When the world – or the market – feels unstable, unpredictable, and perhaps even unnerving, people often draw comfort from simple narratives.
Our lack of control drives us to search for some sort of explanation that we can understand – a storyline we can wrap our minds around that provides answers and creates meaning.
Maybe this desire for a tidy narrative explains why a former editor of the Economist described the job of a journalist as being to “simplify, then exaggerate.” Stick to a simple explanation, then amplify its impact.
As an article in the Wall Street Journal recently contended, however – and we would agree – this strategy isn’t adequate for last week’s stock market “correction,” typically defined as a price decline of at least 10% from a recent high.
As the author points out, a variety of causes could be offered as explanations for the drop in the stock market: the Fed keeping rates high, fears of an impending recession, war in the Middle East, or a natural correction for stocks that were previously valued too high.
Yet offering any one of these explanations as the sole cause for the correction – and then exaggerating its impact – would be inaccurate and, in our opinion, a disservice.
Park Piedmont has been telling a different story for over two decades.
Rather than emulating much of the financial media’s inclination to simplify and exaggerate, we prefer to lean into a couple of our firm’s values: humility and balance.
First, humility.
One of the core principles of our investment philosophy is that the future is unpredictable and uncertain.
Nobody – including us – can predict future events, and even if we could, we would then also need to predict how the market would respond to those events. As we’ve pointed out before, it simply cannot be done. The market reacts to events in baffling ways at times.
So we can’t predict the future, but what about the past? Can’t we assign a simple and exaggerated narrative to something like a past market correction?
This brings us to another firm value: balance.
Perhaps it’s easier to look back on history and point to a definitive cause-and-effect. But as with much of life, a simple and exaggerated explanation doesn’t offer a balanced, full picture of the innumerable and sometimes conflicting variables involved:
Wars. Investor unease. Low unemployment. Inflation. Higher interest rates. Union strikes…
So rather than attempting to predict the future or assuredly explain the past, Park Piedmont takes another approach:
Remain humble about what we can’t explain or control, and instead take a balanced and measured approach to what we can.
What does this look like in practice? Keeping fees low and having a solid understanding of our clients’ unique goals, time horizons, and risk tolerance.
This understanding translates into personalized, appropriately-balanced asset allocations that we hope eliminate your need for a tidy narrative, even when the world – and the market – feels unstable, unpredictable, and perhaps even unnerving.