2024-02-09: Markets

It sometimes happens that someone – client or not – asks me why exactly am I getting paid, for what contribution or task. The question on its surface is not silly: my well-known philosophy on markets and how to run portfolios is focussed on the use of passive vehicles, avoiding a lot of trading and especially controlling costs. What could be simpler than to follow such watch-the-grass-grow approach?
     Two factors intervene to spoil the picture: the restlessness of individuals who search for ‘action’ and the relentless commercial demands resting upon the investment management industry.
     Associating the level of activity with value added is a known characteristic of many successful ambitious entrepreneurs and investors, sometimes with results that support their theories but more often with no clue on their part of what portion of their success is attributable to ‘action’ (their decisions) or pure luck. When this attitude is put in the context of the management of portfolios by third-party professionals, the lack of comprehension often translates into egregious second-guessing exercises: you should have bought this, why didn’t you sell that, everybody knew what was coming (my favorite), with that level of uncertainty you should have… (since when ‘uncertainty,’ like ‘infinity’, has levels?). This stuff is hard to handle or tollerate.
     The investment management industry then is torn between two courses of action: step-up educational efforts towards their clients and force a disciplined process on the management of their finances (after all, they all know exactly the same things I know), or simply succumb to the terror of losing clients if their wishes are not somewhat satisfied, no matter the level of unreasonableness or lack of reality such wishes demonstrate. In the end, no one says ‘no’ or tells a client to go elsewhere. This is how myths are perpetrated. 
     So, what exactly am I getting paid for? Primarily to keep my clients in line and to stop them from making mistakes. There’s a lot of action there, I guarantee you. 

Markets continued to witness pressure on interest rates (still adjusting to the possibility central bankers will not cut rates as fast as investors desire) and upward momentum in stock prices (this time led remarkably by emerging market equities). Notable, US regional banks came back to the fore with news and statistics pointing to their oversize exposure to commercial real estate loans.
    
[Cover Source: Semafor]