Execution

 Execution

Execution is everything. For the vast majority of us, even a very successful life and career will be largely lived in obscurity, invisible to the larger world. It will involve grinding out small wins, the proverbial base hits for decades. In time, home runs and even the grand slams will happen, but mastering the craft and even getting on the field, will be paramount for stepping up to those at-bats and swinging at the ball.

The search for excellence, whether in investing, a relationship, or a career also is closely tied to execution. Excellence is found in repeated successful execution of tasks, muscle movements, and ultimately choices. Excellence is a process, a repeatable system with frequent feedback. In the business world, much of that process can be bought via something called marketing.

Marketing helps companies, and increasingly individuals, build their products and brands in the public eye thus helping achieve brand awareness that in the past was accomplished by repeated successful execution and word-of-mouth. The marketing cycle has increasingly been compressed into seconds with short video reels on platforms like TikTok, YouTube, or....Reels.

Andy Warhol once quipped that "...in the future, everyone will be famous for 15 minutes." Not only was he 100% correct, but the time element of viral fame is now as compact as 15 seconds. This leads to the question of whether attention to detail and successful execution even matter in a low-attention society. The answer of course is yes, and the following is why.

One of the best quotes on the subject of execution is: "Watch your thoughts for they become your words, watch your words for they become your actions, watch your actions for they become your character, watch your character for it becomes your destiny." 

Billions of humans are thinking trillions of thoughts and speaking a corresponding number of words, taking a subsequent number of actions, and becoming certain types of people. Not all seek excellence, but as Adam Smith famously theorized, we are all motivated by our own self-interest. This is what drives economic activity and humanity itself.

As we kick off the New Year and resolutions abound, it is important to remind ourselves of the value of owning our actions, mastering our craft, and focusing on successful execution...whether those wins are on the athletic fields, board rooms, or in the living room execution is everything.

Mean Reversion

 Mean Reversion

Jeremy Grantham believes we are in the fourth superbubble of the last hundred years. He has many valid points and raises the specter of an utterly dismal 2022. Already we are down the first 3 weeks of January, and history shows that with almost certainty a down January results in a down year (.732 batting average.) With a handful of exceptions, notably massive Federal Reserve bailouts, this has always been the case. Grantham, however, takes it one step further than rule-of-thumb Wall Street adages and formulates a thesis on the simple premise of mean reversion.

Mean reversion describes just what it implies; that there will be a return to the average growth rate over time. Yes the growth rate itself might change over time, but sustainment of extremely high deviations from this average are difficult, if not impossible, to maintain over longer and longer periods of time. Typically they come in "bursts" that spike up (or down) in sharp, unstained points. Consider one of the best baseball batters in history, Ted Williams.

With a lifetime batting average of .344, Williams is arguably the best batter of all-time. He finished his career as the last batter with OVER a .400 average...that was almost a 20% deviation from his mean. Over long-enough careers with enough data players can be predictable, hence the rise of the current "Moneyball" climate of assembling a team on pure statistics. The stock market has even more statistics and a greater database to glean from for investors than baseball.

Consider the chart below, which identified 3 of the last 4 superbubbles and makes a prediction for the current situation: 

According to Grantham we're overdue for the next "blow off" from the housing, commodity, bond, and equity volcanic peaks. He even has a nice quick-reference rule set to follow:

The only caveat keeping the markets going, according to Grantham, is the paradigm shift we've allowed ourselves to believe in regards to markets (all of them) never falling and always going up. No matter what. Now almost all reasonable financial farmers know that this cannot be; we look outside the window and see the weather change by the minute and so it is with the economy as well.

There is no doubt that Wall Street has been shedding risk like a snake molting skin. Case in point is the complete liquidation of stocks without an "E" in the P/E ratio...take a look at symbol ARKK for example, which is Cathie Wood's Ark Innovation ETF. That portfolio is composed almost exclusively of higher growth, lower (no) earnings companies. It has been dealt a severe blow in the past 6 months, and increasingly in the last month, as investors dump the speculative sector and plow right into the blue chips.

Grantham believe that this too will not matter when the reckoning comes because there will be an epic blow off taking down multiple markets simultaneously. It might be time for investors still riding high from recent valuations surges to round up some cash. Assets (things that pay YOU to own THEM) always seem to be in vogue, regardless of market conditions. But speculative "assets" without adequate reserves or more importantly paying customers might be in serious trouble. 

The big winners in history when bubbles pop are those with little to no debt, and an abundance of liquid cash. They have the ability to buy on the cheap when there is blood in the streets. Prices are high. Inflation is high. BUT high(er) paying jobs are still plentiful. If that final paradigm shifts, watch out below.