Are We There Yet? – The Inflation Flight Will Take Longer Than You Think
Michael Schmanske, Chief Investment Officer – AngelMD
Here is a quick one folks, and it comes to me as I’ve been once-again yelling at the talking heads on CNBC. Analysts and commentators that I normally respect are spouting nonsense about the market and I feel the need to step up and say something, if for no other reason than to plant my flag in the ground and declare my position. Namely they keep asking have we hit the bottom? Can we get back to rallying? Oil is back to $80…for now. Does that mean inflation is beaten? I forgive them since they need to make every day of coverage fresh and new…and more positivethan not – so it leads to a form of micro-focus picking and explaining the moves every day. By the way, if they could actually call the shots, they wouldn’t be talking heads on a camera. They would be managing money.
For the record, I am NOT an advocate of market timing. It is difficult to do properly when sitting on a trading desk all day, up to your eyeballs in market data and sentiment. In my years since having that bird’s-eye seat I’ve learned even more how incredibly fruitless that pursuit is. The biggest problem is the psychological and emotional stress it creates when “missing it” or “F-ing it up”. Just Don’t Do It.
I prefer to think in 1 year Liquidity, 3 Year Tactical Allocation, and 10 year Strategic Allocation time-frames. And I recommend you do the same. Hopefully my last installment was useful in informing your Strategic Allocation plan for the next decade. This one will be a little bit different in helping to set your 1 year expectations.
Second warning: My opinion that led to this piece was much more contrary two months ago than it is now. A big part of the most recent slide in financial assets has been tied to the fact that the rest of the world is waking up to the reality that the inflation fight is here to stay and the endpoint is NOT 6%, 5% or 4% inflation. The fed might relent if inflation expectations drop meaningfully below 3%. But not before then.
If you watch CNBC, or read daily news coverage on the financial markets, you know that EVERYONE wants to know “What’s next, what’s next?”. 50 basis points, 75 or 100? When will the fed blink? Will they drive the market off a cliff? Opinions are like A-Holes, everyone has one and they all sound off with predictable frequency and effect.
Step back from the cloud of confusion and instead consider that the markets have been addicted to easy money; and no one knows what to do when the Central Bank is no longer present to bail us out. After years of this sort of behavior you can bet most commentators and analysts will be seeking a positive message from Policy-makers like the heroin addict desperate for his Methadone pill in the opening scenes of “Trainspotters”.
That does not mean we need to crash, nor does it mean we need to wait until the fight is won, to get back involved in the markets. What it does mean is that you should expect this turn to take some time, trying to jump in and pick the bottom will only create frustration and likely losses.
It means we should try and be as unemotional and objective as we can about our decision-making process. Pull together your buying list and watch for decent entry points. Allocate capital based on your liquidity needs and invest accordingly. Don’t naively believe that a long time horizon solves all errors, or conversely, that missing the bottom is a big deal. I know, that’s a confusing mix of contrary advice but stick with me.
Here’s what I do – I pick a week of the quarter, or month, for allocation. I find one thing in my portfolio I like the least and sell it as I buy 2 other assets I like more (based on upside potential or price action). If you want to be cute, you can add in scale-limit prices or other methods to disengage your Limbic System, because that is the key. Keep. Your. Emotions. Out of it!!!
I also prefer assets that have not participated in wild swings. We hear about the collapse of Private Market valuations, but those were in the pre-IPO rounds. The entire category was juiced by SPAC’s and speculation. In the places where money could be allocated at scale to chase returns, valuations went crazy. But true early stage companies never experienced the bubble, or the crash because investors at these stages are looking at them for their end-value not for a speculative mark-to market.
Also many Seed round investments are in SAFE’s or convertible securities. That’s a lot to unpack, but it means the purchase price tracks heavily to actual execution. It’s comforting to buy an asset with growth potential for the long run without worrying about whether it’s a good entry point. I’ll be speaking more about this next week. It’s important stuff; even if a little bit dry.
Anyway, take this home with you…
This is going to take longer than you thought. Be rational and dispassionate in your decisions. Focus on assets that have not swung with speculative fervor, but represent good bets on the next cycle of innovation.
To be forewarned is to be forearmed; and you’ve been warned.
P.S. As mentioned, next week we go back to some core educational principles about the market. Do you have any questions or topics about which you’d like to learn more? Reach out.
Michael Schmanske, Chief Investment Officer – AngelMD
Here is a quick one folks, and it comes to me as I’ve been once-again yelling at the talking heads on CNBC. Analysts and commentators that I normally respect are spouting nonsense about the market and I feel the need to step up and say something, if for no other reason than to plant my flag in the ground and declare my position. Namely they keep asking have we hit the bottom? Can we get back to rallying? Oil is back to $80…for now. Does that mean inflation is beaten? I forgive them since they need to make every day of coverage fresh and new…and more positivethan not – so it leads to a form of micro-focus picking and explaining the moves every day. By the way, if they could actually call the shots, they wouldn’t be talking heads on a camera. They would be managing money.
For the record, I am NOT an advocate of market timing. It is difficult to do properly when sitting on a trading desk all day, up to your eyeballs in market data and sentiment. In my years since having that bird’s-eye seat I’ve learned even more how incredibly fruitless that pursuit is. The biggest problem is the psychological and emotional stress it creates when “missing it” or “F-ing it up”. Just Don’t Do It.
I prefer to think in 1 year Liquidity, 3 Year Tactical Allocation, and 10 year Strategic Allocation time-frames. And I recommend you do the same. Hopefully my last installment was useful in informing your Strategic Allocation plan for the next decade. This one will be a little bit different in helping to set your 1 year expectations.
Second warning: My opinion that led to this piece was much more contrary two months ago than it is now. A big part of the most recent slide in financial assets has been tied to the fact that the rest of the world is waking up to the reality that the inflation fight is here to stay and the endpoint is NOT 6%, 5% or 4% inflation. The fed might relent if inflation expectations drop meaningfully below 3%. But not before then.
If you watch CNBC, or read daily news coverage on the financial markets, you know that EVERYONE wants to know “What’s next, what’s next?”. 50 basis points, 75 or 100? When will the fed blink? Will they drive the market off a cliff? Opinions are like A-Holes, everyone has one and they all sound off with predictable frequency and effect.
Step back from the cloud of confusion and instead consider that the markets have been addicted to easy money; and no one knows what to do when the Central Bank is no longer present to bail us out. After years of this sort of behavior you can bet most commentators and analysts will be seeking a positive message from Policy-makers like the heroin addict desperate for his Methadone pill in the opening scenes of “Trainspotters”.
That does not mean we need to crash, nor does it mean we need to wait until the fight is won, to get back involved in the markets. What it does mean is that you should expect this turn to take some time, trying to jump in and pick the bottom will only create frustration and likely losses.
It means we should try and be as unemotional and objective as we can about our decision-making process. Pull together your buying list and watch for decent entry points. Allocate capital based on your liquidity needs and invest accordingly. Don’t naively believe that a long time horizon solves all errors, or conversely, that missing the bottom is a big deal. I know, that’s a confusing mix of contrary advice but stick with me.
Here’s what I do – I pick a week of the quarter, or month, for allocation. I find one thing in my portfolio I like the least and sell it as I buy 2 other assets I like more (based on upside potential or price action). If you want to be cute, you can add in scale-limit prices or other methods to disengage your Limbic System, because that is the key. Keep. Your. Emotions. Out of it!!!
I also prefer assets that have not participated in wild swings. We hear about the collapse of Private Market valuations, but those were in the pre-IPO rounds. The entire category was juiced by SPAC’s and speculation. In the places where money could be allocated at scale to chase returns, valuations went crazy. But true early stage companies never experienced the bubble, or the crash because investors at these stages are looking at them for their end-value not for a speculative mark-to market.
Also many Seed round investments are in SAFE’s or convertible securities. That’s a lot to unpack, but it means the purchase price tracks heavily to actual execution. It’s comforting to buy an asset with growth potential for the long run without worrying about whether it’s a good entry point. I’ll be speaking more about this next week. It’s important stuff; even if a little bit dry.
Anyway, take this home with you…
This is going to take longer than you thought. Be rational and dispassionate in your decisions. Focus on assets that have not swung with speculative fervor, but represent good bets on the next cycle of innovation.
To be forewarned is to be forearmed; and you’ve been warned.
P.S. As mentioned, next week we go back to some core educational principles about the market. Do you have any questions or topics about which you’d like to learn more? Reach out.
