Hortz: Don’t most investment managers and serious investors apply some form of critical thinking to their investment decision making? Why not?
Symons: Certainly some of them do but many managers stake a claim to a specific logical process. For instance, some use algorithmic or quantitative investing, which could be looking at things like how different assets have performed under similar situations and plug in the appropriate assets at the appropriate time. Others may have an exclusively computer-based system where they may not even know exactly what the computer is going to do at a given time. Technical analysis and momentum have been popular lately, which is largely a question of deciding on and following a set of rules. Plenty of people have a 'hold your winners, sell your losers' philosophy, which is essentially a technical strategy. Replacing critical thinking with a 'scientific' approach has been increasingly popular, where computing power replaces critical thinking.
I am not a big believer that there is one holy grail of investing. I have the attitude that different things work in different seasons. In the late nineties, momentum did quite well, then value did quite well. We can fight that, but I do not see the point. There are other ways to invest. I like critical thinking because it is a pretty durable and flexible thinking process. I think it is possible to do well investing without critical thinking, but I am pretty comfortable using it.
Hortz: What does your critical thinking tell you about the current market environment and how is it guiding your investment decisions for your clients?
Symons: In the past few months, we have seen a bit of everything. I think that our current environment is going to stick around for a while. Is the fear and concern gone? From reading around, it is still very much present, just masked a bit by higher prices. What is pushing this market up? I think a lot of people would say government action, but I think it is more about the sentiment surrounding that action. If people think the Fed has their back, they will start investing. When they start winning doing that, they get more aggressive. I think there are limits to how far that can go.
At this point, I have seen Goldman Sachs justify stock prices based on 2023 earnings. Does that imply we just do not worry about what can happen between now and then? I do not think that is a good idea. Given the situation in the back-half of March we were much more constructive. But since then, the market has jumped and now we are cautious. And that changing environment is likely to happen again.
It is also useful to admit you just don't know. What could make the market go down? Technical levels? A cessation of momentum? Is there enough stimulus in the market to soothe price action for the rest of the year? It is impossible to say with great confidence just what happens. All you can do is continually analyze what is there and what comes next.
Hortz: Are there any other final thoughts you would like to share or recommend to advisors about developing critical thinking skills to be better able to navigate our current environment?
Symons: Be open to the possibilities. Consider the other side. Look at facts and numbers. Ask a lot of questions. Perhaps most importantly in this business, always stay humble.
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