There’s an old saying: “Buy on the Cannons, Sell on the Trumpets.” Most attribute this quote to Nathan Mayer Rothschild, founder of what is now Rothschild & Co., a 212-year-old investment bank. Some refute the source, however the general concept of buying when others are panicking is an investment tenet that most would agree has been a profitable strategy among most asset classes. Unfortunately, it remains one of the most difficult actions to undertake in the heat of the moment and is precisely why, on average, most investors do precisely the opposite.
As I write, Russia has advanced on Ukraine and regardless of how Mr. Putin colors it, the advance is an act of war with the potential for global implications. The news has US markets falling over 2% pre-open, with gold advancing close to 3% and US treasuries becoming a safe haven as well.
While I’m not proposing any sort of massive buying at this moment, I want to take a moment for us all to step back and realize just how emotional the rollercoaster can be and, if left to our own devices, produce a behavior that is counterintuitive to sound, long-term investing.
When I wrote “Raising the Caution Flags” in September, my primary concern was not valuation or geopolitical but rather the acceptance of risk I saw folks willing to take. Most of the time these were the very same folks who wanted nothing to do with stocks when they were much lower, however now that markets had advanced for several years and it seemed ‘safe’ they were asking to increase risk or take on exposure that was contradictory to long-term objectives and frankly, unnecessary. Thankfully, we did not alter our styles one bit to accommodate this but instead discussed our longer-term strategies and stayed true to our allocations. Consider for a moment what’s happening to folks that, after years of sitting idle, barreled ‘all-in’ to the markets taking on risk in new ventures they were unprepared for. My guess is these same folks will end up selling at precisely the wrong time and once again swear off markets forever.
While it seems as if we’ve never faced such uncertainty, I am reminded of just two short years ago as I sat in this very chair writing about a global pandemic that was shutting down commerce the likes of which we had never seen. Food lines ran for miles, fear was at levels not seen since 9/11 and the future was the farthest thing from bright. It was at that very moment that panicking and taking brash action resulted in poor decision making and long-term consequences. While I have no way to predict the future, I must admit that the feelings and uncertainty feel quite the same.
While troops advance, war is waged, and uncertainty abounds most Americans will go about their day commuting to and from work. They will communicate on their iPhone, stop for gas at Super America, pick up groceries from Kroger and tune into Netflix or Amazon for a new episode of their favorite show. Despite global uncertainty, commerce will continue, businesses will remain intact and we will continue to go about our lives.
While I have no idea what the future holds with Russia, Ukraine, the UN or our military exposure, what I do know is that companies will continue to produce goods and services, consumers will continue to spend, work will continue to be done and stocks will eventually find new buyers.
I’m happy that at this very moment our portfolios have some cash, gold and our clients have proper asset allocations to weather storms such as this. While I’m not yet in the Rothschild camp of doing heavy ‘buying on the cannons,’ I believe the panic is getting to a point where a very big rally may be around the corner.
Thank you for allowing me to write and express my thoughts. As I’ve mentioned numerous times, I will only write when there is a topic worthy of doing so. I feel this current environment warrants more frequent updates than normal. A special thank you to our compliance team for reviewing and turning these around as well. Your work is appreciated!