August 30, 2014

The Search for Questions

The information highway has made us all geniuses. I toss myself into that hapless pile as before the internet I gobbled up the kinds of books that while probably boring to most, made me sound intelligent without having any skill to speak of other than talking. A neat trick that ruled out those with no real inclination to read, until now and that’s all been fixed. As I see it problems arise in today’s info soaked world where too much time is spent on carving out an answer where neither no single answer can  close a subject nor the question exist to open it. And never has this dilemma been as prevalent as in today’s financial services universe and as irrelevant in finding a great investment.

The skill in asking questions, sometime understood to mean critical thinking is the only means I know to find the truth, a concept that is as frustrating to recognize as elusive to find in the first place. Slipping an answer into a situation, such as that to assign a reason why there is one or another daily swings in the stock market is based on the conveniently accepted idea that the more widely embraced a statement is, the more that statement is seen as the truth. But is that true? Doesn’t it seem logical that if there was a universal truth connected to the stock exchanges it would’ve been found by now? Even those mad disrupters of the technology world and their introduction of High Frequency Trading are still (as in yawn) just squeezing pennies from the markets natural liquidity and are neither a source for answers nor a particularly progressive endeavor. The idea of capitalism is simply the mercantile exchange between wants and needs and at least prior to the industrial revolution those ideas remained simple, supported by the barter system and managed in an agrarian environment. But welcome the Industrial age and we discover that the growth of such needs expanded to automobiles and mass communication and by the time the roaring twenties came around the earliest mutual funds held companies such as General Motors (GM) and AT&T (T).

It was also at this time the analysis also decided that war is good for the economy, and with the introduction of the military industrial complex, World War 1 established the conventional wisdom. So goes the idea that even in the past few weeks we’ve been reminded by the multi-talented analysts in financial news to the importance of international conflicts, such as those in Eastern Europe and the Middle East, as reliable market movers. They conveniently place an event with a situation that in modest analytical terms is called circumstance and outcome. And while the idea of war being good economics has traditionally been measured in oil, the industrial worlds most cherished resource is slowly being diluted with the declining costs of alternative energy resources and the advent in technology that introduces efficiencies that before weren’t humanly possible. In short, war has an influence, but it isn’t the same market mover it’s been in the past, and the punchline here is there is always another reason for the market behaviors just as there is never a shortage of reasons why we shouldn’t listen to financial know-it-alls. The ongoing penchant to provide answers to everything in life, and connecting it to the financial markets is rife with challenges that sometime cause more chaos than clarity.

Every financial plan starts with investments. Not what most financial advisors want you to hear, but in our industry growing our business pays our bills and invested capital covers the cost to the client. In the end I’ve eagerly studied economic history much of my adult life and am not as mystified with industry that some are, in part because I see so much that our society depends on, and so much that many industries give back to us. And whether the Military or Technology as an eager partner to the Industrial complex, knowing what companies are really up to, assessing the strategic intention found in executive governance, how to recognize a lack of credibility in a corporate balance sheet, looking at everything from how much debt is carried to how much cash is generated, the rules of finding great investments have nothing to do with the noise that undermines market participation. Asking what something does, such an Apple iPhone (APPL) will never take the place of asking how it does it, that answer may not be as easy to obtain, but far more profitable for those companies over time.