As I was driving past the park near my house recently, I noticed that there were a bunch of black-clad individuals in the open area all wielding foam swords, seemingly intent on beating the snot out of one another during a Live Action Role Play, or LARP.
LARPing was never my thing growing up. With the exception of the K.I.S.S. My-Anthia scene from Role Models, I never really saw the allure of the LARP. Sure, you got to pretend to be someone else for a few hours on a Sunday afternoon, but your chances of ousting the bigger dudes who spent all day plotting LARP power moves at the Burger Hole were still, at least in my case, pretty slim.
No, I instead set my childhood gaming sights on a realm where a last-picked-for-kickball kid could have a much more level playing field – arcade games.
Seriously, was there anything better than getting one of the arcade flat-top tables at the Pizza Hut on a Saturday and playing Ms. Pac Man to your heart’s content? Or spinning the bejesus out of that weird wheel controller in a furious game of Tron? Or even rocking a rollicking game of Elvira and the Party Monsters pinball?
But one of my all-time arcade favorites had to be Frogger. It had everything an 80s kid could want: 18-wheelers (for your Smokey and the Bandit fixation), unsupervised time playing in the streets (at least until the streetlights came on) and a tiny hint of road kill gore.
Frogger was, in a word, awesome.
Perhaps not surprisingly, with everything that’s going on in the markets (and, honestly, in the world in general), Frogger has been on my mind a fair amount of late. For those of us involved in the markets, there may be no better metaphor for what we’re now experiencing on a daily basis. Fed hikes whizzing by. Missed earnings squashing investors like the most inconsequential frogs, toads and newts. Political intrigue lurking like an alligator under a passing log. Crowded investments pushing investment traffic to the critical level.
While some continue to predict years of bull market conditions, I’m a little less sure of what’s going to happen. It sure seems to me like there’s a lot of obstacles for Frogger to navigate, perhaps more than those with even the most skillful joystick can manage. But while my Spidey senses are definitely on high alert, I do make a point of not making massive market predictions. Instead, I look at investing as I would any endeavor where having a legit and reproducible strategy can keep you hopping when things get rough.
So what’s a jittery investment amphibian to do?
1) Don’t make too many sudden moves: Making decisions based on short-term trends, information or fear can seriously impede a successful investment strategy. Perhaps one of the reasons why the average hedge fund barelyedged the S&P 500 in 2018 is because some managers had given in to the fear of losing assets and adjusted their strategy to capture more gains in the bull market environment, only to be caught with their proverbial pants down when things went sideways in the 4thquarter. The best investors (IMHO) set a long-term investment strategy and, aside from tweaks to deal with evolving long-term trends, try to avoid making significant changes along the way. Of course, in order to successfully pull this off one must…
2) Recall that everyone and every investment strategy will post losses at times: For example, on an asset weighted basis, macro hedge funds were one of the top performing strategies in 2018 after years of pretty disappointing returns. In fact, some funds topped returns over 10%, 20%, 30% or even 40%, despite a loss of some investor confidence in prior years. In contrast, equity hedge funds were one of the top performing strategies in 2017 and, with the exception of healthcare and technology sector funds, were among the worst performers in 2018per industry watcher Hedge Fund Research. We’re all indoctrinated with the phrase “Past Performance Isn’t Necessarily Indicative of Future Results” from our first day in this business, and God knows that’s true. Today’s winners may be tomorrows loser and vice versa. The key is to determine if you still have confidence in the strategy (and in the person executing the strategy if you’re an investor). If you do, the rest is mostly short-term noise. In fact…
3) Sometimes information isn’t your friend: During every period of market volatility I’ve lived through, and there’s been some doozies at this point, I see an uptick in investor calls and emails. Some investors may increase their check-in frequency a little, perhaps from quarterly to monthly or from semi-annually to quarterly, but some investors really turn up the heat. I can still remember periods in my career when some investors expected full transparency and returns on a daily basis. As a geek, I generally applaud the urge to gather information. But in the case of investing, if you adhere to points 1 and 2 above, that information doesn’t do much but cost you sleep. In fact, if you’re invested in less liquid strategies like hedge funds, private equity, venture capital or real estate, you’re likely literally paralyzed by fund terms and redemption policies anyway. It must be like being awake during surgery – you get all the pain but none of the ability to make it stop. So before calling a manager to get information for the 10th time, think about what you’re logically going to do with that information. If there isn’t any action - or at least not any rational action - you can take, why bother?
In short, now that we’ve seen a little carnage out in the markets, it’s time to really think about who you trust with your money. Rather than get tied up in your underpants trying to predict the almost certainly unpredictable, spend some time reviewing your investment strategies, asset allocation and manager line up. How diversified is your portfolio? What experience do your portfolio managers have with volatility and even bear markets? What’s your worst-case scenario, assuming all correlations go to 1? If there are areas that make you particularly nervous, now might be the time to think through them, before the fit really hits the shan, whether that’s tomorrow or in two years. That kind of preparation and intestinal fortitude may just keep you and your portfolio from getting squished down the road.