Stay Over Your Skis
February 14, 2020
Outside my office window it still looks like the bleak mid-winter, despite Punxsutawney Phil’s prediction of an early spring. During many of the mid-winter months when I was in my 20’s and early 30’s I spent a significant amount of time on ski slopes in the Rocky Mountains. These memories leave me contemplating the parallels with my financial advisory career compelled to caution, “Stay over your skis.” My mind’s eye is near the top of the mountain with my skis slightly over the top edge of a trail and planning out my desired path down. I find myself calming my breath, reviewing visible obstacles, judging conditions, and preparing for a smooth run. A moment or two of examination is always prudent before starting or changing course.
Anyone that has snow skied understands what I am talking about. It’s about the balance. Lean too far forward and you risk picking up too much speed and losing control, potentially leaving yourself more susceptible to upsets caused by changes in the terrain. The need for speed can lead to greed and it’s an injury waiting to happen. Lean too far back and you cannot assess the terrain, you do not have maximum control, cannot make quick adjustments, and you’re likely to crash. There is more to skiing than this simple explanation. BEFORE you even begin your ascent on a ski lift and descent down the slope, you must look at the map, decide what sort of experience you are aiming for, how much risk you want to take, and how many obstacles you are comfortable encountering. What are your goals for the day or for the week? What is the plan? You choose your path based on your goals which should help lead you to the best outcome(s) possible. If you are a novice, you need to learn the basics; start slow and easy until you get more familiar with the terrain. If you are experienced, higher risk may lead to more thrills (reward) but it can also end in perilous pain.
We have had quite a run in the U.S. equity markets. The S&P 500 returned over 30% in 2019 and, with a few daily bumps, the Bull Market has surged on into 2020. The U.S. economy continues to click along, but economic growth is slowing and market risks are rising. This reminiscent of the ski lift up to the most difficult, black diamond slopes. The air is much thinner at the top of the mountain which can sometimes impair our judgment. Many stocks are trading at historic highs and valuations are getting richer. It will become more difficult for companies to meet or exceed growth expectations. Hazards are becoming more prevalent: (1) The coronavirus has been in the headlines for a few weeks now and while the negative economic effects may not be widespread, we believe that the virus will create an economic slowdown for some period of time. It’s too early to tell how long or how deep these effects may be. (2) We are getting farther into the 2020 calendar and closer to the Presidential election. As political rhetoric heats up, the headlines could create more volatility this spring and summer. (3) Trade will remain a central theme and until long-term trade deals are worked out, we are vulnerable to economic and market adjustments. We have many variables to navigate and therefore we must take a measured approach.
Stay over your skis. We would suggest that now is not a time to get clever or abandon fundamentals. It could be that, with the gains of 2019, you may be leaning on the front of your skis. It may be time to trim your winning investments and evaluate the overall strategy based on your risk tolerance, goals and objectives. Thus, maintain control and good balance. Conversely, do not lean back too far. Don’t get too conservative and allow fear to be your guide. You have surveyed the slopes and you have a plan. You have studied your financial map and you know your desired risk and return to get you safely to your destination. If you’re on target, stay over your skis, watch for hazards and avoid the obvious. You will have the best chances of taking advantage of the conditions and there is no reason to overreact. Remain alert and understand that we must adjust and adapt your plan based on current conditions. If your goals are unchanged, let’s make sure you are secure in our bindings, are pointed in the right direction, you are maintaining control of what is in our control, and still have some thrills along the way. Stay over your skis.
This material prepared by TrinityPoint Wealth is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Opinions expressed by TrinityPoint Wealth are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. TrinityPoint Wealth, however, cannot guarantee the accuracy or completeness of such information, and certain information may have been condensed or summarized from its original source