The holidays are here, and because Thanksgiving fell so late this year, the run-up to Christmas, already a busy and garish affair, is just an all-out sprint. What is normally a marathon of consumerism, ironically run in the name of generosity and goodwill toward fellow men, is, this time around, a Formula One race. This year, the stakes seem that much higher, requiring total attention and effort.
Every single “free moment” since Black Friday has been dedicated to either decorating the house, online shopping, actual shopping or calorie consumption. Naturally, work is still work, with business goals looming and deadlines still ahead. Naturally, I’m typing this at about 5 am.
Of course, the season still manages to be a tortured sort of fun, even if its observance may have drifted ever so slightly from the monastic, ascetic ideal. Sure, it’s short of perfect, but Christmas wouldn’t be quite the same without capitalism and a dash of at least figurative idolatry.
Speaking of capitalism, barring a late collapse, we’ve just experienced another phenomenal year in the financial markets, with strong returns coming in like a runaway sleigh across every major index. The boom in technology investment has driven markets to new all-time highs. While we can talk about the Christmas spirit, it’s been the animal spirits in the markets that have made this one of the best two-year stretches of returns in modern history.
So how does one reconcile a holiday that is theoretically dedicated to sacrifice, hope and ascetic love with rampant materialism and enough greed to make Gordon Gekko blush? Regarding markets, can stocks continue to blaze across the sky like a magic sleigh? Why does having this much fun make us feel a little queasy? Perhaps, as Ebenezer Scrooge wondered, a little undigested potato?
As usual (well, for the third year running at least), we find ourselves turning to Charles Dickens’ Victorian classic, A Christmas Carol, for answers. After all, what worked for the miserable old Ebenezer Scrooge certainly ought to work for anyone. Shouldn’t it?
Scrooge, as most of us know, was visited by three ghosts (well, four if you count Jacob Marley, his former business partner), but the three headliners that night were The Ghost of Christmas Past, the Ghost of Christmas Present, and the ghastly Ghost of Christmas Future. These three (or four) spectres cured the old skinflint of his Humbug ways.
But they also might offer a framework for how to think about investing right now.
The Ghost of Christmas Past was the ghost who reminded Scrooge of his happy youth before his heart was hardened by age and the pursuit of worldly riches, but studying the past is also a good use of time for investors. While markets and technologies change, human beings do not. That’s why it’s instructive to look at past periods of market exuberance—and periods of market despair—for clues about how events will play out. What kinds of assets do well in these environments, and what makes the most sense for the long term?
The Ghost of Christmas Present demonstrates the value of seeing the world around us clearly. What is actually happening right now? For Scrooge, it was to understand that his miserliness was having an impact on those around him. For us, perhaps the message is to maintain situational awareness. How are we allocated? How much are we paying for a dollar of corporate earnings? What value is the market assigning these companies? Is this normal? What are my risks?
Finally, the Ghost of Christmas Future, the least appealing of the three by far, is the spirit who forces Scrooge to contemplate his own future, his own fate that awaits him based on his trajectory. While hopefully none of us is on quite the same path that old Ebenezer was, it’s probably not a bad idea, in fact, it’s unquestionably a very good idea, to closely examine the path on which we tread and where it is likely to lead. How would our assets perform in a downturn? Can we handle what might be ahead? To paraphrase Jack Nicholson’s Scrooge-esque Colonel Jessup in A Few Good Men, can we handle the truth?
The holidays are a lovely paradox, and markets, of course, are as paradoxical as anything in the universe. Our natural instincts will be to hurry, to stress, and to spend, whether at the mall or in the financial markets. To the extent we can resist these desires, we will enjoy the holidays and the investing experience all the more.
As Scrooge finally discovered, we can avoid becoming the worst versions of ourselves. We can learn from the past, we can keep our eyes open to the present, and we can prepare for the future. Our best chance for success is to be not afraid.
From all of us at Trust Company, take good care, and have a great holiday season.
