Informed Precision

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.

The Bahnsen Group is registered with Hightower Advisors, LLC, an SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. Securities are offered through Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

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Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client’s individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for related questions.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.

About the Author

Trevor Cummings

Private Wealth Advisor, Partner

Trevor is a Partner and Director of our Private Wealth Advisor Group.

As the author of TOM [Thoughts On Money], Trevor endeavors to write and speak about financial concepts and principles in a kind of “straight” talk demeanor and posture.

He received his Bachelor’s degree in Organizational Leadership from Biola University and his MBA from California State University, Fullerton.