3 Things 9-30-24

Thing One

Aha Moments While The Lights Were Out

Hurricane Helene has come and gone now but my thoughts of her linger as the devastation around me forces almost constant introspection. The following are three epiphanies I had while thinking about the events of the past few days:

It’s the grid, stupid.

Bill Clinton’s famous phrase (It’s the economy, stupid) came to me in a slightly altered form as I pondered the fact that our ability to produce our own energy and deliver it to the 330 million people in our country is something that we all take for granted until something like Hurricane Helene comes along and knocks out power to a few millions of us. Then, as we stumble around our homes in the dark and wander the local streets in search of scarce resources, we realize just how fragile it all is. Analogous to that, our vibrant and diverse economy is taken for granted – especially in good times like we’ve had (pandemic aside) for the last decade or so. Then along comes a hurricane (say in the form of a recession) and our personal grids get tested right along with the national economic grid. Those of us who have been dutifully hewing to the ideas of diversification and investing for the long term the have been in perpetual, personal grid-hardening mode and we should stay the course.

But our country’s grids – both the economic one and the electric one – have not been in hardening mode for a long time and now are in great need. In the case of the latter grid, green energy should be a part of the hardening efforts where it makes economic (and common) sense, but we shouldn’t eliminate any of the inexpensive, plentiful, and reliable energy sources in our portfolio like coal, natural gas, oil, and nuclear only to replace them with more expensive, less plentiful, and less reliable sources like wind and solar for the sake of appearances, just like we wouldn’t dump the stocks of well run, productive, and profitable companies from our portfolios on the basis of aesthetics. In the case of the former, that hardening work can’t/won’t begin until we, the people, demand it does. Until then, the spendathon will continue and that grid will become more and more susceptible (and more and more likely) to experience a disaster on a scale relative to what Helene produced in the South this past weekend.

Balloo was right.

Most people who were raised in the seventies and eighties are familiar with the Disney story, The Jungle Book. In the animated version, a big bear named Balloo advises the main character, who is worried about how he’s going to get along, to “look for the bear (bare) necessities” and forget about everything else. When the power went out two days ago, I (like most people, I imagine) went into Balloo-mode. I didn’t find myself considering for one second any luxury items or services or any of the things that seemed very important just days earlier. Instead, I thought about how much food and water we had. Then I thought about how, and if, I could get the food and non-food essentials we were lacking from the grocery store. Then I thought about how I could get fuel for multiple purposes. Then I made some plans. The same thing should go for investing. Keep it basic and boring. Don’t chase the fads or the can’t-miss, next big things. Don’t outsmart yourself. The bare necessities approach will work just fine

Fossil fuels are not our enemy (and neither is capitalism).

As I walked my neighborhood over the past few days and listened to the hum of gas-powered generators grow louder and louder as neighbor after neighbor got one set up. And, as I visited multiple stores and saw massive lines of people intent on purchasing generators, it hit me that the policy makers who are intent on eradicating fossil fuels are more an enemy to us who live in the here and now than fossil fuels have ever been. Even with the generators and the gasoline, the suffering is great in Helene’s aftermath. One can only imagine how much worse that suffering would be if the fossil fuels hadn’t been burning on stoops (and storefronts) across the southeast for the last few days. The same goes for capitalism, which is much maligned by people who want to see an end to all the worlds’ suffering. Can you imagine undertaking that noble mission without the benefit of capitalism having been ‘burning’ as a part of the American experiment for the last couple of hundred years? I can’t – not successfully anyway.

Thing Two

The Benefits Of Human Advisors

The following was taken from an article written several years ago for the Wall Street Journal by Andrew Loo, a professor at MIT’s Sloan School of Management:

“At a conference last year, I was approached by an audience member after my talk. He thanked me for my observation that it’s unrealistic to expect investors to do nothing in the face of a sharp market-wide selloff, and that pulling out of the market can sometimes be the right thing to do. In fact, this savvy attendee converted all of his equity holdings to cash by the end of October 2008.

He then asked me for some advice: “Is it safe to get back in now?” Seven years after he moved his money into cash, he’s still waiting for just the right time to reinvest; meanwhile, the S&P 500 earned an annualized return of 14% during this period. Investing is an emotional process. Managing these emotions is probably the greatest open challenge of financial technology. Investing is much more complicated than other chores like driving, which is why driverless cars are already more successful than even the best robo advisers.

Despite the enthusiasm of tech-savvy millennials—the generation of investors now in their 20s and 30s who are just as happy interacting with an app as with warm-blooded humans—robo advisers don’t take into account the limits of human cognition; they don’t make allowances for emotional reactions like fear and greed; and they can’t eliminate blind spots. Robo advisers don’t do emotion. When the stock market roils, investors freak out. They need comfort and encouragement…”

As the last few sentences explain, the benefit of having a human advisor that you can talk to, that you can ask questions of, and who can help you keep to your plan when everything in you is telling you to push the panic (sell) button, can be invaluable. Pass it on.

Thing Three

Just A Thought

"Fear defeats more people than any other one thing in the world." - Ralph Waldo Emerson