July 20, 2022
“He that can have patience can have what he will”. – Benjamin Franklin
We are all impatient to a degree. We want this or that, and we tend to want it now. We feel like we need or deserve a reward for all the hard work we have done. We are tired, and we want to rest now.
When we act for short term pleasure (or alleviation of pain) it often comes at the expense of what we desire in the long term.
When it comes to building wealth: gambling, short term speculation, excessive risk taking, spending money you do not have, or investing money without a plan, these tend to work against you.
I succumb to the same emotions. I see it in others all the time and in all facets of life. What do I do? I step back from the noise, I breath, I become still, I let the noise pass, and I work hard to become fully present. Appreciation is found in gratitude: nature, family, friends, food, work, wealth, and all the blessings I have in my life. I do not focus on outcomes; I focus on process; I focus on the journey, and it really is wonderful.
What are we trying to do? We are trying to build wealth for ourselves and our clients.
How do we do that? We focus on a customized plan to appropriately invest savings over the long term.
Why do we do it? For freedom. The freedom to spend time on more important pursuits. To live life fully.
A great deal has happened in 2 years:
People were extremely uncomfortable in early 2020 because of Covid. There was so much uncertainty and fear. We acted to mitigate the danger. But did we take thoughtful actions? Did the government really take thoughtful action that was best for the country in the long term? Did the Federal Reserve? Did individuals help their neighbors and friends, or did they put their own self-interest well above others? Did it help us, or did it hurt us? These are only questions; they are not judgements. I would argue it is worth asking the questions. There are always consequences to our actions, and I argued then and now that we should have been more thoughtful about the consequences.
It is a little interesting that Covid is still raging, but most of us are acting dramatically differently.
Consensus market thinking over this time:
In early 2020 equity prices fell, the consensus was bearish, the worry was for deflation. There was talk we would never go back to the office again. Many jobs would be lost. Schools should teach online to protect teachers. New York City would never be an attractive place to live and work. Deflation was a significant concern. Travel was not even a consideration. It was a terrible time to invest in America and the world’s corporations. How did this thinking turn out?
In late 2021 equity prices were setting record highs, prices of goods were rising rapidly, jobs were plentiful, and salaries were rising, we all needed to invest in crypto “fortune favors the brave” we would start to travel again. The start of 2022 was a great time to invest in America. How did this thinking turn out?
People went to extremes, companies went to extremes, the government went to extremes, and we probably would have been better off with a little bit more thoughtfulness and patience. The same applies currently.
We build wealth by focusing on a long-term plan, respect what is unknown, remain balanced and being patient.
What am I observing and thinking?
I think the Fed has sufficiently communicated that they are taking inflation risks seriously and they are hiking rates aggressively.
Prices appear to be falling in many parts of the economy.
Employers look like they are cutting back on hiring and wage increases.
Employees seem to be going to the office more often.
Risk can be perceived as being reduced across most sectors of the financial and real economy.
Uncertainty around Russia, energy, and China are all high, but also well recognized.
According to the most recent Bank of America Corps monthly fund manager survey:
Investor allocation to stocks plunged to levels last seen in October 2008 while exposure to cash surged to the highest since 2001, according to the survey. A net 58% of fund managers said they are taking lower than normal risks, a record that surpassed the survey’s global financial crisis levels.
I am less worried about inflation now compared to my concerns 12 to 18 months ago. Household net worth according to the Federal Reserve Board of Governors* has gone from $104 Trillion in Q4 2018 to $149 Trillion in Q1 2022. That is an immense amount of wealth creation in 4 years. So even with somewhat lower equity and housing market prices, I am sanguine about the US consumer’s ability to spend money and I expect our economy to continue to forge ahead. Technological progress will grow more quickly than ever, we will move away from fossil fuels to more alternative sources of energy, and the discounted prices of share prices today will turn into the opportunity of tomorrow.
Remaining Patient in our actions:
Given the level of volatility and uncertainty, we will continue to be patient with changes to the portfolio. We took advantage of the higher interest rates being offered by adding fixed income where appropriate. We continue to believe major global mining companies and utilities will benefit from the transition from fossil fuels to alternative sources of energy over the long run (patience is required). The dividend yields are attractive, and we believe in their ability to pay over time. Given the dollar has risen to levels last seen in the early 2000’s, and international companies have become cheaper for dollar-based investors, we are exploring opportunities to increase international exposure. We will also look to increase equity exposure over time in companies with low competition for their goods and services, with high levels of return on cash employed and free cash flow.
*https://www.federalreserve.gov/releases/z1/dataviz/z1/balance_sheet/chart/
As always if you would like to discuss your portfolio or our views, we welcome your questions.
Joe Joseph Cardello, Principal August Wealth Advisors, LLC 51 Riverside Avenue, First Floor Westport, CT 06880 Direct (916) 461-9451 toll free (800) 985-9477
jcardello@augustwealthadvisors.com
www.augustwealthadvisors.com
Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA August Wealth Advisors.
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