Posts

MC Stories – 4 days, 450 miles in a 4-wheeler

How often do we get the chance to really get away from it all and unplug? With the stresses of modern-day life—raising two children, my wife, Jen, and I working full-time—I was looking forward to a “guys trip.” Now, mind you, this was not with my friends but rather an L.A.-based group called Wilderness Collective, which runs UTV and motorbike trips in the western United States. I had been thinking about doing one of their adventures for the past two years but the timing never seemed to work out. However, in early August, I decided that it was time to get out and make it happen.

I was fortunate to be able to spend four days over Labor Day weekend traveling from St. George, Utah, through the Northern Arizona desert to the North Rim of the Grand Canyon in my own UTV four-wheeler. I traveled in a caravan of 14 guests, accompanied by four guides, a cook and a photographer.

 

In reflecting upon my adventure, I was able to take away a few key points that can apply to my role as a wealth advisor.

1. Communication is key. Imagine being alone in the desert for seven hours without a way to communicate with your guide. This is what happened to me on that Saturday. How, you ask? For the prior two days, we were using a “flagging” system where, if the lead guide came to a fork in the road, he would pull over and have the next driver stay and direct traffic in the proper direction. Given the speed at which we were driving (oftentimes 60–70 mph), the distance between vehicles (sometimes hundreds of yards due to the dust or other factors) and the length of our entire caravan, it wasn’t uncommon for the total distance from beginning to end to be 5–10 miles long. Additionally, we had a large truck hauling our food, camping supplies and extra gasoline, among other things, that was oftentimes 20–30 minutes behind. The truck was always the “sweeper,” meaning anyone who acted as a flagger was to remain in position until the truck got to you and that was the signal to move out.

We left camp early on Saturday morning, and after a few miles of winding turns in the pine forest, we reached a fork in the road and the guide positioned me as the flagger. Over the course of the next 15–20 minutes, I performed my duty as four-wheelers passed me, pointing them in the direction ahead along the dirt road. Another 10–15 minutes passed and I began to wonder, Where is the truck? Eventually, it became clear to me that they had left me.

Later, I found out our lead guide had instructed another guide to act as a sweeper instead of the truck. The new sweeper waived as he went by, assuming this was enough for me to follow him. I was still thinking about what the lead guide had said on the first day, which was DO NOT LEAVE YOUR POSITION UNTIL THE SWEEPER RELIEVES YOU. When changes occur, it’s critical that all parties know what the change is.

As you know, we work in teams at Morton Capital to ensure the highest level of client service. To this end, each advisory team meets weekly to thoroughly address all client matters. These recurring weekly meetings are supplemented by morning huddles (brief meetings) throughout the week to address the most pertinent issues of the day so we all know when changes occur.

We are also passionate about proactive communication with your other trusted advisors, like your CPA, insurance advisor and estate attorney.

During the pandemic, we enhanced our communications with our clients even further, all with the purpose of staying connected so you knew we were on top of your finances. Our outreach included robust video content and webinars that covered everything from the economy to investor behavior. Additionally, we created articles and content for social media via platforms like LinkedIn, Facebook and Instagram.

2. Don’t make a bad situation worse. It was about 12:00 or 1:00 pm—the sun was directly overhead and the desert was cooking. I’d been alone for probably two hours and I was getting antsy. I thought to myself, Ok, I can catch up to them. I had a general sense of the direction they were going, and it was just me, so I could go faster than the caravan.I took off down the mountain covered in pine trees, screaming around corners and straightaways for about 10 miles. I hit a T-junction and saw the vast terrain of open desert in front of me. I could see for about 100 miles to my left, 100 miles to my right and 100 miles in front of me—truly like something out of a movie. My caravan was nowhere in sight, so I’d be speculating by picking a direction to try and find them.

Oftentimes, when things don’t go our way, we can feel like we have to “do something.” In this case, I had to evaluate the risks of staying put (playing defense) versus going on the offensive. I decided the smart thing to do was to go back to my original position where I had shade and water and wait it out. I knew the terrain better and it was my best chance of the guide knowing where I was. Also, given that we had experienced four flat tires up until that point and my rig was not outfitted with a spare tire or the necessary tools, it seemed too risky for me to wander off into the desert alone with limited water. In the case of my adventure, access to shade and water were my most basic needs and the most important drivers of my decision.

Markets and investments don’t always go as planned. Our natural inclination might be to sell when asset prices fall. While it might feel good in the moment to “do something,” more often than not, these knee-jerk reactions work against us in the long run.

Focusing on risk management ahead of time and properly evaluating both the upside and downside of a given action or investment is critical. Additionally, focusing on the basics when things get complicated can help. This is why we are so passionate about cash flow in our investments. At the end of the day, we can’t control the price a buyer will give us for an investment but if we focus on the basics of cash flow, that is a universal sign of health and stability in any environment.

3. Always have a backup plan or safety net. At the beginning of our trip, our guide had given us a small black pouch and in it was a device with an SOS button. It was only to be used in extreme emergencies. If you hit the SOS button, it would activate local first responders and they would send in the helicopter to find you. Knowing I had that in my tool chest should I need it gave me the comfort to sit tight.Ultimately, I waited it out and one of the guides returned around 5:00 pm. We raced through the desert for the next few hours as the sun set, trying to cover as much ground as possible before night fell. By around 10:00 pm, we made it to camp just in time for roasted herb chicken with a side of fresh dill potato salad. I sat around the campfire with the guys as they teased me for getting “lost.” It was all in good fun.

As we have added financial planning as a core element of our services. When developing our clients’ cash flow plan, we stress-test the plan for a variety of factors like down markets, long-term healthcare events and lower returns to ensure we have a backup plan in place so you are in the best position possible to adapt to most any circumstance.

Knowing ahead of time that your financial plan can withstand these difficult situations helps to calm the natural anxiety you experience when confronted with a situation beyond your direct control.

How often does someone get to spend the night 50 feet from the edge of the Grand Canyon? Or gaze up at the Milky Way galaxy with no light pollution and see the night sky with an unblemished view? Or watch the sun come up over the North Rim? Life is short. We are a culture of information overload, flooded with constant information on a daily basis about politics, our economy, the civil unrest our nation is currently experiencing, the pandemic, etc. Having four days away from emails, text messages and phone calls was really good for my soul and allowed me to be grateful for the career I have, the clients I serve and the talented people I am blessed to work with on a daily basis, all contributing to our mission of helping our clients get the most life out of their wealth. It also made me eager to get back to Jen and the kids and, yes, to take a shower 🙂

MC Stories – Out of the Mouth of Babes

When I became a mom, I always thought I would be teaching my kids things, not the other way around, especially when it comes to what I do for a living. But as they say—out of the mouth of babes. . . .

One morning recently, I was anxious to take the kids to my parents’ house to go swimming. We’ve been isolating inside like the rest of the world due to the current pandemic, but have been fortunate enough to be able to keep my family in our “bubble.”

My husband and I have three beautiful girls: Dilynn (4), Nora (2), and Harlowe (10 mos). Dilynn is my most tenacious. As we were putting on our shoes to leave, she asked if she could go pack her backpack. Knowing she would put up a fight if I said no, I told her to go pack it quickly.

After a minute or two, Dilynn hadn’t returned. I found her in her room just looking around. Somewhat annoyed, I told her to just grab Puppy (her favorite stuffed animal) and Cozy (her favorite blanket). She pushed back (did I mention her tenacity?) and said she always brings Puppy and Cozy and that she needed to pack other things. She then asked me, “Mom, where are we going? I need to know if I should pack my mittens or a bathing suit.”

That question, out of the mouth of my four-year-old daughter, really made clear just how important it is to know your destination before you pack. Similarly, as advisors, our clients’ life goals—their destination—are so important for us to know before we can create their portfolio allocation. We probably all remember our favorite stuffed animal or special blanket/comfort item, which is, as Dilynn pointed out, an essential item we always pack. Similarly, certain assets like stocks and bonds are essential parts of every portfolio. However, at Morton Capital, we believe that diversification beyond those two asset classes is crucial when trying to mitigate risk and customize our strategy to help clients achieve success. How we choose which additional investments to add to the portfolio is guided by the client’s goals/destination. We need to know if a client needs mittens (maybe that is something that provides more long-term appreciation) or if they need a bathing suit (maybe that is something with less liquidity risk that provides monthly cash flow).

Furthermore, when I first found Dilynn in her room, she wasn’t just stuffing things in her bag. She was looking around. She was taking inventory. To be able to pack for your destination, you have to know what you have first (and what you might be missing). As advisors, we feel this “taking inventory” step, what we call data gathering, is the most important part of the process when it comes to creating a dynamic financial plan that gives our clients control over their long-term financial decisions. Thus, we spend a significant amount of time on data gathering, asking for a breakdown of expenses (such as how much you spend on dining out vs. groceries), mortgage statements, bank statements, insurance policies, and tax returns. Many of our clients assume that providing us with broad income and expense numbers will give us sufficient information to produce an accurate plan, or one that is “close enough.” However, this could mean that you might end up packing a bathing suit when what you really need is a pair of mittens, or, worse, packing half a bathing suit and one mitten (i.e., close but not enough).

It is easy to get stuck in the rhythm of our day-to-day routine. I talk to clients all the time about what we do and why we do it. However, this particular morning with Dilynn really made our process and the reasons behind it more tangible for me. I can’t wait to see what she teaches me next.

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