It Matters when It Matters--It may be mattering now

I've confessed to being a private handwringer largely due to my training and experience, which required me to "prepare for the worst, but hope for the best." As I write this post, I’m reminded how similar investing can be to business planning. In business planning, you lay out your strategy, which is predicated on your making certain assumptions about your business environment and your organization's capabilities. Based on these considerations, you carefully craft a plan to execute upon that strategy. Included in that plan are milestones/thresholds that you reach and which it trigger an action step.

Having a plan with actionable steps at well defined junctures means simply this: when you reach that juncture, you execute reflexively. No second guessing, no head scratching, chin rubbing, pulling of hair, gnashing of teeth, weeping or wailing. You simply execute --like a hit-(wo)man calmly pulling the trigger because you have done the thinking beforehand. If you are thinking while you are executing, you are distracting yourself from the task at hand. To be sure, it is a good idea to make sure that your underlying assumptions makes sense. Naturally, if you survey the horizon and find that the sun is rising in the west and the earth is wobbly on its axis, then I would suggest NOT pulling the trigger and rethinking your assumptions!

Investing requires careful planning and reflexive execution. When you do the thinking up front, you take the emotion out of the back end of having to execute. And while there will be a host of people that tell you that macroeconomics don't matter and that the market is always right and you are engaging in a foolish past-time in trying to even make sense of it all, you would do well to ignore them. These are the same folks that will be telling you that one more drink will not matter prior to your getting behind the wheel and driving. These are the party boys and girls. Yeah they have fun, and they live in the moment, but they have lots of hangovers (and I bet that they have sex with strangers).

Well, IT MATTERS WHEN IT MATTERS. I think that all of the elements that have caused folks to hand wring are starting to matter. To this perplexed observer, the market is like a boxer in the ring with an opponent that is simply the confluence of all market forces. In the beginning, the market strong. Handsome, too, in its silk boxers (you pick the color). The market if full of inexhaustible energy. It is quick--dancing, ducking, punching--all the while outmaneuvering its opponent. But what the opponent lacks in quickness it makes up for in stamina and durability for it is omnipresent. And the opponent punches steadily with its reports on increasing inflation, warnings about asset bubbles, predictions about unsustainable debt, admonishments about corporate earnings slowdowns, wailing about the under-priced credit risks. And this match takes place in the center of the geopolitical arena--a generally hostile crowd that the market, with its earplugs and colorful trunks, is able to ignore.

But the opponent punches away--steadily, methodically. The market loses its bounce in its step. The opponent delivers a well placed blow to the head and knocks one of the ear plugs out. The market’s confidence wains. Suddenly, some blow comes out of the left--some exogenous event that delivers the knockout punch? Maybe. Or perhaps it is merely the “one punch too many.”

This is my own personal metaphor (poorly executed, but I don't claim to be a writer) to help me understand the market. Perhaps the making of a great investor is to be able to hold two seemingly contradictory ideas: (1) All things matter to the market; (2) They don't matter until they matter.

As an investor, understanding (1) that all things matter and the import of weight of those things enables an investor to assess risk. As an investor, understanding (2) that things don't matter until they matter and that the market is amazingly resilient ensures that you climb that wall of worry with the right equipment. Having your executable plan for when thresholds are crossed--which means having well defined exit strategies or well crafted hedging instruments in place--will keep you from being crushed when that wall of worry falls beneath you. I do not claim to have mastered any of this. As you know, I’m sharing with you my amateur ruminations. And I may never be a great investor, but I do know that it is important for me to be more aware of the world, and using the market place as a venue for cultivating that understanding is interesting and exciting to me.