During the late 1970s and early 1980s, a new genre of children’s book came on the scene. They were called Choose Your Own Adventure books, and they were some of my favorites. I didn’t realize it at the time, but I loved the feeling of being in control (shocking, I know) and the anticipation of what would be next when I flipped to page 127 to see if my literary journey would be extended. A few months ago, Netflix even released it’s first “Choose Your Own Adventure” movie, called Black Mirror: Bandersnatch (it’s not great, but worth it for the nostalgia purposes if you were into the books).
As a kid, I would inevitably choose a wrong turn, get frustrated, skip ahead to the last chapter and work my way back. As I got older, I realized the books weren’t about finding the optimal path on the first try, but more about exploring. The books never really stop you dead in your tracks, they simply send you back to where you made the wrong decision and allow you to choose a different path. While I wish life worked this way, it rarely gives you the ability to atone for a mistake by simply flipping back a couple of pages. The same is true for investing.
At any given point in time there are a laundry list of issues that can cause behavior in the stock market to change. And when I say “behavior”, I mean cause large amounts of money to deviate from their current course. For instance, right now, the risk du jour is the trade talks with China. The United States is the greatest consuming engine in the world, and we buy a great many things that are created, produced, or assembled in China. President’s Trump consistent view of foreign policy has been relatively clear: “What have you done for me, lately?”. The answer when it comes to China is not that much. China steals as much intellectual property as they can get their hands on and has used it over the last 30+ years to propel themselves into the second largest economy in the world. Placing tariffs on Chinese goods will no doubt put a short-term strain on the Chinese and American economies. This data should start showing itself in late Q3. Whether or not cooler heads will prevail and allow them to come to a mutually-beneficial agreement before then (or before the election) remains to be seen.
We’ve got a massively dysfunctional European Union, a member of which, who literally doesn’t know whether they are coming or going.
We have a ever-growing national debt, a concerted effort from central banks around the world trying desperately to combat the greatest deflationary force in the history of the world (technology), a bit of domestic spending problem (“mandatory spending was roughly 2.5 trillion dollars in 2017…good luck trying to touch social security, medicare, medicaid, or veterans benefits, etc.), an inverted yield curve, and so on and so forth.
If you’d like to dwell on possible negatives outcomes, some of which will affect your investing life, that’s fine. Flip over to the pessimist chapters of the book and keep believing you’ll be on the mountain top during the next Great Depression.
We’ve been entrusted with people’s financial lives and we will continue to stay the course and bet on American ingenuity regardless of stock market fluctuations (which are likely to come soon). If you’d like to bet against that in the short-term, you certainly have the possibility of being right. But to me, it’s just too big of a risk if you’re wrong.
– Adam
Further Reading