While They’re Watching The Grass Grow
As 2020 comes to an end, we have just witnessed one of the fastest bear markets and recoveries ever, with tons of movement in between. It has been a great year for those paying attention and willing to put in the work. And quite frankly, maybe even a better year for many of those who don’t and instead just jump on the hot trends and hope they continue. This year, they often did. Unfortunately for many both professional and personal investors alike, they allowed the markets to scare them out and never reengaged. For those, I hope they work on improving their process for the future.
A lot went on in the market world this year. However, I was on the stream the other day and in the middle of it all, I heard one of the old investing platitudes paraded out, and it was like fingernails on a chalkboard. Nothing personal to the person who said it, I like him, but this tired institutional mantra needs to be at a minimum put in context, if not outright retired. Of course, it all depends on your investing philosophy and some will bristle at this, but I believe this is an important distinction to make.
The Myth that Good Investing is like Watching the Grass Grow
I understand that life is fast and busy for most of us, with work, family, and all the rest. We have so much on our plates, and it is nice to hear platitudes about quieter, less active times and reaping great benefits from basically doing nothing. And right there, in the beginning, is where this starts falling apart based on basic truths we have grown up with. Here’s where fingernails the meet chalkboard! Doing nothing and reaping great benefits… Huh? But that is what the financial industry has sold us for the last few decades as they flood the world with packaged products for them to benefit from, because, you know, you are supposed to just watch the grass grow. The problem is I don’t eat grass, and I don’t have any cows.
Y'all Watch the Grass. I Will Be Tending the Garden
I have never lived on a farm, but my family has deep roots – from the farm, my father tended at the orphanage where he was raised, to my Mom’s family from a south Georgia farm and then general store for a time. We don’t spend much time watching grass grow. I remember growing up we always had a garden in our yard. No matter how big or small, or even in the latter years maybe just tomato plants, but there was always something growing. No need to waste all that good soil on grass, we don’t have cows to graze on it. With a little care and effort combined with the right knowledge and tools, we could create more for our family and community. Boy, my dad loved his tomato plants and his rose bushes.
Investing is like Gardening
Buy and hold, or as we should repeat. Buy and hope investing really is like watching the grass grow, and maybe you will get lucky and a cow will come graze on your grass so you can eat. Wait, maybe they are talking about an entirely different type of grass? And if so, this whole different industry and different story all together, but I digress. Overall though, growing grass in and of itself is not a very productive use of your resources.
At Relativity Capital, we believe that land is better suited as a garden. With all the changes we are living through in today’s world, projecting out the market winners and losers multiple years or even decades in advance is just silly. I have told clients for years, anything more than 6-12 months is out of my reach, so I would prefer to just stay on top of things consistently and adjust when the data says to. That doesn’t mean we don’t hold investments for multiple years, it just means we don’t think there is any value in building expectations around a false narrative. We also are inclined to treat those investments like a garden. Sure, we spend a good bit of time watering and watching it grow, but we are also factoring in the environment, growing seasons, soil conditions and overall weather patterns. Combining that knowledge and a few simple tools, it is amazing what we can grow. This is investing to us, taking the skills we have developed over the years and applying them to an uncertain environment and reaping what we sow in the end. You shouldn’t really expect much out of that grass field when you get ready to retire. It will basically appreciate with the value of the land it sits on with very little utility and usefulness along the journey.
Reaping What We Sow
This might be the most important part that most advisors and the “buy and hope crowd” miss altogether. Crops are cyclical and MUST be harvested for multiple reasons. First, why put in all the effort and not taste the fruits? They will rot if you don’t pick them, and it will be all for not and make a big mess of your garden for a while. This is what bear markets do to many portfolios that are not attended to. They will eventually grow again, but waiting through another season can get very frustrating.
Second, the soil needs see the crops rotated so that it can be rejuvenated and not depleted of its value. The good thing is there is always a crop for every environment and the unlimited investment choices give us the opportunity to match them. It isn’t easy, but as with farming, in investing, patterns do develop and repeat, but very rarely as consistent each year.
Nature has its own timeline and so do your investments, so when they are showing ripe fruit, it is our duty to pick them and move our attention, time, and value to the next crop. This doesn’t have to be every day or every week, but it also doesn’t really fit to a scripted timeline like once a quarter or year as many rebalance their portfolios. You will occasionally catch some really ripe fruit, but only if it happens to ripen at the scheduled rebalancing date. Even more unfortunately, that arbitrary date for many advisors’ clients becomes the 1st of the year, which is rarely when we see big changes in growing seasons for the markets. Gardens and markets don’t hide their fruits, they both tell us and even show us when they are ripe. We just have to be watching and listening.
Good luck and as always I hope this helps!