Balancing Jedi Wisdom and Vulcan Logic
Contributed by Doug Walters, David Lemire, Max Berkovich, Eh Ka Paw
Stocks and bonds ended the week in positive territory. Hopefully, you were not tempted to Sell in May and go away!” The beginning of May is an important time for many of our team here at Strategic. It is May the Fourth, of course! If you are not a Star Wars fan, I apologize for what is about to come, but a few times a year, we can not resist.
A few years back, we wrote about investing like a Vulcan (yes, I know that is Star Trek, not Star Wars). With May the Fourth on my mind, I was thinking (as one does)… would I rather have a Vulcan or Jedi manage my investments?
As an evidence-based investor, the case for a logical Vulcan is clear. The most costly errors investors make are typically driven by emotion. For example, an investor might move a chunk of their investments to cash or bonds, fearing that the market might crash—only to watch the rally continue. Vanguard quantifies the benefit to portfolio returns of behavioral coaching to be 1-2% per year1. Those are huge numbers! A logical Vulcan will not make those emotional mistakes, so should capture those benefits for you.
And what about the Jedi? It’s not so obvious. Jedi live by a code and are trained to control their emotions. However, the movies are full of examples where those emotions do not remain in check. All is not lost for Jedi, though. They would make exceptional advisors. My ideal advisor is intelligent, operates with the highest morals, and has good intuition, identifying problems before they escalate. That screams Jedi. Best of all, a Jedi advisor can talk their clients out of making poor financial decisions:
(WITH A WAVE OF THE HAND)
“These are not the crypto ETFs you’re looking for.” or
“You do not want to market time by moving to cash.”
How does your advisory team compare to the pop culture dynamic duo of a Vulcan and a Jedi? For Strategic clients, I’d like to think we match up favorably. Thank you for indulging my nerdy, science-loving, and Vulcan-like side. I guess that is what you get with an evidence-based investor who values science over speculation. Enjoy the weekend, and may higher returns be with you!
1. Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha®
On Again, Off Again
The Fed once again held interest rates at their current multi-decade high, citing a pause in inflation’s path back to 2%. Nobody expected any change at this meeting, but this pause in taming inflation brought back the specter of another rate increase. Investors largely brushed aside those concerns, but the time frame for any rate cuts was pushed back. However, “data dependence” lurks, and the ultimate path will be determined by the economic evidence.
Speaking of data, this month’s employment report (which came out after the Fed meeting) offers an encouraging piece of evidence in the rate cut debate. After last week’s inflation and GDP news helped push stock markets lower for April, this report appears to be flipping the rate cut switch back to “on.” Depending on how you measure the economic news cycle, this report completes the most recent cycle, and all eyes shift to the next reading of CPI, PCE, and employment. The market and Fed will have another opportunity to assess all three reports ahead of the next Fed meeting in June.
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Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on total client assets of over $2 billion.
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