SHORT-TERM GAINS CAN LEAVE YOU OPEN TO THE HAWKS CIRCLING ABOVE
It's always important not to lose sight of the big picture, Martin Pelletier writes.
Markets are still showing signs of resilience, with retail investors once again boosting returns and happy to add risk back into their portfolios as we head into the summer months.
We even had Roaring Kitty return to X, sending shares of Gamestop Corp. skyrocketing in the first few days after his surprise posting last week.
While this makes for fun and interesting headlines, we've been staying the course with our slow-and-steady approach and letting our strategies continue to get base hits and score runs. This includes our focus on investments such as structured notes that have been generating consistent high-single-digit-yielding monthly coupons for our clients.
Rallying markets have also allowed us to score a few home runs on our yearly auto-callable notes with mid-to-high-doubledigit-yielding coupons now being paid out. Tuck in a few low-cost option overlays to our long positions for embedded downside protection and we're off to the races.
The nice thing about such an approach is that we make money even if we get it wrong about the near-term market direction, which most people, including ourselves, often do. The key is to keep one eye on the bigger picture for unforeseen risks while getting fed along the way. For those wondering how to make this shift, it starts with recognizing the roles of left- versus right-brained thinking and how it influences our behaviour.
If you haven't read Iain Mcgilchrist's The Master and
His Emissary: The Divided Brain and the Making of the Western World, it is a 600-page read and a rather tough one at times, but I highly recommend it. For those looking for an intro, he wrote an excellent paper called “Can the divided brain tell us anything about the ultimate nature of reality?,” in which he provides some useful examples like this one:
“For birds and animals, however, the attentional problem is a matter of life and death. In order to stay alive, birds have to solve a conundrum. They have to be able to feed and watch out for predators at the same time. How are you to focus closely on what you are doing when you are trying to pick out that grain of seed from the grit on which it lies, while at the same time keeping the broadest possible, open attention to whatever may be, in order to avoid being eaten?
“It's a bit like trying to pat your head and rub your tummy at the same time, only worse, because it's impossible. What we know is that the division of the hemispheres makes the apparently impossible possible. Birds pay narrowly focused attention on what they are eating with their right eye (left hemisphere), while keeping their left eye (right hemisphere) open for predators.”
It is common to become so focused on the short term when investing that we lose sight of what is happening around us, the connectivity of things and the bigger picture. Part of the problem is that social-media platforms such as X take advantage of this by bombarding us with data and opinions, with “For You” specifically targeting our left-brained dominance.
Our perception of reality becomes short-sighted and even distorted as we hand over our thinking, processes and strategies to our analytical left hemisphere, thereby exposing ourselves to significant risk. This is because we often end up overwhelmed by all the choices we have to make and so we double-down on what's currently providing us some artificial comfort.
It's akin to the aforementioned bird seeing so many seeds on the ground that both eyes are used and it misses the hawk circling above.
This doesn't mean we should be going all in on right-brained thinking, but rather recognizing who is the master and who is the emissary. Both hemispheres play a crucial role in how we interact with each other, but the world in its true form can get distorted when the emissary starts thinking it is the one in charge. This is when mistakes get made.
This is why the motto of my wife and I for our family is: “We may not always be in control, but we're in charge.” It is our job to help our kids develop right-brained thinking and so why not do the same when managing your investment portfolio? It may not make for a good meme, or even an X post, but it sure keeps us and our clients well fed.
Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as Trivest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-altus.