Dad Life
As a young parent, I’m learning daily just how difficult it is to be a parent. The heavy responsibility of raising young children and the practical day-to-day is a lot.
One of the areas that has been difficult for me personally, is learning how to discipline my children. I know I love my children, and I know that appropriate boundaries, accountability, and discipline is important. I know all of this from a textbook perspective, but, again, the daily practice has been difficult for me.
Sometimes it can feel like loving my children and disciplining my children are at odds with one another. Yet, in my heart of hearts, I know they are aligned and in agreement. I will always love my children – this is a long-term reality – AND in the here and now, there will be moments when I need to discipline my children.
Holding these two key tenants of parenting – love and discipline – in balance is both difficult and important.
The Long & Short of it
This reminds me a lot of a question an investor asked me recently:
“Your team produces a lot of content regarding the daily happenings in markets AND you preach the importance of having a long-term perspective. Isn’t a daily digest of market content unproductive for a long-term investor?”
Said another way, can a daily following of markets and a long-term investing posture live in harmony, just as love and discipline both co-exist in good parenting? The answer is yes.
Let’s unpack this further…
Financial Incisions
I touched on this topic recently when filling in for David Bahnsen on the DC Today. As I was discussing the topic, I related it back to surgeons. Doctors that spend years and years in school – studying the human body and the intricacies related to each particular operation. Surgeons need to be well-informed and well-equipped for all possible scenarios that play out. Preparedness is key because decisions need to be made quickly – sometimes, life or death decisions are made in an instant. The doctor/patient relationship hinges on this trust and expertise. On the DC Today recording, I called this: informed precision. Sometimes hundreds of hours of study and practice to make a one-inch cut; informed precision.
An advisor, much like a surgeon, needs to practice informed precision. What does this look like? A deep and thorough study of the daily, a full digestion of the current environment, historical perspective to contextualize those current conditions, and convictions around how one applies all these data points. This is the intersection of understanding markets daily and operating as a long-term investor. This is informed precision – the digestion of high quantities of content to often make just small financial incisions.
Financial Anxieties
Now, I don’t lack empathy for this question. I do understand that the daily news feed can cause investor anxiety. This anxiety is caused by (1) confusion regarding how to react to and contextualize all of this information and (2) a false assumption that all information/data needs to lead to action. Informed precision reminds us that the preparation and understanding should feel more robust than the initial action, and the action taken (the “incision”) should be thought out and impactful.
A Real Life Example
Let’s walk through an actual example. In the height of the COVID hysteria in the summer of 2020, we saw treasury yields hit levels never seen before. The 10-year treasury yield sat at about 0.62% on July 1st of 2020.
As a team of advisors, and asset allocators, The Bahnsen Group had to reassess our approach to portfolio design in light of these current yields. Our process was not rushed, our process was not knee-jerk reactionary, but rather the changes to our approach were collaborative, thought out, and our conclusions were published. We concluded that the historical reason one would allocate to treasuries was to (1) generate current income, (2) potential price upside in a flight-to-safety moment, and (3) price stability or a “parking lot” for monies earmarked for short-term use. Lower yields eliminated at least two of these three benefits, so we rethought our approach.
Over the following months, we materially adjusted and underweighted allocations to high-quality bonds, and grew our exposure to alternatives. Essentially repurposing some of these allocated funds. Why not repurpose to stocks? We did not want to abandon the benefits of diversification. Why not stay in the bonds as is? Because they [bonds] no longer provided the portfolio benefits we were originally seeking. Did we stop allocating to high-quality bonds altogether? No, not at all – informed precision is often making slight changes to express your convictions while retaining the humility that your assumptions regarding markets are always imperfect. We believed that it was a low probability that US treasuries would have negative yields, which was a reality for many other countries. Humility is the realization that the improbable doesn’t mean the impossible.
Trust is Essential
Again, this small example, but one that I believe has been fruitful for our investors, and the decision was informed by our daily engagement in markets. So, yes, we are going to expect you to have some investor maturity as we do share these daily happenings – it’s our way of peeling back the curtain for our investors and walking you through our thought process. It is our sincere hope that this content doesn’t rattle your cage. We strive to be trustworthy so that you can transfer your worries and concerns to us in the form of trust.
As you know, The Bahnsen Group is a group of committed long-term investors that are passionate about the daily happenings in markets around the world. Just as a loving parent values discipline and a surgeon studies more than they operate, a long-term investor should be engaged and informed daily.
