces the preeminence of the present that tends to emphasize tactical over strategic structuring. Such short-sightedness runs counter to long-term “scoring” success and it is useful to remember that your financial objectives play a full 4-quarter game.
If the past 10 years has taught us anything, it is that balance is beneficial when it comes to properly fielding your team of investments. Possessing equal strength (even if unequally apportioned) in offense (varying arrays of equity securities) and defense (cash and fixed income securities) has enabled clients to manage for the short-term and invest for the long-term.
Game-planning in this fashion compartmentalizes risk and liberates classes of assets to align with their historical expectations.
Much as Eric Bieniemy and Steve Spagnuolo collaborate across the line of scrimmage, so too should your portfolio possess complementary components.
So, let’s focus for a bit on the current environment which is dealing with a cadre of concerns courtesy of: a new administration in Washington, Covid variants and vaccination challenges, S&P index valuations and, most recently, short-squeezes of certain stocks – to name a few.
After a parabolic move off the pandemic lows in March of last year, many in the media (and in the mainstream) are clamoring for a comeuppance and last week finished the month quite weakly. This is of little surprise, and its too soon to know of how much consequence, but we think the economy in 2021 could be reasonably robust.
Here is why:
- A trade tension thaw could drive more cross-border commerce which is likely to….
- Drop the value of the dollar (finally!) and steepen the yield curve1 resulting in…..
- Moderately constructive inflation and the return of pricing power which may elevate profits, while….
- A large stimulus and a…
- Large infrastructure bill may arrive just when….
- The wide distribution of a vaccine is available and let’s not forget the….
- Beneficial gridlock in Congress that may ultimately….
- Keep taxes and regulation (relatively) low.
The question is always how much of this alluded to strength in the economy has already been pulled forward, or priced into, the market via last year’s appreciation? Time will tell, but when it looks as if the market has overshot in the short-term, it could certainly catalyze volatility. We would suspect that this year will not escape that of the average pullback in the S&P 500 of approximately 14.3%2. That is, in our opinion, healthy as it keeps valuations in check and reinforces the benefits of balance discussed above.
The key when confronted with elevated price fluctuation and attendant anxiety is maintaining discipline in adhering to your personal playbook. Yes, calling audibles is an essential element to avoid being blitzed but staying within the confines of our capability helps avoid a fiscal fumble. Very few investors possess the equivalent athletic capability to throw with either hand…like Super Bowl LIV MVP Patrick Mahomes!
As easy as it sounds to make money like the “Reddit Army” and “Robinhood Raiders” that we read about last week, it really is not that simple. Based little on fundamentals and none on underwriting the aspirations of the targeted companies, the intensity of these interludes tends to level-off as financial engineering is the ultimate arbiter of arbitrage. The imposition of timing it just right is incredibly difficult.
As we look toward the next 10 years, I would like to first say thank you! Thank you for your confidence in our team and our process. Thank you for introducing us to your families, your friends and your professional networks. Our daily enthusiasm for what we do pivots on providing levels of service that exceed your expectations.
As for the financial markets, we possess no clearer a crystal ball than anyone, or any firm. We are intent on overlaying a discipline that is consistent with historical and conservative capital market returns and crafted with your collaboration. And we commit to communication at every turn to assist in ascertaining the influence of any substantive issue.
Lastly, in the event you picked up on a few, very very subtle, references to the our beloved hometown football heroes…..all I can say in conclusion is: GO CHIEFS!!
The views expressed herein are those of Doug Ciocca on January 31, 2021 and are subject to change at any time based on market or other conditions, as are statements of financial market trends, which are based on current market conditions. This information is provided as a service to clients and friends of Kavar Capital Partners, LLC solely for their own use and information. The information provided is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as, investment, legal or tax advice. Past performance does not ensure future results. Kavar Capital Partners, LLC makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, the information. The information is subject to change and, although based on information that Kavar Capital Partners, LLC considers reliable, it is not guaranteed as to accuracy or completeness. This information may become outdated and we are not obligated to update any information or opinions contained herein. Articles may not necessarily reflect the investment position or the strategies of our firm.