Weekly Market Commentary
du Pasquier Asset Management
By Scotty George
June 4, 2012
More importantly than not, it is vital to focus upon a bigger broader landscape when evaluating the condition of one’s portfolio, than to focus upon tinier exogenous noise as those factors which indicate the probability of outperformance. Too often, and with more frequency, I have seen micro-analysis paralyze investor’s decision-making, rendering them incapable of reasonable response. What to do, after all, with presidential politics, government stalemates, tax issues, unemployment, European sovereignty issues, gold’s ever expanding role in portfolio allocation, the housing crisis, talk-radio biases, college tuition, and milk prices?
Not in a sense that each isn’t a significant, or relevant, factor in geopolitical economics. But more because, as stand-alones, each has minimal impact upon the trajectory or duration of secular market trends.
We know, as “quantitative” scientists, that the weight of market cycles has an evolutionary bias, irrespective of the latest commentary on business television. (The networks have air time to fill; markets have no hourly agenda.) And yet, we wake up to the “futures” report, stop to look at gas prices, and await Friday’s jobs numbers.
I am not suggesting that these data are insignificant. In fact, quite the opposite. Each has a quantifiable relevance to the “whole.” And yet, it is not the whole we focus upon, is it? Instead, we become mesmerized, polarized, and confounded by the effect of each, to the exclusion of the big picture. Portfolio activity, as a result, becomes disjointed and panic-driven.
It’s as if we forget that every adult was once a teenager, every teen once a toddler. Similarly, market progressions have a timeline, a life-span. The laws of science are immutable.
Now, do they always unfold exactly the same way each time? Of course not. Toddlers fall off chairs, teens make bad decisions, sometimes. Markets make chaotic adjustments. The dot.com crisis, the credit crisis, terrorism, assassinations, weather catastrophes are all examples of exogenous noise, sometimes man-made, sometimes man-made averted. Each is a factor in the timeline of statistical phenomena.
We count on being able to navigate through those events, sometimes scientifically and sometimes intuitively. But we hold fast to certain tools, certain skill sets, that we know to be true in order to mitigate the effects of crisis or to maximize the leverage of benevolent events. Like gravity, for example. Without it we float away. Why? I’m not smart enough to explain gravity for you. But without it, and its implications, we lose a foundation (literally) of society.
In financial markets, there is also a gravitational equivalency. Trends, the amalgamation of factors, are also scientifically quantifiable. If we isolate duration and magnitude of those trends we can better explain the long-term probabilities of market behavior.
We are in a period of flux, no doubt. As earnings acceleration patterns recede worldwide, we would expect equity capital gains probabilities to recede, as well. Some companies do “better” than others; others do worse.
What is less easy to quantify is the panic-driven, 24 hour news cycle response to market events. Without confidence that our immutable laws are, in fact, immutable, the financial landscape loses some of its gravity, and in the ensuing panic, a bit of its gravitas, as well.
The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.
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