Past performance is no guarantee of future results. Trend signals are proprietary research of Fortunatus Investments, LLC, a Registered Investment Advisor with the Securities and Exchange Commission (SEC). Reference to registration does not imply any particular level of qualification or skill. Prior to June 2014, Fortunatus Investments was a wholly owned subsidiary of Executive Wealth Management, LLC and they continue to share common ownership and control. Data source for returns is FactSet Research Systems Inc. This chart is not intended to provide investment advice and should not be considered as a recommendation. One cannot invest directly in an index. Executive Wealth Management does not guarantee the accuracy of this data.
Quote of the Week
People start being interested in something because it’s going up, not because they understand it or anything else. But the guy next door, who they know is dumber than they are, is getting rich and they aren’t and their spouse is saying can’t you figure it out, too? It is so contagious. So that’s a permanent part of the system.
Warren Buffet, chairman and CEO of Berkshire Hathaway, discussing what fuels financial bubbles during a CNBC interview.
Market News
The quote above from Warren Buffet tries to explain the thought patterns that often lead many investors astray. We have discussed previously how systematic errors in thinking, called cognitive biases, can lead to poor financial results; and, it is with this topic in mind, that we briefly discuss the life and work of magician James Randi, who passed away a little over a month ago at the age of 92.
James Randi, also known by his stage name “The Amazing Randi” , was fascinated by magic as a child. While still a teenager, he found work as a conjurer in a carnival roadshow, eventually traveling the globe as a stage magician, learning all the tricks of the trickster’s trade. During his journeys, he noticed that the same sleight-of-hand skills and misdirection methods employed by magicians were also being used for nefarious purposes by people posing as psychics, spiritual mediums, or faith healers. He decided then to spend the majority of his time investigating claims of paranormal powers and exposing the frauds that preyed on the vulnerable. He wrote several books and appeared on numerous national television shows in attempts to unmask quacks, flim-flam men, and various purveyors of crackpottery. Following the example of Harry Houdini, Randi even offered a prize of $1,000,000 to anyone able to demonstrate psychic ability under proper testing conditions.
When reading Randi’s work on supernatural shenanigans, one thing stood out to us – how easily some of these make-believe mystics could fool prominent scientists into believing that their abilities were real. There was the story of how the conman Uri Geller convinced researchers at Stanford University that he could bend spoons using only his mind. Or the anecdote about investigators at the Lawrence Livermore National Laboratory, one of the premier applied science facilities in the United States, believing that they had found a man who could move a matchbox with his psychic powers. The Amazing Randi was not only a prestigious prestidigitator but also a remarkable raconteur, so we’ve included a video below of him discussing the Livermore matchbox incident. In the end, the PhDs with the latest and greatest scientific testing equipment were fooled by a simple party trick any novice magician could perform.
Ultimately, the moral of these stories is not to laugh at the professional people looking quite foolish, but to realize that no matter our intelligence, we can be made to be the fool in situations where we haven’t fully accounted for our potential blind spots or cognitive biases. Randi would have been the first to admit that these scientists were far smarter than he was, but he had a lifetime of experience in the arts of deception. He knew right away what tricks to look for, the scientists did not.
Similarly, years of experience and training in the financial industry should develop a sense of what potential drawbacks come with whatever is the hot new security, like the one depicted in Warren Buffet’s quote. Concerns about the asset’s volatility, illiquidity, or chain of custody may escape a novice investor, but are at the forefront of any serious financial professional’s analysis. And most importantly, the financial professional should convey to the public that just like the matchbox in The Amazing Randi’s anecdote, no asset’s price goes up and up by magic.
Model Update
On Monday, November 30th, the Fortunatus ETF Opportunity models underwent their monthly relative strength rotations. For both the Global and the US Growth models, there was a reduction in the allocation of large, tech stocks with a subsequent increase in the exposure to small-cap funds.
All remaining Fortunatus models were unchanged during the previous week. The Asset Allocation models are near their maximum equity exposure levels with an overweight position in domestic stocks in comparison to international shares.
Lighter Note
If someone told you a tiny little leprechaun carried this newsletter through the interwebs to your computer, you would probably say that doesn’t sound likely. “But why?” that same someone may reply. “Ockham’s razor” is the answer you would give if you went to college and took a course on how to respond to silly questions. But what is Ockham’s razor? Well, that is what this section is for:
A long, long time ago, magical mischief-makers roamed the earth. Gremlins, goblins, hobgoblins and many others constantly interfered in the affairs of men. If anything went wrong, everyone knew that these monsters were responsible. Into this wretched world arrived a medieval English clergyman named William of Ockham. A philosophical monk with an inclination to debunk, William was determined to end this reign of terror. Having grown up on the mean streets of Ockham, he was handy with a blade, so he decided to grab his razor and get to work.
Fiendish imps and impish fiends all met their maker on Ockham’s razor. William followed a simple “law of phoney baloney” – any creature full of it would be put to the blade. Unfortunately, through the centuries the perfectly sensible term “phoney baloney” has been garbled into the nonsense word “parsimony”, and it is the law of parsimony that is most often associated with Ockham’s razor in modern philosophy textbooks.
Nevertheless, now things happen only for the simplest, most boring reasons because Ockham’s razor killed all the complicated, magical things. Well, except for that little Baby Yoda. Ockham’s razor has no power over that much cuteness.
Executive Wealth Management (EWM) is a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any particular level of qualification or skill. Investment Advisor Representatives of Executive Wealth Management, LLC offer Investment Advice and Financial Planning Services to customers located within the United States. Brokerage products and services offered through Private Client Services Member FINRA/SIPC. Private Client Services and Executive Wealth Management are unaffiliated entities. EWM does not offer tax or legal advice. Please do not transmit orders or instructions regarding your accounts by email. For your protection, EWM does not accept nor act on such instructions. Please speak directly with your representative if you need to give instructions related to your account. If there have been any changes to your personal or financial situation, please contact your Private Wealth Advisor.
Returns are calculated as indicated below with reinvested dividends not considered except for the Barclays U.S. Aggregate Bond Index. Data source for returns is FactSet Research Systems Inc. The London Gold PM Fix Price is used to calculate returns for gold
1 Week = closing price on November 27, 2020 to closing price on December 4, 2020
1 Month = closing price on November 4, 2020 to closing price on December 4, 2020
3 Month = closing price on September 4, 2020 to closing price on December 4, 2020
YTD = closing price on December 31, 2019 to closing price on December 4, 2020
All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness. All information and opinions as well as any prices indicated are current only as of the date of this report, and are subject to change without notice. Material provided is for information purposes only and should not be used or construed as an offer to sell, or solicitation of an offer to buy nor recommend any security. Any commentaries, articles of other opinions herein are intended to be general in nature and for current interest. Some of the material may be supplied by companies not affiliated with EWM and is not guaranteed for accuracy, timeliness, completeness or usefulness and EWM is not liable or responsible for any content advertising products or services.