“I have squandered my resistance
For a pocketful of mumbles
Such are promises
All lies and jest
Still a man hears what he wants to hear
And disregards the rest”
Hopefully, it is clear why we are quoting Paul Simon’s “The Boxer” for our letter given the current political environment. What we anticipate is more of a surprise is how we weave Simon’s lyrics into a positive spin on the American spirit of entrepreneurialism. For instance, what one would typically interpret from the statement “A man hears what he wants to hear and disregards the rest” is pretty straightforward and certainly applies in today’s social and mainstream media. Unfortunately, we operate in a world where many choose an echo chamber to voice their opinions and try to silence differing opinions. We are not fans of this “Sound of Silence” and by extension understand why many find this current state depressing. In fact, we empathize when clients express concern and frustration with the present political discourse, debt levels, and future direction of our country. Many, justifiably so, will then question the future of their investments. It is at this moment of doubt when we find a deeper meaning in the lyrics as they instead reference the innovative spirit and indomitable willpower of the American entrepreneur who “asking only workman’s wages” disregards “all lies and jest” so as not to squander their resistance. It is our inclination that a country and culture that rewards risk and the struggle for more than a “pocketful of mumbles” strengthens its resolve and makes its innovators resilient in a world that is lacking willpower and fortitude and therefore unable to roll with the punches. This anti-fragile, capitalist spirit is what allows America to thrive no matter the political figure in office.
Literary metaphors of boxing aside, we realize there is always a battle between regulation and entrepreneurialism, government and citizenry, and individual versus the collective. Thankfully, we live in a country that respects the rule of law and the Constitution no matter who is in office. Thus, even though we worry about elections and how they impact us, very often election results do not impact stock market returns significantly in one direction or another. For instance, if you go back to 1928 and exclude the elections during the Great Depression and the Great Financial Crisis there is little difference between the two parties market results after coming into office. If you include 1929 and 2008 then Democrats have a sizable performance lead over Republicans to many people’s surprise. We have even included further detail in the past showing how a divided Congress helps improve returns since 1950 so our current situation with a divided Congress could possibly provide a tailwind for returns no matter who is in office. Regardless, our overriding point is that if you try to time getting in and out of the market based on politics your returns have historically suffered in America. Typically, having a long-term strategy that involves staying invested has rewarded clients no matter the political crosscurrents. We believe remaining in the market (or the fight to keep the metaphor going) is the key to achieving your financial goals.
Of course, being in the arena with your head on a swivel makes one insecure and causes many to question the veracity of a long-term strategy. The personal and emotional side of investing is real, and we empathize. On that note, we hope the article “The American Millenium” by Packy McCormick supports and then solidifies the argument for why investing works so well in America. In this recent article released on July 4th, 2024, Packy argues that America is the first Capitalist Empire and that is why it has become as strong and as resilient as it has over the centuries. The way America is set up allows its most enterprising citizens the ability to come up with solutions to whatever problems arise. Technology and innovation compounds more quickly than government ossifies and it is this spirit of entrepreneurialism that has overtaken institutions as the prime mover of American exceptionalism per Packy. While we agree wholeheartedly with Packy’s argument about the anti-fragile nature of capitalism in America given its decentralized and competitive nature, we also recognize other institutions that embody American Exceptionalism still exist. Packy’s distinction, in our opinion, is that he thinks the American Entrepreneur is the prime mover and the competitive nature of our culture makes us all stronger. Paradoxically, struggles that do not kill you make you stronger, right? One can certainly argue that point, but our central tenet is that the problem-solving nature of the innovator or entrepreneur allows it to find a way to disregard or punch through the problems in their way and in the end the “fighter still remains”.
Possibly one of the best examples of this private/public dynamic is the SpaceX and NASA comparison. Since its inception in 1958, NASA has launched over 200 flights. By contrast it has only taken 22 years for SpaceX to launch 320 flights and estimates have shown that SpaceX is 10X cheaper with 30x lower cost overrun than NASA. In addition, SpaceX has created a profitable business sending Starlink satellites to provide internet access across the globe while also sending commercial payloads up for other businesses and the government, NASA included. While we agree that SpaceX is more nimble and antifragile out of necessity than NASA now, it also owes a great deal of its success to NASA because without NASA SpaceX might have gone bankrupt, the definition of “that which does not kill you making you stronger”. Regardless, a culture that allows both public and private enterprises to prosper is the difference between the Capitalist Empire and others, in our opinion.
Speaking of the private/public dynamic, the Federal Reserve seems to be the other entity on everyone’s mind. With Jerome Powell’s 50 basis point cut of rates in late September many seem to think he has tamed inflation and landed the economy softly. We have found that it pays to not go all-in on economic forecasts driven by the Federal Reserve’s actions. Again, we think this resembles the relationship we see in many complex, adaptive systems. Man can only control so much and the rest moves within a natural order that sorts winners and losers, and getting caught leaning too far one way can be devastating. Oftentimes if you buy a well-financed company with good cash flows and good business model at a discounted price, then the company can thrive no matter the outside forces. For instance, if you buy small cap companies with good cash flow when they are near 25-year lows, then timing the threat of a recession is not a significant concern in the long run. If you buy value companies, when growth companies have outperformed for ten plus years, then you are not as worried about corrections that may or may not occur. International companies that have trailed the U.S. for ten plus years and have valuations significantly below the U.S. also do not pose as much of a macro worry to careful investors. Finally, energy companies that have dropped in value because China is not buying as much oil also do not concern us when they are trading at single digit P/E ratios and all of the Artificial Intelligence talk keeps pounding the table for more energy usage. These are the types of items we use to balance the age-old argument of why invest when government outcomes are in flux?
We realize we may have beaten you over the head with Simon and Garfunkel and American exceptionalism talk but we can’t help ourselves sometimes. We love the blessings we have received in this country and even though “our words come back to us in shades of mediocrity”. We want to be a “Bridge over troubled Water” for you. Please know we remain “in the clearing” here for you. We have “All come to look for America.”
P.S. A friend at dinner recently asked one of our portfolio managers to name his favorite song. After hemming and hawing, he responded with, “That would be like trying to pick my favorite child. There are too many. You would have a better chance of getting me to name my favorite ten songs this week.” To that end and with an ulterior motive of listing some Paul Simon/Simon and Garfunkel songs in case this quarterly seemed foreign to non-Simon and Garfunkel fans, we are listing our top ten songs in no particular order:
1. The Boxer
2. 50 Ways to Leave Your Lover
3. Hazy Shade of Winter
4. Blues Run the Game
5. Cecilia
6. Mrs. Robinson
7. Hearts and Bones
8. The Sound of Silence
9. Slip Slidin Away
10. America
P.P.S- We acknowledge that we quoted “The Boxer” instead of “America” by Simon and Garfunkel for the quarterly, but the lyrical content is so much deeper than the “America” song even if the title was more appropriate. Please afford us that poetic license, if you will.
General Compliance Disclosures
Statements made via this letter are the opinions of Creative Financial Group (“CFG”) and its advisors, and are not to be construed as guarantees, warranties or predictions of future events, portfolio allocations, portfolio results, investment returns, or other outcomes. None of the information contained is intended as a solicitation or offer to purchase or sell a specific security, mutual fund, bond, or any other investment. Readers should not assume that the considerations, suggestions, or recommendations will be profitable, suitable to their circumstances or that future investment and/or portfolio performance will be profitable or favorable. Past performance of indices, mutual funds, or actual portfolios does not guarantee future results. Future results may differ significantly from the past due to materially different economic and market conditions. SSI, its affiliates and its officers, directors and employees may from time to time acquire, hold or sell securities mentioned herein.
Investment products and services provided by Synovus are offered through Synovus Securities, Inc. (“SSI”), Synovus Trust Company, N.A. (“STC”) and Creative Financial Group, a division of SSI. Trust services for Synovus are provided by Synovus Trust Company, N.A. The registered broker-dealer offering brokerage products for Synovus is Synovus Securities, Inc., member FINRA/SIPC and an SEC Registered Investment Advisor. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested.
Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank and Synovus Trust. Synovus Trust Company, N.A. is a subsidiary of Synovus Bank.