My wife is usually in charge of the gardening at our house this time of year, but for some reason I thought I would pitch in this spring and help plant the annuals. I thought that gardening would be like Mr. Miyagi in the movie Karate Kid, where Pat Morita’s character studiously and artistically trims his ornamental bushes in a way that has Zen Master written all over it. I thought of great men like Winston Churchill puttering with their plants in the shade in between tea times and creating art. And so it was for me…at first. I cherished each of the annuals that I planted and took the time to consider each of them as individuals, a blessing of nature, a soother of souls. But then my wife explained that we needed to move the rest of the lariope (a plant that spreads all over the place) that was taking over our flower bed. All of the sudden gardening turned into back breaking work. It was hot. The lariope have a maddening network of roots that is impossible to dig out. I’m sure Mr. Miyagi would have paid to have someone else pull his lariope if he had any.
Investing a correction in a cyclical bull market is much like moving the lariope. You might think that the decision to take profits is made where analysts armed with the facts easily discern the right trade to make and the right timing for the trade. The trade gets executed, the markets react right on cue, the analysts look knowingly at each other having once again outwitted the consensus of investors, and all is right in the world. But timing a correction in a cyclical bull market is often like pulling the lariope from the garden. Oh brother it’s hard work. The facts are maddeningly confusing, the risks look similar on both sides of a trade, and the market proceeds to do something you had discussed the day before but decided not to invest. When the market corrections are less than 10% from top to bottom, resulting is rather small portfolio losses, you work twice as hard as you do otherwise and it often doesn’t result in any transactions in the portfolio. You just grind it out. When the markets get like this you have the usual research to read, more than the usual number of team meetings, as well as a river of special reports on topical subjects. As you might guess, just about everyone has something to say about the recent troubles in Greece. I can’t wait to start reading about oil spills…I know it’s coming soon.
So the lariope have been transplanted and the beds are ready for more annuals. Linda (wife) tells me that this is the work that has to get done before you can really enjoy the beauty of the annuals that you plant now for the enjoyment of your summer. Last week’s market turbulence resulted in some seemingly well-timed selling of our U.S. Treasury Bond positions and buying of an Industrial sector ETF. In the very short run our work has been rewarded. Beyond that, I believe that the work we are doing in the investment team today will result in significant outperformance as the year progresses. Then I will stand back, like Mr. Miyagi, and admire our handiwork. Ahh, Daniel-san…..Hiyaahhhh!
