What you can control...

“I Beg to Differ” is a Memo written by Howard Marks, founder of Oaktree Capital Management. In this memo he discusses the idea that in order to outperform the market you need to take actions that are different from everyone else… and you need to be right. By taking a different path than everyone else you also open yourself to the potential for loss. So it is not good enough to be different you also need to be right. Over the last few years we have seen the foundation of investment (in the public and private markets) shift, interest rates which were low and declining for the better part of 4 decades took a sharp turn upward, and the pandemic impacted parts of our economy never thought to be at risk. Going back to read economic forecasts from 2 or 3 years ago show how much can change. We are now in a position where inflation is pushing Central Banks around the world to increase interest rates with the hope of cooling demand and thus reducing inflation - where bad news is good news and vice versa.

With this in mind I understand why an investor would be concerned and confused. The last couple years have showed us how little we can control in the short term. 

Here are some things you can focus on:

1.      Stay aware, but don’t make emotionally driven decisions.

• You and your advisor have put time and effort into building your plan. You have done things in a thoughtful way, working toward your Statement of Financial Purpose. Building the plan included a discussion around what would happen in market extremes. Watch and consider the current environment, but don’t make rash decisions that go against your long term plan.

2.      Avoid trying to time the market

• This isn’t referring to rebalancing or taking a new position from a list of companies you would like to own because the price now makes sense. This refers to liquidating your portfolio to buy back in “when things get better”. Timing the peak and bottom is well documented as an almost impossible task, and even more rarely repeatable.

3.      Play your own game

• You have a plan, there are items that will impact your plan. The things that could impact your plan are limited, the financial news covers many things that do not impact your situation but are attention grabbing. Focus on your plan and leave the rest of the stress to others who are actually impacted.

4.      Document your thoughts and feelings

• When emotions are high, documenting the reaction of yourself, your spouse, your dependents etc. can be useful. During long term planning sessions these insights can be used to make life more comfortable. If the stress of a decline was impacting sleep and relationships there may be shifts needed to reduce this for future events.

5.      Stay diversified

• There may be opportunities to rebalance, taking some profit from the winners and reallocating to the losers.

• Some losers may be sold for tax loss selling.

• Make sure that with rebalancing and tax loss selling that your portfolio doesn’t become too concentrated.

6.      Look for opportunities

• In volatile moments emotions can push prices to an extreme, in overly optimistic times this is a time to sell, in overly pessimistic times this is a time to buy. Buy low and sell high. As referenced above, timing this is nearly impossible, how having a “shopping list” of companies that would fit your portfolio means that when cash is available the research is done.

7.      Focus on the long term

• You have a plan that you are executing. An individual plan that aligns with your own values. In the short term things may be volatile, the long term is much smoother. There are many years ahead, and we will be there to work with you through decisions. 

In conclusion, the wisdom shared by Howard Marks in his memo, “I Beg to Differ,” reminds us that successful investing often requires taking a different path and having the conviction to stay the course. In today's ever-changing economic landscape, marked by rising interest rates and post-pandemic uncertainties, it's natural for investors to feel concerned. However, by adhering to a well-thought-out plan and keeping emotions in check, you can navigate these turbulent times with confidence.

Remember to stay informed without making hasty decisions, avoid the pitfalls of market timing, and focus on your individual financial goals. Documenting your thoughts can provide valuable insights for future planning, while maintaining diversification and seeking opportunities can help manage risk and capitalize on market movements. Most importantly, keep a long-term perspective and trust the plan you've built. By doing so, you'll be better equipped to weather short-term volatility and achieve your financial objectives. At Strategos Group, we are here to support you every step of the way.