Synopsis: Investors, like some athletes, attempt to use emotions as a weapon to get an edge. It might work sometimes, but over a long career even the brattiest admit they’d have been better off had they cooled down and kept their heads in the game.
Mock….mock….mock. The sound of the tennis balls battering about in the Melbourne sun was trance inducing. It was a hot, hazy day in Australia, roasting waves rising from the hard court that seemed to be melting into a green ooze. It had slowed play, balls seemingly sticking to the court. Mock…mock. And then it stopped, the players went to their chairs and slathered on sunscreen.
After a towel and some water, the American player stood and ambled to the baseline. There, three feet from the lineswoman he stared menacingly at her, bouncing tennis balls onto the face of his racquet, a sour expression on his sun crisped face. Clearly, he disagreed with at least one of her line calls.
“Code violation, unsportsmanlike conduct, warning mister McEnroe,” the chair umpire admonished. Johnny Mac was known to use confrontation and emotion like other players used graphite and oversized racquet heads, pushing the boundaries to legally gain an advantage. Or mostly legally.
Hoots and whistles rained down from the crowd. John McEnroe was a divisive force among fans and players, using his temper as a weapon, psyching himself up, getting his adrenaline going and distracting his opponents. He was good at it too, winning seventy-seven ATP singles titles, and spending one hundred and seventy weeks at #1 in the world. He was also widely recognized as the greatest doubles player of all time. But in the twilight of his career, with his skills on the wane, McEnroe was turning to his confrontational abilities more often, seeking a slight edge to break an opponent’s concentration and allow him to blast a winner or deliver a smashing overhead. And occasionally, he’d do the opposite, expending his own energy in futile rage that ended in an implosion, rather than an explosion.
McEnroe’s verbal barrage was mercifully brief this time and play resumed at its drowsy pace. Mock…. mock… mock. As it was wont to do, Mac’s play improved a bit when the haze of battle cleared. But the invigorating effect was brief, and the day continued to be a long one. Games passed, until they were deep in the fourth set, with McEnroe serving to even it at three games all. If he failed, it would mean a decisive fifth set and at least forty more minutes on the blazing court.
With the game tied at deuce, McEnroe’s first service smacked harmlessly into the net. But his second was true and the two players traded tentative groundstrokes, even more lethargic than the past couple of hours. Then McEnroe floated an easy forehand toward the far sideline. The ball, gleaming and golden kept arcing away, landing eight inches outside the sideline.
McEnroe, unimpressed, delivered heavy retribution to his racquet. It crashed into the conveniently placed court surface. It crumpled. The entire stadium heard the frame give up its always tenuous grip on useful life. Thus, did it die a horrible death, mangled and cooking in the midday sun.
“Code violation, racquet abuse, point penalty Mr. McEnroe,” came the announcement. Unfortunately, that penalty came after he had lost the deuce point, giving the game to Mac’s opponent.
McEnroe’s chin set like quick drying cement. He charged the chair like an angry wombat and exploded into a tirade about the unfairness of it all. This went on for some minutes while tournament referees tried to calm the situation. Things relaxed a bit as he turned from the chair, ready, it seemed, to resume play.
“EXPLETIVE!” Storming back to the baseline McEnroe, uttered one, perhaps two profanities that caused truck drivers to swoon and longshoremen to blush across Australia. They might have rhymed, given the right Aussie accent, with the word ‘mock’.
“Code Violation, Default Mr. McEnroe. Game, set, match.” And thus, on a sweltering day down under on January 21, 1990, the Super Brat became the first player disqualified from a modern Grand Slam tennis match. Once a legend of the game, by that year’s Australian Open, Mac was struggling to maintain his form and hoping for one last good season, perhaps one last Grand Slam title. It was the only reason he’d come to Australia, a tournament he usually skipped. Unfortunately, the heat or the jet lag caused him to be somewhat inattentive to the rules. He thought it took four code violations to receive a default and had neglected a rule change that went into effect late the prior year. Little did he know how hard it is to win tournaments where you are defaulted in the fourth round.
Investors too are always looking for an edge. Today, like Brat wannabes, some are wondering if it isn’t time to hit the showers a bit early. Markets are soaring, and they aren’t sure they want to be around for what happens next. Some have a fear of (market) heights. Others, to put it kindly, are frustrated by the political party in power. Or the political party out of power. Code violation! I don’t care if your particular aggravation is chafing you like those miniature white tennis shorts they wore in the 80s and early 90s, research by Oppenheimer Funds show emotion-based investors struggle mightily with their own performance. They trail all asset classes and even inflation over the past thirty years. Why? Because they use emotions as buy and sell signals. Managing things by yourself and your impassioned strategy can’t even beat inflation? Sounds like it is game, set and match for that plan.
When you reach your own break point, emotions don’t add to your performance, they smash it like a weak overhead lob. Frustrating? Sure, break all the inanimate objects you desire, but find someone to remind you of the rules when necessary. And the first rule is to take the heat without letting your passions prevail.
Synopsis: Journalists have begun their annual end-of-the-year efforts at prognosticating for 2018. But the pictures they are painting give me the impression that they really have no idea.
He walked torpidly through the sun-filled alleys, the cafes crammed with peasants and patricians alike. As usual these days, he was struck by the colors, swirling dresses of red and bright blue smocks that blossomed with the occasional breath of wind. There were straw hats and multicolored umbrellas to keep off the sun. It was a warm fall day in Provence and all the hues and pageantry of the local Rice Festival were on display for him.
In the middle of this tinted landscape the arena stood stony, silent and drab. Noise and light surrounded it as bands played and people drank, but the arena, the place where the bulls went to fight and die stood foreboding and cold. He felt himself float up the staircase, to the entrance and through the old Roman archways to his seat.
Once settled, another bonanza of color began as picadors, banderillos and toreros marched in, adorned in primary shades, flashing capes and glinting steel. The bulls came on, gray or brown muscles rippling and white horns flashing in the afternoon sun. The music came to him too, Paso Dobles and long sad trumpet solos that reinforced the nobility of the bull and the tragedy of his demise. The crowd roared approval or groaned with disappointment and the day passed happily.
It was good for him to be there, at the bullfight where the rules were so well-defined. Ordinarily, he lived in a state of perpetual blur, an impression of reality where nothing was so clear as it was today, in this arena. Bulls would come, they would charge, and they would be sacrificed in a manner that was hundreds of years old. And when a torero distinguished himself he would be presented with the ear of his vanquished foe. It was refreshing for him to know how events would end. The predictability was so unlike his life outside the walls.
The day was late now, the last of the bulls lay prone in the sand. The sun had scampered behind gray-black clouds and he heard approaching thunder. As the music swelled and the colors whirled about him he watched the last torero lift a leathery ear overhead in triumph. He noticed that a lone drop of crimson had spattered the man’s fine silvery suit. Then there was another peal of thunder and the crowd began to melt away. He felt an overwhelming sense of loss, of desperation. It was over. He couldn’t be sure of anything again. He felt the rain drip on his neck as he closed his eyes and the world went dark. It was over.
“Monsieur?” Someone was shaking him.
He felt himself coming up from the blackness, sleep ebbing way. Where he usually saw colors and shapes no one else did, now he saw nothing. No light. He heard the voices penetrating like sirens in the darkness. They spoke with authority, chopped sentences full of importance, they were unmistakably French. And just as unmistakably, they were police. He sighed inwardly, what had he done that had brought the town police out on a cold December day, two days before Christmas?
“Mon Dieu!” one of them gasped.
“Blood!” another voice announced.
“Is he dead?” No one answered and that made him wonder. Was he dead? Is this the eternal darkness? For some reason he couldn’t quite fathom, he didn’t think so. But so much of the last few months had been a haze, a swirling mass of color without form or shape. Confusing, yes, but exhilarating. It had been the most prolific period of his life, but also the most mystifying. Which was why he often dreamt of the bullfight, of outcomes that were clear and inevitable. His eyes opened and the two policemen took a step back.
One pointed, his face a pale white. “Monsieur, your ear!” His ear? And then knew. Fingering his neck, he knew it wasn’t rain he’d felt and he knew that this time it hadn’t been the bulls ear that was cut.
He looked at the men in his room, the blood on his hands and knew he had done something quite insane. He smiled sheepishly. “My name is Van Gogh. I am an artist.”
The Frenchmen exchanged a knowing glance. “An artist you say? Well, at least that makes some sense.”
Vincent Willem van Gogh, was a little-known painter renting a room in Arles and rendering sunflowers from the surrounding fields. His career seemingly a bust, he had retreated to the south of France to start an artist’s colony. But he feuded with his compatriots, most notably Paul Gaugin and lapsed into deep despair. After lopping off part of his ear on December 23rd, 1888 he wrapped it up as a gift for the cleaning woman of a nearby brothel and checked into a mental institution. Unfortunately, his bouts with dementia and depression weren’t over. Two years later he shot himself, and died at the age of 37.
Van Gogh made groundbreaking art out of the swirling uncertainty of life, but it also ate away at his sanity. Those of us who don’t quite take it as far as he did due to his illness still seek surety in life, and many of us are frustrated at not knowing the how the future will play out. Which is why a few days before Christmas this year, journalists started artfully piecing together their narratives about the predictive powers of this or that, going into 2018.
One such story discussed “The Santa Claus Rally,” or the ‘usual’ modest rise in stocks to close out the year. According to The Wall Street Journal’s Market Data Group over the last twenty years the S&P 500 has been up 0.9% on average over the last five trading days of the year and the first two of January. However…
“It’s tough to know what will happen this time around. In the most recent five years, for example, the S&P 500 has fallen twice and risen three times. But it bears watching if for no other reason than because the absence of the Santa rally has in the past preceded a bear market, or at least a pullback in stock prices…(T)he S&P dropped 3% as 2014 turned to 2015. Later that year, a commodities bust left the index down for the year. A 2.3% fall going into 2016 also preceded a winter correction, though the stock market recovered and ended the year higher. Coming into 2017, the S&P had a Santa Claus rally of 0.4%, and the index is now up nearly 20% on the year.”
Confused? Me too. Perhaps the article should have just ended after stating “it is hard to know what will happen this time around.” At least that makes some sense. Instead we are informed that whenever there is no Santa Claus Rally, sometimes the market is up and sometimes it is down. Which tells us nothing, except that it isn’t just tough to know what will happen this time, it is impossible. Trying to form a clear narrative to the contrary isn’t art, it is a jumbled mess. It is madness.
Synopsis: Any journey worth taking will have its challenges and the Pilgrims who established colonies in America withstood an awful lot to get here. But they endured, even when "awful lot" became a perfect description of their fellow passengers.
"Can they not hurry this along? I'm damnably tired of waiting and this bloody old tub is going to sink before we get ashore!" John Billington had left England for adventure and to make a bit of money. Instead, he'd been occasionally bored, often scared and hungry nearly all of the two-month ordeal in crossing to the New World. Rations were as short as his temper and passengers, men and women alike, were growing frail and sickly. Some had breath that smelled like bilge water and had begun to lose teeth, signs that scurvy was taking hold.
"Aye, me too. Wait for them to sail from Holland, wait for them to meet us in Southampton, wait for them to fix their ship, wait below until the storms pass. Damn all this waiting three times to hell." Stephen Hopkins was equally agitated, and though his friend Billington was known as the most profane man onboard, he was willing to match him oath for oath. Especially now, crammed into a dank passageway with less than five feet of clearance "'tween decks" leading toward the main cabin of the old ship. She was a three-mast merchantman about one hundred feet long, crowded with over one hundred and thirty men, women and children. It was hell on earth, though the two tradesmen were surrounded by men who called themselves Saints. And it had the decidedly non-floral smell of sweat and vomit, though she was named the May flower .
"I've had it." Billington wedged himself around and started to move away from the men huddled near the hatch.
Hopkins put a hand on his shoulder. "Where are you going John?"
Billington turned with a strange look on his face. "I'm so tired of waiting around that I am going to strangle someone. Weston ain't here, damn his soul. So, maybe I should kill Jones? He's the one that anchored five hundred miles from where we were supposed to." He snapped his finger and grinned. "Or I'll kill Carver. Yes, that's it. John Carver is the damn fool that started this mess." With that he shook off his friend's arm and disappeared down the dark passageway.
"Kill him? Have you gone daft?" But he was gone, reappearing after a few tense moments. Red faced, he fell in line again without a word.
"Well?" whispered Hopkins. Sneaking a peek toward the great cabin to see if they would be overheard.
"Did you kill him? Holy God man, is it the hangman's noose for you?"
"No brother, I didn't. The line waiting to kill him was even longer than this one." Billington waited a beat and then let loose a great chortling fit of laughter. He slapped a knee, wiped his eyes and doubled over at the waist, shaking with mirth. "Honestly, you really thought I was going to do it? I just had to visit the head, that's all. This slop they serve does the worst things to my insides."
"Gentlemen, if you are quite done? Step into the cabin," said a man beckoning them. It was John Carver, alive and, for the time being, quite well. Billington dug an elbow into his friend's side and stifled a giggle.
They proceed inside the cabin where early morning light streamed in from the two windows over the stern that looked out on the giant sand dunes towering before them on the cape. Carver, seated at a squat table proceeded to ramble on for a few moments about a legal compact they were all signing since their original charter for Virginia was null and void this far north in Massachusetts. They shrugged, neither one particularly moved, stepped forward and placed an X to mark their consent to the Mayflower Compact. It was November 11 th , 1620 and going ashore had to be better than what they had already endured.
Wrong. During the ensuing winter, forty-five of the one hundred and two original immigrants died of scurvy, exposure, disease and hunger. Hopkins and Billington survived. Hopkins became a tavern keeper who occasionally ran afoul of the Saints in later years, though it was often overlooked due to his adroit handling of relations with local tribes, including those who attended the first Thanksgiving. Billington became the first person hanged for murder in Plymouth Colony in 1630 after he argued with a neighbor and then shot him when he encountered him hunting in the same field. Governor Carver would die in the Spring after their arrival and be replaced by William Bradford, who viewed the misplaced landing, the ensuing winter or any other setback as nothing more than "a correction bestowed by God."
It is no coincidence that severe tests of fortitude in investment markets, major drops in value over ten percent in value, are also called correction s (though their divinity is questionable). Today we give thanks for over a year, now nearly two, without a major market correction. But let's not overdo it making merry. It really is only a matter of time before we have to endure a new challenge. And no one knows when it will happen. When it does, here is a compact lesson from the voyage of the Mayflower: be hardy. Most of the Pilgrims responded to setbacks, even major ones, with what the English would later refer to as a "stiff upper lip." Put your X next to a long-term investment plan and enjoy this, and every, Holiday season.
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Synopsis: Media experts were certain that the traditionally weakest months of the year for stocks would again slow down investors. But some traditions, like world records, were meant to be broken.
The freshman took a deep breath and then launched himself forward. Speed, he thought, be fast. At a dead sprint, he planted his right foot, turned his shoulders from the padded landing area, and arched his back. Soar, he thought, be weightless. The rest of the Oregon State track team winced. Someone giggled at the ridiculous spectacle as the young kid’s legs spasmed upward when it seemed he’d collide and topple either the cross bar or the entire structure it rested on. Then, with a slapping sound he hit the padded mat like a wet noodle and glanced upward. The bar still rested on the standards where it was braced.
“Fosbury! Fosbury, what in the hell was that?” Coach Berny Wagner stood with his hands on his hips and his face contorted in a sort of perturbed astonishment.
“Coach?” asked his young freshman high jumper.
“Yes, I am the coach.” Wagner barked. “At least until someone sees you trying that ridiculous high jump experiment of yours and fires me for putting you in danger, or merely having bad taste.”
“But I’ve been using it since high school and I think it works. I think I’m jumping higher.”
“Son, this isn’t Medford High School. You think there is some shortcut to competing in the Pacific Ten Conference? The only shortcut you found is one to mediocrity. Plan A is to use the established techniques to avoid killing yourself. There is no Plan B. And there is no turning your back to the bar. My word son, that had all the athletic grace of a fish falling into a boat. Can you even imagine what the kind folks at the University of Oregon would say if you did that at a meet? You’d be laughed out of the stadium. And me with you!”
“Yes sir,” mumbled Fosbury and shuffled off to try again with a more traditional technique.
An hour later, the freshman had come nowhere close to the six-and-a-half-foot bar he’d been practicing with using his own method. Wagner ambled over to the high jump pit with a look that was hard to figure. “Ah,” he began awkwardly. “Fosbury, we need to talk.”
“Sure coach? What’s up?”
“Well…you are. We did some newfangled video analysis stuff on your jumps and, well, you weren’t just barely clearing the six and half foot bar with your…flop thing.”
“No. Your last jump, best we can tell, you cleared it by a few inches.” Coach Berny Wagner was convinced. “So, this is the end of Plan A. Got it? Plan B is now in full effect. Keep flopping, Fosbury, and we will both hopefully live with the consequences.”
Dick Fosbury survived and thrived. The next year, as a sophomore, he cleared six feet ten inches to set the Oregon State University record. As news of the technique got out, athletic experts said it looked ugly, ungainly or like someone slipping off the back of a truck in a rainstorm. But Fosbury kept soaring higher. The experts doubled down on their critiques, thinking he was insane and fearing that the consequences of his style could be disastrous. Such a corkscrew motion at full speed would lead to misfortune, and they envisioned an entire generation of participants "wiped out" due to debilitating injuries. Anyone following this Fosbury fellow was obviously a fool.
Then, at the Mexico City Olympics on October 20th, 1968, medical teams stood by, ready for the worst when the American with the new jumping style toed the start line. The crowd of 86,000 at the Estadio Olímpico Universitario held a collective breath. White shorts flapping in the thin Mexico City air, his blue clad torso emblazoned with USA in block letters, Fosbury soared over the bar at over seven feet and four inches. It was easy to see who had the last laugh on his way to collect his gold medal. The story of the Fosbury Flop is about one man ignoring the noise and the criticism to find a better way onward and upward. Within a few years his soaring technique had become commonplace. Since 1980, no one using any other method has held the world record in the high jump.
But isn’t it also the tale of experts losing their impartiality and getting carried away in their critiques of a young student athlete with a novel idea? Experts can be indifferent and unkind, especially when they believe their own ideas with such fervor that anyone disagreeing is seen as having questionable motives or intelligence. But for all the vehemence, experts can ultimately be wrong. Sometimes spectacularly so.
Take for instance the calls for blood entering the third quarter of this year. News media were full of warnings about an imminent correction in the stock market (if not an outright flop) pointing out that September and October are traditionally the weakest months of the year for stocks. The smart money was getting ready for the worst, they assured us. Instead, markets like the S&P 500 soared around 4% over since the beginning of September. Markets buck traditions too. And it is only those who listen too much to the media ‘experts’ that end up perturbed and astonished.
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Synopsis: A recent article compared the strength in equity markets to a beloved 90s sitcom. But I wasn’t laughing.
Jerry and Larry slunk from their yellow New York cab and ducked into Tom’s Restaurant. Outside traffic edged noisily along Broadway and college kids from nearby Columbia University stood in loose groups discussing incredibly important topics.
Inside, ensconced in a fake leather booth that smelled like chicken salad, the two comedians were downcast and overdressed. Suits made them uncomfortable. And by suits they meant the network executives that had gathered around them like carrion birds in their wood and leather lined board room at NBC headquarters.
“Well, they said they liked it. In general. They said it’s smart and different.” Larry was trying not to allow their enthusiasm to be curbed.
“Smart and different? What, like Rain Man?”
“No, not that smart. Good movie though. Had some funny moments.”
“But they also said it is a little too New York, and a little too ethnic.”
“No, our pilot.”
“Ouch” said Larry nodding. “Not good.” Audiences who screened the pilot asked for funnier sketches from a more diverse cast. Dejected, the pair of New York humorists were dismissed to reconsider their situation comedy about a standup comic who found inspiration in the lunacy of his friends and family.
“No, it could have been worse,” said Jerry. “He could have actually killed us instead of just ending our professional lives. So, there’s that.”
The waitress came and chased away their banter, mumbling something that might have been a question. When they looked confused, she pointed to the pitcher of coffee she carried and they nodded.
“Soft talker,” Larry noted when she’d gone.
“You see her hands?” Jerry asked.
“No, I was busy figuring out how to drown myself in a pitcher of coffee. Or poison myself licking envelopes. Why?”
“Man hands. Hands of a man.”
They drank coffee for a bit in silence.
“Does that look like Keith Hernandez to you?” Larry asked.
“From the Mets? The guy at the counter in that puffy pirate shirt? Couldn’t be.”
“No, I guess not...Got any script ideas?”
Jerry sighed. “One, but it is for later. After we’ve established the neurotic who lives with his parents as completely pathetic, we do an episode where he pitches a sitcom. It doesn’t go well and he winds up in therapy. Again.”
“I don’t like it.” Larry said shaking his head.
“What’s the deal with that? Why not?”
“Too New York. Too ethnic.” Larry was grinning.
Jerry threw up his hands. “Serenity… serenity now!”
But serenity remained elusive for Jerry Seinfeld and Larry David, co-creators of The Seinfeld Chronicles. Months of rework by NBC writers and executives kept them busy. In the end, Seinfeld (the show) dropped the Chronicles. Seinfeld (the character) kept George and Kramer from the pilot and added an ex-girlfriend who was rhythmically deficient, named Elaine. The plots were simple, exploring mundane aspect of life that everyone related to like waiting in line, looking for a parking place or what to do with the remaining chip after you’ve dipped and taken a bite. And the characters never learned anything from their misadventures. Everyone remained indifferent and sometimes callous, never seeming to grow or become a better person. It was so close to real life that diverse audiences not hailing from New York still fell in love with it.
By the fourth season, the duo could pay homage to their creative beginnings in a show titled The Pitch. It aired on September 16th, 1992 and featured George telling the NBC executives that he and Jerry had created a show “about nothing”, with no plot and no story lines. While an unconventional approach, George remained defiant when the suits balked. “Look, if you want to just keep on doing the same old thing, then maybe this idea is not for you.” George, who never learned from his mistakes, ruined their future in television.
I was reminded again of Seinfeld this September, by a CNBC article calling the recent rise in stocks a bull market “about nothing.” Market researcher Ed Yardeni notes: “investors are watching for something to happen. When nothing happens, especially nothing bad, investors are bemused and show their appreciation by throwing more money at the bull.” In other words, we are doing the same old thing, though we should be more defiant. Seinfeld was different and smart. Comparing Seinfeld to the stock market is different and wrong.
There are at least two major factors contributing to the ongoing bull market:
1) Overall wealth is rising. Average household debt service is lower than it was in 1980 and the savings rate, at 3.6%in August, has trended upward since the financial crisis. More money saved means more demand for financial instruments, a key driver of stock and bond markets in recent years.
2) Corporate earnings are up too. They rebounded strongly in 2017 and are forecast to continue their upward trend. Increasing earnings make stocks more valuable. Even those of us not living in New York should realize that.
Pardon me for not being a soft talker on this topic, but I don’t want someone who hasn’t learned from previous mistakes to ruin your future. This bull market, however many seasons it lasts, isn’t about nothing.
Note: You can review the original History Lessons about Seinfeld at: https://www.linkedin.com/pulse/history-lessons-nothing-patrick-huey-cfp-/
Links to Sources:
3. JPMorgan Asset Management. Guide to the Markets, 3Q 2017 as of August 31st 2017. Slides 7 & 19.