There is a lesson taught in motorcycle and biking safety courses that if you look at an obstacle while riding you will steer toward it. So if you concentrate at a person coming toward you, you will steer toward that person. If you look at a bend coming up in front of you, you will steer into the elbow of that bend and run off the road if you don’t quickly correct your course. Try it and you will likely prove the principle for yourself. By contrast, if the rider “looks through the curve” as the riding experts instruct, the cycle or bike moves cleanly through the bend in the road.
I believe the same is true of our financial course of action. Experience shows that investors are often so mesmerized by current events that their actions steer them toward the risk instead of away. Let’s try an example and see if you agree, or maybe you are even currently proving the point.
The stock markets around the world suffered a mighty crash in late 2007 through early 2008. While severe, it was not of the magnitude of the early 1930s crash, but many investors thought it might be. Some investors were so focused on the sharp “bend in the road” that they couldn’t look through it and, in effect, steered right into it by panic selling good investments. We did not, and clients who accepted our management and guidance did not, sell at the bottom. But the bend-hypnotized investor did and crashed off the side of the road by realizing the losses at the bottom of the market and then sitting on the side of the road during the recovery that our clients enjoyed.
So now we hear and read many prognostications by folks who can’t see around the bend in the road any better than anyone else. And unsure investors allow themselves to be guided by those supposed seers once again right into the bend in the road with likely similar consequences as unreasoned panic has caused in every downturn previously.
If we focus on the curve in front of us, we see and hear things like. “We don’t manufacture anything in this country anymore,” or “Our country’s best days are behind us and other countries are taking all of our jobs.” How about the current gospel of gold, land, cattle and chickens as the way to financial security? Last I heard that advice was back in the 1970s when the “experts” also added freeze dried food and ammunition to the list of things to store. I have recently had people ask me, with serious intent, if dollars should be put “under the mattress” because of the rampant inflation that is “sure to come.” Well, if you keep looking into that bend in the road, I believe you may hit some serious gravel and spin out, in a manner of speaking.
Now let’s try looking through the bend in the road. What might be on the other side? No one knows for sure. But considering the course of economic history, I prefer to focus on a road beyond the curve that may be influenced by the following factors.
Rather than see the world economy as a zero sum game, I believe the rise of emerging markets will only add to the number of consumers who can use and will buy our goods and professional services. This is in contrast to the bend in the road focus that says they will take our jobs and thus they win and we lose. How about the no U.S. manufacturing lament? A western Pennsylvania manufacturing company began operations in the middle of the Great Depression, a far worse economic time than now. Over the decades their brand of manufacturing was taken over by overseas manufacturers who could do that type of commoditized manufacturing more cheaply. So the local company upgraded the level of their work from continuous, routine manufacturing to engineering solutions for specific client needs. They now have plants all over the world near their client companies to service their needs, including their original operations here. And the education and compensation level of both engineering and manufacturing employees has risen substantially. Yes it is true that we have lost many manufacturing jobs. For example, street sewer lids are now being made more cheaply in India rather than stateside. But do you really want to work in a street sewer manufacturing plant? Would you rather, for example, engineer innovative solutions to traffic control problems and guide the manufacturing of those unique solutions to meet the needs of your customers? I am suggesting to you that what we are experiencing now is akin to the changeover from an agricultural to an industrial economy 100 years ago. So let’s look through this bend in the road to what is likely coming and benefit from it.
Let’s bring similar thinking to some of the following fields. Let lose your imagination while thinking about medicine and pharmacology, financial management, products and services (do you think you’ll always write checks and go into a bank branch?), communications, computing, business transport and personal travel, multi-national and multi-cultural profit opportunities, new methods of retailing and advertising, new and better ways to educate students and to gain job skills, the next phase of managing the environment, and many, many more such areas of opportunity.
So by looking through the curve you will find that the textbook principles of diversification, balance, and asset allocation will allow us to research and include tomorrow’s opportunities into today’s portfolio.
By contrast one could fixate on the current bend in the road lamenting about low interest rates, a somewhat sideways stock market, the upcoming election, possible inflation and other distractions that may cause that person to steer off the road to future profit and prosperity. So picture that poor investor sitting on the side of the bend with a broken bicycle watching others steering through the curve to the exciting opportunities that lie ahead.
No one knows what the future will bring. But history, while providing no guarantees about the future, does give us a good indicator of recurring themes. As such, I believe that the world and this country will continue to adapt, improvise and continue to thrive. Let’s look through the curve together.
Robert Fragasso is the Chairman and Chief Executive Officer at Fragasso Financial Advisors, a Pittsburgh-based investment and financial planning firm. Due to industry regulations, comments are not permitted on this blog. If you would like to contact the author, please email us at email@example.com. Robert can also be reached for comment at 412-227-3200.