As everyone knows by now, Tom Brady won his 7th Super Bowl last week. While this is an unbelievable career accomplishment, what is more unbelievable is that he spent 12 years of his prime without winning any. He took a mediocre Bucs team and beat one of the most gifted and athletic quarterbacks in recent history at an age when other players would have long been retired. It struck me that his age was not a handicap; it was his knowledge and experience that made the difference. It also struck me that this was very apropos to what we are witnessing today in the financial markets.

Last year was a watershed moment for many investors as the pandemic ripped through the economy and created the fastest and most vicious market decline in history. Financial decisions that were made during this period seem to have gone one of two ways. Those that reacted out of fear sold near the bottom to protect themselves from further losses and missed much, if not all, of the rebound. Those that reacted out of greed put all of their savings and stimulus money into the market and made a killing. 

On the surface, it seems that the “greed reaction” has been the right response. The trend that started during the pandemic market low as many people put stimulus checks and savings into the market has continued into 2021. New issues, such as Snowflake and Bumble, have doubled and even tripled on investor optimism about future growth. Companies that are adopting clean energy technologies are skyrocketing. In fact, you don’t even need to have a product—just a business plan focused on growth and you can raise money. Famed investor Colin Kaepernick is raising $250 million for his SPAC (Special Purpose Acquisition Company) that plans to invest in social justice companies  And then there are the Robin Hood and Reddit traders who have made fortunes betting on potentially bankrupt companies. It seems like there is easy money to be found in every part of the market. Why not be greedy?

It all comes back to Tom Brady and wisdom and experience. Over the past 30 years we have navigated through bull markets, bear markets, real estate and technology bubbles, housing and financial crisis and now a pandemic. Early explorers like Magellan and Columbus did not know what to expect when they initially set sail for unknown lands. But their wisdom and experience in their craft brought their crews back safely when many others failed to do so.   In the same manner, we have seen these scenarios before – only played with different characters. In the 1980’s, portfolio insurance was the new thing that would eliminate downside risk… until it didn’t and failed spectacularly on October 19th. The 1990’s brought the correlation trade as financial wizards used mathematics to create portfolios that were immune to market swings… until the leverage created margin calls and the entire  structure failed. The turn of the millennium brought the technology internet bubble with the investment mantra that “earnings and cash flow don’t matter, valuation should be based on expectation of future growth”(sound familiar?)… until the cash flow and advertising dollars dried up because the anticipated sales growth didn’t follow quickly enough. Technology shares dropped 75% in two years—Amazon dropped 90%!—and many investors who had piled into technology because “this time it’s different” spent the next eight years getting back to even… and then the Financial Crisis happened.

The point of all this is that it is never “this time is different”. These are the same movies with different actors, and those who continually follow the next best thing in order to chase investment returns will most likely watch the same ending. A stable investment philosophy centered on risk, diversification and long-term goal focus has never been the sexiest option, but it has been the most reliable. Excess in one market usually means there is opportunity in another. Emerging Markets were ignored in the early 2000’s when technology was leading the pack, but outperformed the U.S. by 150% over the next seven years. We do not know what the “next best thing” will be (ask one of the GameStop traders on Reddit), but we know that we ignore most of them. The ones we will participate in (Bitcoin, for example), will be in the construct of our overall investment discipline and have a defined risk within the portfolio.

The Chinese proverb “May you live in interesting times” is an apt description of where we are today. Things are certainly interesting and getting more so each day. However, the literal translation of the saying means “May you live in chaos and disorder” and is meant as a curse. For many investors who are chasing the next best thing, it may be a good idea to brush up on their language skills.