Barry Gilbert, Vice President, Asset Allocation Strategist

This is my inaugural blog as a member of the Carson Group Investment Research Team. I am thrilled to be at Carson and to have the opportunity to work with such a great community of advisors.

There will be a lot of data and charts to come in future blogs. But as an inaugural blog, I thought I would just lay down some basic investing principles that I follow.

These principles aren’t especially deep but I do believe they are fundamental requirements for investing success. Plus, the value of wisdom is often not in the depth of the words but in the ability to act on them. Sometimes it helps just to be reminded of simple truths.

So here we go. In no particular order:

1.) Investing will profoundly test your resolve. Have the right support structure in place to remain patient and disciplined: Some of the most common, and largest, investing mistakes come from responding emotionally to the market cycles of fear and greed. Therefore, some of the best advice is simply guidance that inspires patience and discipline. The emotional challenges around saving and investing can be far weightier than the intellectual challenges, in my view. Good advice empowers good decision making.

2.) In the investing long run, it’s rational to be an optimist: For some reason, pessimism often seems to be more fashionable in the investing world. But there’s reason for optimism beyond just market history. The fundamentals are there. Owning a stock is partial ownership of a corporation and therefore a right to a piece of future earnings. A bond is a loan along with a contract to pay it back. As long as corporations can grow earnings and bond issuers can avoid default, stocks and bonds will continue to gain value even if the path may not be straight. It’s easy to forget that after a tumultuous year like 2022.

3.) Pay attention to how markets actually behave, not how you want or expect them to behave: I hear so often about what stocks and bonds are “supposed” to do, even from industry professionals, often accompanied by frustration that markets are behaving “irrationally.” At Carson, we study how markets actually behave, not how we think they should. That’s why we look so often at history. Every situation is unique and needs to be evaluated on its own merit, so history isn’t definitive. But it’s always the best starting point.

4.) Portfolio construction matters: How a portfolio might behave can’t be determined just by looking at the pieces independently. In fact, looking just at the pieces can often invite mistakes because it tends to lead to large portfolio imbalances. What we “like” at any given time gets expressed in multiple places; what we don’t like gets similarly restricted. The result is an under-diversified portfolio that feels good while it’s working but is unnecessarily vulnerable to a change in the market environment, and the market environment will change.

5.) Don’t set your market expectations by your political views: This one is unpopular so let’s get it out there, since you’re going to hear it a lot from me over the next 16 months and it’s really just an extension of #3. There is simply no evidence that which party is in the White House has an influence on the direction of the stock market. That’s not to say that policy doesn’t matter. It does. But it usually gets overwhelmed by broader economic forces in the near term. The market impact of policy is more often expressed as winners and losers within the market than in the performance of the market overall, and even when you get the policy right it’s hard to predict the market outcome. ESG investing soared under President Trump; energy stocks have soared under President Biden. Political passion makes us good citizens. Our system wouldn’t work without it. But it can make us bad investors.

 6.) “Advisor alpha” can add significant value to a portfolio, even if you don’t always see it: The first go-to of many investors who want to improve their returns is to resolve to be (or find) a market genius. But being a market genius is impossible, and there can be a steep cost to trying and failing. Plus you don’t need to be a genius to participate in broad market gains. There is a more efficient way to accelerate progress toward our investment goals that’s actually within our control: “advisor alpha,” the potential added value of good advice and the coaching to follow it. Take care of vulnerability to behavioral biases, pay attention to rebalancing, avoid tax inefficiency (that one can be big), control risk through diversification, and be smart about overall wealth planning, to name a few. Mistakes across all of these are widespread. There have been several studies on the value of financial advice (see for example these examples from Vanguard and Russell). I can’t vouch for the specific conclusions, but the principles speak for themselves. Some of us can do these things ourselves. Most of us, even financial professionals, could use some guidance and coaching.

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There you have it. I was drawn to Carson because I think it’s a place where these principles are broadly shared. In fact, I learned some of them from former colleagues who I now have the privilege of working with again. (But if any of the above seem off to any readers, I am solely to blame.)

Applying some of these principles, Carson maintains its recommendation of an equity overweight and a duration (interest rate sensitivity) underweight and continues to emphasize a focus on U.S. equities relative to benchmarks, and those, in my opinion, have been pretty good calls.


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