Weekly Market Commentary January 3, 2011
New Year's Resolutions
Our focus for the New Year. Call it a recommitment, an affirmation, or simply stating the obvious.
It's clear to me that in order for Phillips and Company to thrive and grow we need to make a couple of New Year's Resolutions. It's not to eat healthier, drink less, speak kinder, lose weight, make it home in time for dinner with the kids, be more respectful or walk the dog. While these are extremely important resolutions ours should be a little different.
Our Achievement or Your Achievement
The securities, asset management and financial services industry was founded on and thrived on a simple concept: Personal Achievement. People come into this industry to make lots of money, beat the "house", figure out how to beat the market, own a big home, vacation home, jet, fancy cars and all the other American trappings.
These are necessary motivations in America. Achievement - it's what drives growth, which pays for lots of our habits like Medicare....you name it. I, like other business owners, have had many of the same desires. However, there is a small problem with Achievement: when personal achievement comes ahead of client achievement.
Unfortunately, that is exactly what has happened and dominates the financial services industry. Again, it's not that personal achievement is a bad thing. When aligned properly with client achievement, personal achievement can be a wonderful elixir for positive outcomes.
Things like assets under management, how much money you have, who else they manage money for, who they know, fancy brochures, what they drive, how much they have are all distracters to the main issue at hand. Simply put, do they care enough about you to put their full dedication into your achievement as a priority over their own achievement? In one word: TRUST.
This year, while the financial industry focuses on their recovery (you’re going to hear a lot about the banks and financial institutions brag about record growth) we’re going to dig even deeper into your achievement. This is our resolution!!!
We’re going to focus on your values, what you want and need, being better communicators, keeping you well ahead of us in the achievement ranking category. We’re going to measure things differently also, things that you want for your success not just things we count for our success.
I know this might sound a bit Pollyanna-ish but for 25 years I have been a professional in this industry and a realignment is desperately needed and it doesn't look like it's going to be lead by the big names. They, in my opinion, will return to their new normal- quarterly earnings results, cute slogans, and behavioral devices to get you to invest.
Hendrik Coetzee-"The Great White Explorer"
I hate the obituaries; I guess I am still young enough to want to avoid staring at mortality especially my own. The only obituary I will read is in the Economist. They usually have one each week and it's somebody noteworthy.
This week they featured 35 year old Hendrik Coetzee the great whitewater explorer. He died being eaten by a crocodile while exploring some of the world’s most dangerous white water in Africa on December 8th.
Just prior to his death November 28th he wrote a very eloquent blog (http://bit.ly/hKtHbW) that struck me right in the eyes. While he wrote poetically about white water, rivers and African landscapes, he really wrote about risk.
Our second resolution should be to double down on our focus on risk. We always talk about risk budgeting, manager risk and measuring risk and this year will be no different.
However, this year, when it looks like everyone is calling for a big up year in the markets and perhaps greed becomes the predominant investment filter we want to continue to describe risks to you: timing, liquidity, selection, sector, and holding period risks just to name a few.
It's not that we are here to eliminate risk, we can't do that. If you need returns we need to give you risk. It's really a question of what type of risks, how much to get you your desired outcomes and the time frame you give us.
We should always keep the following chart front and center in our minds. The chart covers the period of 1871 to August 2010.
I think Hendrik Coetzee said it best just prior to his death
"It is hard to know the difference between irrational fear and instinct, but fortunate is he who can. Often there is no clear right or wrong option, only the safest one. And if safe was all I wanted, I would have stayed home in Jinja. Too often when trying something no one has ever done, there are only 3 likely outcomes: Success, quitting, or serious injury and beyond. The difference in the three, are often forces outside of your control. But this is the nature of the beast: Risk.
Anyone who is good at what they do, be it marketing, sports or hairdressing will tell you they trust their instincts. There are rational explanations for people making the right choices based on information they could not have known beforehand but only because we live in a rational world. If you chose this option and believe that all that all there is to know is already known, then that is your boring truth, keep me out of it. Whatever the real reason, I think we all agree that people who can go successfully beyond facts are the ones who excel in any, and all fields."
"Risk is the nature of the beast" While we can't promise to tame the beast we can work very hard to shape it to your advantage as best we can.
Happy New Year!