5 Thoughts: Portfolio Philosophy, the Human Condition, and a Farewell to Neil

the number 5, abstract number 5, fiveBy Alex Salomon
The last week of the trading summer came and went and the full grind of things is about to get started again. In such manners, the doomsayers are back from their yearly break so prepare for more chatter and noise about “Grexit” and bad news… I miss summer already! And I wish there were a way to keep doomsayers on vacation for a much longer time!

1. In Draghi I trust!  As I have been pounding on the topic for a few weeks, I’ll keep on doing so: the most important man in Europe is ECB’s Mario Draghi (while Angela Merkel is the most influential woman in the world) and I really want to hope and believe that his road map to cap borrowing costs and quench the debt crisis is going to work. However, as we have just experienced with this week’s market turbulence, Draghi’s program might be slower than the markets expect, so there is the ongoing risk of a disconnect between fast pace and wishful thinking of speculators and the slower, more realistic diplomatic pace needed for Draghi’s plan.

In short, while I want to believe that Spain and Italy can be saved by Draghi’s plan — which would stop the contagion, avoiding France and then eventually Germany and the entire EU — I think that we are at risk of a period of “disappointed slow pace” which will translate into choppy equity action. In short, I am expecting some turbulence before blue skies… October could be rocky before a sunny winter into 2013!

However, I want to be a believer… Wait!! I am a believer!! In Draghi I trust!

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2. Portfolio Philosophy part 1  Remember, this column is mostly about random weekly thoughts… As such, all week long, as I felt the guilt of taking profits on a very long portfolio, I realized: it’s OK to take profits when you have been invested from deeper, longer, and better prices than those recently chasing the action… don’t let the angst of chasers kill your profits!

I think it is also worth sharing: taking profits can feel guilty, as in “what if prices go much higher?” But this prism is flawed. For active investors (not for macro investors), if you entered a position before the herd, it is very important to let go of any guilt — “to remove the emotion” and to realize that other investors’ late partying could end up wiping out your profits if you’re not careful.

Long story short: stay balanced, reward yourself. If you were right before the herd, don’t let the herd distract your focus.

3. Portfolio Philosophy part 2  There is no doubt in my mind that one of the major lessons for active investors is “cutting out the noise.” This means “have rules, have discipline, follow your rules and execute, regardless of what TV or the barber shop thinks.” However, there is a MAJOR difference between cutting out the noise and listening to good advice!

The noise is the clutter of mainstream information. The noise is the herd, the crowd, the easy path. And if it is easy and crowded, it is rarely rewarding.

Good advice is each individual’s trusted, proven, reliable sources for help and mapping the market. Just like you benchmark your portfolio performance, you must benchmark your sources. Remove the noise, keep the value.

4. Hannah Arendt “The Human Condition”  I have heard many times over that once you turn 40, you stop reading new books: you just re-read books with a new look on life. I also heard that the books you misunderstood at 20 with the idealistic eyes of youth, you start to understand at 40 with the realistic eyes of age (and at 60 with the disillusioned eyes of life). Be that as it may, as I plunged back into Hannah Arendt’s “The Human Condition” (1958), I had this long and ambitious desire to share how her writings made me discover and agree that the current rule of “Credit Agencies” is a modern form of inhumane totalitarianism.

My ambitions have faded and I will not write a long thesis (well, not today), but I was moved all week by the power of her thesis (pre-dating rating agencies) and the ongoing reality that so much of our lives, hopes, economic decisions are gauged by subjective (and sometimes politically motivated) creditworthiness. Yet, creditworthiness is so remote from our daily values, our daily plights, our daily joys. The entire world pretty much now lives in angst of credit ratings while it has nothing to do with labor, work or action in our lives.

I will spare this column from more on this topic, but I reserve the right to prepare a much longer article about it. In the meantime, I “miss” Hannah Arendt.

5. R.I.P. Neil Armstrong  During a week when I felt moved by the philosophical debate of our lives being ruled by outside and remote forces, I could not help but seeing a fateful wink in the passing of Neil Armstrong. Armstrong’s adventure embodied a different era of dreams and pursuit of those dreams, a different national ambition, a different philosophy. How we went from shooting for the moon and the great unknown to AAA and AA and Baa- is puzzling. I will not solve the enigma, but in the meantime, I “miss” Apollo missions & Neil Armstrong.

Have a great week.


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Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.