Breadth Thrusts & Bread Crusts: Was That The End?

JC Parets
March 10, 2022

From the desk of Willie Delwiche.

This isn't a post about nuclear Armageddon or a survival guide for a post-apocalyptic world.

But it is about recognizing when something has ended.

In rare cases, we know when an end is coming and can try to prepare. This was the case with my son's final grade school basketball game. The season-ending tournament was on the calendar months in advance. But even still, there were a few tears when the final buzzer sounded.

In other cases, we might not know in advance that an end is coming, but can quickly recognize that it has arrived. Think about going home from the office for the last time as the COVID crisis was intensifying in Spring 2020. Few knew when they shut their computers down for the day that it would be weeks or months (if ever at all, in my case) until they returned. Though unexpected, that reality became obvious in short-order.

Most often, the end is subtle enough that we only see that it happened in periods of reflection. Often, we cannot even pinpoint the exact end. When was the last diaper you changed? When was the last time you read a story to one of your kids? 

That final category is what we deal with most often in the financial markets. Shifts occur and only after the fact do we realize that uptrends or downtrends have come to an end. Despite warnings from passive types that any adaptive portfolio positioning is a high-risk endeavor to time the market – to call tops and bottoms – that is not the goal. No parent I know of ever held aloft a dirty diaper and proclaimed, “that was the final one.” But eventually we did stop carrying around a diaper bag and changing pad everywhere we went. We’ve actively adapted to the new realities.  

The futility of calling tops and bottoms is a straw man argument born of either laziness or ignorance (or a little of both). You see, it's not about calling turning points. It is about recognizing as soon as possible that a turn has been made and adapting to the new reality. This means setting aside old expectations, leaning into new opportunities, and otherwise adjusting to the new paradigm. Fighting this can be financially expensive and mentally draining.

In the current environment, it means putting aside the expectation that interest rates will remain low, that technology stocks will be equity market leaders, and the dips will be short-lived. While those were the trends for the past decade, they are not universal market truths. Adapting to an environment where rates are moving higher, old is new in terms of equity market leadership (Energy > Technology, Value > Growth), and volatility lingers could help investors sleep at night.

After all, in every ending there is a new beginning. Lean into that.

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