For our long tenured clients, we have spoken before about a thing called creative destruction. A term that applies to financial systems and is in parallel to the life corollary of “survival of the fittest”. Creative destruction refers to the fact that for the system to grow (create) the weak or inefficient organs need to die (destruct). Essentially, businesses which are inefficient are a drain on the system and take resources from other businesses that can more efficiently benefit and grow from that capital. As this market decline continues, the carnage in the speculative corners of the asset markets is evident. What we would call the “crazy stuff” is down 70 percent or more and possibly heading for extinction. Not just crypto and spacs, but the Covid stocks, new era stocks, and growth stocks that couldn’t quite figure how to actually make a profit. The “destructive” part is in full on power mode. Lots of money being lost by the great unwashed masses and all those crypto traders, day traders, meme stock investors, and overly aggressive and under diversified are notably silent (and much poorer). Stocks high on promise and low on profits are reeling and may not survive. As we noted before, the organism (markets) survive and grow over time. Many individual stocks do not. History is littered with many companies having great ideas that did not survive. This time will be no different. The removal of “free money” and the raising of the cost of capital (vis-à-vis interest rates) is the cause and catalyst.
Looking forward, the short term is volatile and clearly not fun. That’s the entrance fee to long-term investing and positive long-term returns. Stocks provide excess returns over time BECAUSE the short term has periods like this. The no free lunch doctrine. But…. the future is ahead and not behind and the longer this goes on, (historically) the better the future landscape becomes. If you were an investor in 2000, 2008, and 2020 you get the point. The destruction of today builds the creative part of the future growth ahead. No, this time is not different. We survived Jimmy Carter, Y2K, the Gulf War, the 2000 tech wreck, the 2008 real estate bubble, and the plethora of others. In my opinion, this time IS no different. Not being glib, and being a part of history is not fun, but that’s all today is. A part of history. From the ashes will come the next cycle of growth. Like in the past, the markets will be ahead of the facts and start moving north right about the time when the weakest hands have thrown in the towel.
Our position to this point from a macro standpoint has been neutral. We have recently started some rebalancing and nibbling across the risk spectrum. Beginning to lean into going from neutral to growth and expect more buying than selling in the near future. The adage of buy low sell high is still a thing and we are executing to that. NOT calling a bottom (learned that lesson personally in 2008), but are more inclined to buy than sell at these levels.
As always, don’t hesitate to reach out if you would like to discuss further. Our job is to support you and your family, and we are committed to that every day. It’s a commitment we don’t take lightly. Stay well, talk soon.