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MC Stories – An Advisor’s Annotated Book Stack

 

I like to read historical literary texts as well as their inventive modern reinterpretations.  Both sets pose questions that don’t go out of style:  Who are we as a society?  What do we value?  What should we teach our children?  How do we know what we know?  My book stack offers a few examples…

With Infinity in the Palm of Her Handauthor Gioconda Belli takes a line from a William Blake poem and reimagines the conversations of Eve and Adam and the Serpent in the Garden of Eden.  Eve, and Adam to a lesser degree, ask the questions that we moderns might also wish to pose.

 

            Eve:  “What is there beyond this garden; why are we here?”

            Serpent:  “Why do you want to know?  You have everything you need.”

            Eve:  “Why would I not want to know?  What does it matter if I know?”

 

            Eve:  “It seems that you want me to eat this fruit.”

            Serpent:  “No.  I merely envy the fact that you have the option of choosing.  If you eat the fruit, you and Adam will be free, like Elokim.”

            Eve:  “Which would you choose?  Knowledge or eternity?”

            Serpent:  “I am a serpent.  The Serpent.  I told you that I do not have the option to choose.”

 

Homer’s The Iliad and The Odyssey are among the first origin stories of Western Civilization.  In The OdysseyOdysseus (like Eve, above) gets a shot at Eternity — but only if he marries the goddess Calypso.  Instead, Odysseus chooses finite life on his own terms, reuniting with his wife Penelope.  My copy of The Iliad is a signed first edition of the Robert Fitzgerald translation, a college gift that set me on a lifetime course of inquiry. Together the two books pose grand (and small) questions about how we should live.  The texts’ richness in language and allegory has been the source of new literature for almost three thousand years.  Each generation reinterprets the original.  Four hundred years or so after Homer, Aeschylus wrote The Oresteia, performed in Athenian amphitheaters.  A hundred years ago, an Egyptian-Greek poet, C.P. Cavafy, penned a short piece called Ithaca.

More recently, a classics professor at Bard College, Daniel Mendelsohn, wrote An Odyssey.  His aging father audited Mendelsohn’s class on The Odyssey, and this book becomes a meditation on what these historic texts mean to college students with brief life experience, juxtaposed with the meaning for someone who has lived a very long life.  The elder Mendelsohn audited the class in anticipation of joining his son on a Mediterranean cruise that would track the voyage of Odysseus.  An important part of Homer’s Odyssey is a son taking a journey to search for a father he doesn’t know; in Mendelsohn’s Odysseyit, too, is the search by a son for a father, this time a psychological and emotional expedition.

When my older daughter was a sophomore in college, she invited me to audit a class with her; the course combined architecture with gender studies.  Following a conversation with the professor, and germane to the syllabus, I wound up giving a lecture on “advice texts through history”.  In addition to the first four chapters of Homer’s Odyssey, other assigned reading included Discourse to Lady Lavinia His Daughter.  Here, a nobleman during the Italian Renaissance, Annibal Guasco, prepared his 11-year-old daughter to be a Lady-in-Waiting in the Court of Savoy, and as a gift, wrote the Discourse for her.  At such a young age, she required a crash course on decorum.  These are two examples offered by Guasco to Lavinia:

  • On the subject of talking badly about others behind their backs,“…Guard against this, for not only would it be unworthy of your noble rank, but the very earth would repeat it [even] if men remained silent.”
  • On the general topic of being thoughtful in one’s speech,“…Learn well how to control your tongue, considering that Nature enclosed it mysteriously within the lips and the teeth, as if behind two doors, to [hold back certain thoughts] with our teeth, even if they had got as far as the tip of our tongue, and then restrain them with our lips, if they had escaped the confines of our teeth.”

Guasco gave Lavinia advice in many areas of daily life, and among them, this:  “…it is very true that no greater happiness is attainable in this world than through intellectual achievement.”  In the year 1585, this was quite a bright light from a father to a daughter.

The Swerve – How the World Became Modern is a story that begins in the early Italian Renaissance, in 1417, with the discovery of an ancient text written by the Roman poet Lucretius, a follower of the Greek philosopher Epicurus.  (First, though, to set the record straight:  to be an “Epicure” is not to be a pleasure seeker in a hedonistic way; Epicurus placed greater emphasis on the avoidance of pain rather than the pursuit of pleasure, with more focus on intellectual pleasure, as it is the longer lasting one.)  In 1417, scholars knew of Lucretius, but his work had been lost to history for over 1,000 years – until an Italian manuscript hunter (yes, a real job) found a copy of “De Rerum Natura” (“On The Nature of Things”) tucked away in a German monastery.  The ideas contained within “On the Nature of Things” were shocking.  Though written before the birth of Christ, the text was heretical to the Catholic Church.  Contained in the most beautiful Latin verse were the ideas that all physical matter is made up of an infinite number of very small particles called “atoms”; there are different types of atoms, though the types are limited in number.  These atoms move in eternal motion, randomly colliding and swerving in new directions.  In this world of Lucretius, there are particles and voids – and nothing else.  Once brought back to Florence, the manuscript was treated as a secret document, and very few people were allowed to see it.  Scholars and artists learned about the ideas within “On the Nature of Things”, but to write about it would risk a Church accusation of heresy.  Painters, though, caught a break; they could paint the ideas of Lucretius onto the canvas, but they had, to use a modern term, “plausible deniability” when confronted by the Church. (“No, Monsignor, that creature is not from an early species that evolved into humans.  It is a chthonic beast from Greek mythology.”)

The Order of Time by the Italian theoretical physicist Carlo Rovelli shakes up what we know about the nature of time.  Rovelli is a lyrical writer, so the book is both a joy to read and a challenge, as our perceptions of time are challenged by him.  He tears down our assumptions about time, revealing a universe, where at the most fundamental level, time disappears.  Flipping through the pages just now, I see that I am going to have to re-read it.

Last, but not least, is the classic and definitive book on investment bubbles.  Written in 1841, Extraordinary Popular Delusions and the Madness of Crowds covers Tulip-mania, the South Sea Bubble, and John Law’s Mississippi Scheme.  There are, unquestionably, lessons to be learned from this book about today’s financial world — particularly regarding the Fed’s current money-printing regime, as well as the understanding that people will, and do, pay crazy amounts of money for items of fleeting worth.  Popular Delusions shows how the bubbles build.  From a distance of two centuries and more, foolishness seems obvious.  When we are living in it, though, it takes focus to keep questioning commonly-held beliefs, asking ourselves over and over, “How do we know what we know, and from there, which actions should we take?”

Next time:  “What’s the deal with all those record albums in the picture?!”

Bruce Tyson

 

MC Stories – Set it and Forget it

That sound you heard earlier in April, all across America, was the clattering of knives and letter-openers, dropped to the floor by retirement age investors staring at their quarter-end 401(k) statements. What had gone wrong with their “set it and forget it” investment plan?

The “set it and forget it” rhyming aphorism is one among of a bounty of rhymes that give our brains an easy path to perceived truth. These easy paths are known as heuristics, where one might take a shortcut to an answer — when time or interest or resources do not allow for a deeper dive. The first one we all learned was, “An apple a day keeps the doctor away”. Later, on the golf course we were told, “Drive for show, putt for dough”.

This tendency to view rhyming statements as more truthful is known as the Keats Heuristic, a term coined by two psychologists in a 1999 academic paper.* The term is drawn from Keats’ poem Ode on a Grecian Urn ,** wherein Keats concludes, “Beauty is truth, truth beauty,” — where a prettier image or prettier language is perceived to be truer. Academic studies have shown that where two phrases possess similar meanings, a rhyming one will be perceived as
carrying more truth:

“Woes unite foes” is an easier path to the brain than “Woes unite enemies”.

“What society conceals, alcohol reveals” trumps “What society conceals, alcohol unmasks”.

Obviously, this cognitive bias has not gone unnoticed by politicians and corporate marketers. General Eisenhower’s Presidential campaign slogan was “I like Ike”. And before it went out of business in 2019, the Thomas Cook Travel Company’s catchphrase was “Don’t just book it, Thomas Cook it”….All of which leads us to the phrase the financial press has often used to describe Target Date mutual funds: “Set it and forget it.”

Target Date funds (TDF) are most often employed in retirement accounts such as 401(k) plans, where the investor aligns his or her TDF with an expected retirement date. For example, an investor who turned 45 in the year 2000 might have chosen a “2020 Target Date Fund” — 2020 being the anticipated year of age 65 retirement. A fund such as this would begin with a high allocation to the stock market in the early years, and then taper that equity allocation in favor of bonds as the expected retirement year approached. To quote Investopedia: “ The asset allocation of a target-date fund thus gradually grows more conservative as the target date nears and risk tolerance falls. Target-date funds offer investors the convenience of putting their investing activities on autopilot in one vehicle.”

A December 15, 2018 article on MarketWatch offered these comments on Target Date funds: “A good deal of the money in 401(k) accounts is ending up in target-date funds. In fact, more than half of 401(k) accounts hold 100% of their assets in target-date funds, according to third-quarter data from Fidelity Investments. Target-date fund are investments tailored to an individual account holder’s age and retirement year. It’s essentially a ‘set it and forget it’ strategy because the fund will automatically rebalance itself to align with the investor’s age.”

All that sounds good, but many “set it and forget it” investors retiring this year were shocked to see that their 2020 Target Date Fund was not really “conservative”. According to an April 9th Bloomberg News article, the three largest TDF providers — Vanguard, Fidelity, and T. Rowe Price — each had half or more of their TDF 2020 allocation in stocks. T. Rowe Price, at 55% equities, had the highest allocation, and the fund’s return from February 20th to March 20th was a loss of 23%. The loss figures have diminished somewhat in the intervening market rally, but the risk is that when a retiree sees his or her portfolio drop by almost a quarter, there is a panic moment when some retirees will (and some certainly did) cash out and lock in their losses. Had these funds been on a truly more conservative glidepath, the less extreme losses would more likely have kept the otherwise panicked investors in the game.

Even if it does rhyme, there is a certain inadequacy to any “set it and forget it” mentality, particularly when considering how complex and fast-paced the world has become. We see governments and Central Banks attempting new, and radical, responses to economic problems. Just so, thoughtful re-evaluation in the face of changing circumstances should be a part of anyone’s financial plan.

It really is incumbent upon investors to think about (or hire an advisor to help take that deeper dive as to) where we are in economic cycles. While there will always be a divergence of opinion about the future, it is a fact that the U.S. stock market coming into 2020 had had a 10-year bull market, the longest on record. And, as cycles actually do occur, one would have observed the above fact and might have reduced equity allocations — certainly on the eve of retirement and the phasing out of a full paycheck.

Bottom Line: When it comes to investing for retirement, the Keats Heuristic just isn’t realistic.

 

* https://www.sciencedirect.com/science/article/abs/pii/S0304422X99000030
** https://www.poetryfoundation.org/poems/44477/ode-on-a-grecian-urn

Staying Connected During COVID-19 – Final Webinar

Our final COVID-19 webinar was moderated by our COO, Stacey McKinnon, who asked the following questions of Wealth Advisors Bruce Tyson and Jason Naiman related to the impact of government policy on investor portfolios: 

  • We have seen a massive amount of money printing over the last decade – how has that impacted stocks and bonds?
  • How might the pandemic impact the election?
  • How should business owners think differently coming out of the lockdown?

To register for access to these online events and/or submit any questions you would like our Wealth Advisors to answer for you please email us at questions@mortoncapital.com

https://vimeo.com/mortoncapital/stayingconnectedwebinar05052020

We look forward to you joining us on future webinars!

Financial Bites – Investments Video

The fourth installment in our new Financial Bites lunch series, Investments, was superb! In this session, our advisors discussed profitable investment behaviors, busted investment myths and shared helpful processes to begin investing like a pro. Thank you to all our attendees as well as our outstanding wealth advisors, Chelsea Watson and Bruce Tyson, who presented.

Click on the above image or visit this link to watch our investments session: https://vimeo.com/mortoncapital/fbinvestments

We hope you find this video valuable. Please feel free to share this link with family and friends and on your social media channels. Any feedback you have would be extremely valuable to our team, including any recommendations of topics you would like us to present on in the future. Financial Bites is a complimentary series and our upcoming sessions are filling up fast, so we encourage you to RSVP soon. Click on the link below to view all sessions and RSVP today!

https://mortoncapital.com/financialbites

We hope to see you soon and thank you for your continued support of Morton Capital.

The MC Team