Portfolios and Politics




This morning I woke early to make my usual French-press coffee, turn on Beethoven, open every window possible to let in the crisp Michigan air, and watch the sunrise while catching up on the night’s events in international markets. For some reason, today I was compelled to think about my investment advisory firm, CitrinGroup, and more specifically our portfolios, global markets, and the closely contended presidential election taking place domestically.

As I sipped slowly and took every breath deeply, I thought long about what success – for which I have had much exposure to in my fortuitous life – means to my portfolios and our society. It certainly holds different value to everyone. On contemplation, I realize today's markets and election cycle are more a diatribe of the prosperous toward those beneath them than anything else, as our current "champions" continue a frantic struggle to endure and hold onto their edge.

There are some who ascend to tremendous wealth quite quickly, attributing it to their unmatched strategy or superior intelligence. And, from the outside, so many marvel at the amazing talent and intelligence that must be present for such success. There are certainly many others who never reach the pinnacle – their journey cut short by the challenges of a competitive marketplace.

Significantly, this dichotomy only further crystallizes an outsider's perspective of the outcomes – one very successful, bright, wealthy, talented business person or stock picker versus many who experienced failure, seemingly less adept and working less hard. The irony ...  Because of my work, my proximity to markets and probabilities, I know all too well the telling truth of circumstance. No one person is necessarily more intelligent, more talented, or more creative.

Rather, just as portfolio managers are touted for their amazing equity picks, I am aware, from my education in markets and history (having both a bachelor's degree and master's degree in history), that these "gurus" are given deity status by mistake – held up as heroes and the beacons of both determination and smarts by those who understand neither survivorship bias nor the collapse of many an empire before us. Ultimate success has nothing to do with the prejudice that is present when purely looking backward at victories.

In markets, business, and life, there are some who come out on top, and others who inevitably fall to the bottom. But, we must never forget the remarkable truth. There are far too many who would be quickly tossed aside for their lack of hustle, lack of ingenuity, and lack of a competitive edge we hear often from those fortunate enough to experience "victory." But this myopic mindset is merely a convenience to those on top. For victory in markets, business, and life has very little to do with aptitude – opportunity and a little bit of luck are the real catalyst and differentiator.

Those who have ascended – with superior rates of return, big houses, and expensive cars – won't admit it. It hurts too much and is too scary for our elite to see their place atop society (and markets) as anything less that their divine nature. It is far too difficult for those with alpha (i.e. relative outperformance in life and portfolios) to admit their great fortunateness. For doing so would mean their ascension had more to do with chance than merit. Admitting the degree to which life succumbs to happenstance is hardest for those with something to lose – their egos.

In today's world of partisanship, bragging, and "I know best," we are surrounded by successful people who are unable to acknowledge (let alone accept) the real reason for their prosperity.  They are content to proceed in markets and society blind to the countless who have actually given equal effort and who are equally qualified. And in today's important historical context, it is vital to the future of our portfolios and our country that we never lose sight of the true foundation of long-term prosperity: buying low and selling high amidst true diversification.

Those assets, portfolios, people, and parties that have wealth today risk their eventual demise if they don't recognize how close they are to failure; how important it is to invest in that asset or community that is currently out of favor. We must admit that our success to this point is more about luck and diversification than talent. We must take care of all our assets, even those currently out of favor that are essential to our future. Life, like business and markets, is cyclical.  Many a society before us has only learned this after it is too late. The only way to stay in the game is to understand what significance the poor performers hold – they are tomorrow's winners and leaders, they poses alpha's potential. Today's unwanted asset class is tomorrow's headline-maker. Today's middle and lower class are tomorrow's one-percent.

This country, its elections, and the financial markets are not about socialism or evening the score.  It is about equal opportunity for all. But to see this, one must confess to the real root of their good fortune – the razor thin difference between wealth and poverty, guru and has-been. Opportunity is what this country, and a properly build portfolio, stands on. To think otherwise falls short of the hard reality of life and markets. The only way to succeed is to buy low and sell high, to care for and recognize the potential of every investment, even those currently out of favor. To not only chase but glorify our winners is a mistake we cannot afford to let continue. Our portfolios and our society depend on our ability to overcome emotional programming, stop chasing the hot stock, and invest in those positions or people who are currently "out of favor."

Jonathan Citrin is founder and CEO of CitrinGroup, an investment advisory firm in Birmingham, MI. He is an adjunct faculty of finance in the School of Business at Wayne State University, and a national speaker on financial theory.

Contact: 248-569-1100 or www.citringroup.com.

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