1981 building an ark

Tyndall Partnerships

1981 building an ark

In 1981, the Dow Jones Industrial Average had its first down year in 3, as Paul Volker, Chairman of the Federal Reserve, quashed persistently high inflation by raising the FED funds rate to 20%. It washed much of the leverage out of the system and is recognised as a pivotal time for the stock market and the economy. It ultimately set the scene for a new long-term debt cycle we witness today.

However, the point of this missive was not so much to reflect on that inflection point, but rather our attention was drawn to a quote from the 1981 Berkshire Hathaway Chairman’s letter. We acknowledge that quoting Warren Buffett is a touch cliché, but equally, a Buffett quote can paint a thousand words.

In his annual letter to shareholders, Buffett wrote

“Our preaching was better than our performance. (We neglected the Noah principle: predicting the rain doesn’t count, building arks does)”.

Our industry is remarkably good at reflecting on events and offering up post-match commentary; however, it is far less reliable when it comes to accurately predicting and acting in advance of such events with a favourable outcome. We would be delighted to invest with a mythical fund manager who was short the FTSE 100 on Thursday (-3.61%) and long again on Friday (+3.91%), but those fund managers just don’t exist.

This (perhaps silly) example goes someway in highlighting the perils of trying to time the market to the extreme and the 50/50 chance of getting caught on the wrong side. The consequence of getting an aggressive market timing strategy wrong is as close to game over as it gets; the longer-term objective suddenly has a hole below the waterline.

High risk market timing strategies can lead to adverse outcomes.

James

We typically win or lose at the margin, teasing out incremental gains and small wins, that compound over time to justify our collective existence and improve upon the benchmark or objective of any given mandate. This is nothing to be ashamed of. It is, in essence, good risk management.

Tyndall Partnerships takes many forms, but in short, we work with financial planning firms to support them in building out their own investment proposition. It would have been both arrogant and imprudent to have suggested collaborative model portfolios go to cash a week ago. Volatility is often uncomfortable for all parties, but akin to turbulence on an aircraft, the last thing one should do is open the door and get out. The destination remains in sight and the turbulence is priced in. Getting derailed by panicking at the most emotive point in the journey, stock market investing or air travel, can cause unintended consequences.

A learned colleague at Tyndall once said to me that “…it doesn’t matter what I think of my portfolio, it only matters what the market thinks of it”. He is right of course and trying to think we can second guess the market and get it right more times than we do wrong is nothing short of arrogant. Tyndall Compass, our proprietary investment process, allows us to create and map portfolios to a coherent asset allocation framework, underpinned by a ‘valuation matters’ principle. It acts as a beacon of sanity and objectivity when emotions are running high and protects us from opening the door.

In conjunction with the IFA community, we believe that Tyndall Partnerships offers a demonstrable and weather-tight solution to the challenges faced. We are not primarily in this business for pontification and prediction. We are unashamedly trying to build arks that are seaworthy.

7th March 2022
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