Seeds for the Future
Image by Adam Niklewicz
September 17, 2018
Dear Friends,
My warmest greetings to you on this mid-September day. This morning was a bit cooler than usual reminding me that autumn is just around the corner. Summer’s final days are both an ending and a beginning: for our children it is the time to return to school to begin learning anew; for our farmers and gardeners it is the time to not only harvest the fruits of the growing season, but also the time to save the seeds for next year’s planting.
It is also the time for me to meet with many of you for a comprehensive review of how your financial plan is supporting you to realize your life’s intentions. These meetings are at the heart of our work together and I very much look forward to them. My ‘little-bit-longer-than-I-imagined’ note below is intended to share with you some of my current thinking about the world we live in today and its potential impact on our financial plans. I look forward to continuing the discussion with you when we meet.
I think that many of you know that in my younger years I was a farmer. During those 15 +/- years, I came to learn and respect the many lessons that nature in general and farming in particular provides us. As a Financial Planner and Asset manager, I see how these lessons spill over into this field. The parallels between the life cycle of the year in farming and the financial planning process are perceivable. Before a crop is ever sown, the farmer has already visualized all the stages of the growth of the crop right up to the harvest. This visualization informs the farmer of the resources he will need to produce a healthy harvest including the amount of seed s/he needs to hold back.
So it is also for us ‘non-farmers’ as we too look ahead and visualize our futures. To realize our vision becomes the motive for our actions. Knowing the resources we will need to bring this vision to reality is an important first step. These resources comprise our wealth. Our money, though only one of our many resources, often plays an outsized role in the successful realization of our vision, which is the main reason you invited me into your life – to support you in your financial life including the management of your financial resources. The importance of developing and implementing an income, spending, savings and investment plan that is in the service of the fulfillment of your vision is at the heart of your success.
As good stewards of our financial resources, we must be awake to what is going on around us on a micro and a macro level and be prepared to adjust if, as and when needed. Both levels are organic in that they are in constant movement. I make a few macro level observations below and look forward to integrating them into our discussion around your specific situation in the weeks and months ahead.
Both at home and abroad, despite changes in the political landscapes, world economies with some exceptions continue to grow steadily. There are literally billions of people worldwide seeking a better standard of living. This alone creates demand for goods and services, which in turn gives rise to our economic activity. As we all know, it is not a straight line of growth and development. Like the cycle of the year, there are also economic and business cycles.
Since March of 2009 our economy has been in a growth cycle – an expansion. It has most certainly not been a straight line of growth, but on average, our US economy between 2009 and 2017 has been growing at the rate of about 2.16% per annum. The 2018 tax law changes have supported a recent surge in this growth though this is expected to taper back in 2019 as the short-term impact of the tax changes on corporate profits diminishes. Economic growth in emerging economies has been significantly higher in places like India (+7%) & China (+6.5%).
As we complete our 10th year of this recent economic expansion we are hearing a lot of talk today, (TV, Internet, News media etc.) about how it all must come to an end. Increasing corporate & government debt, the risk of higher inflation and the potential impact of tariffs are to mention but a few of these concerns. Together with my colleagues in Arista, I am certainly paying attention to these issues. In the course of the next 18 to 36 months however, it should not come as a surprise to us if these and/or other issues not so immediately on our radar screen combine to bring about a contraction in our economy.
These concerns of today are a component part of the rhythm of the business cycle – the rhythm of expansion and contraction. Business contractions allow for a ‘breather.’ They are an opportunity to let go of what is not helpful or needed for the future. Every successful business plans for this cycle of expansion and contraction through investing in Research and Development (R&D). Even as a business grows though meeting current need and demand for its products and services, the seeds for the next phase of the business cycle are emerging as new initiatives to meet the growing needs of people throughout the world. As these new seeds grow, they will unite with the elements of the business that are still needed in the world and then in turn will let go of what is no longer needed.
Our task as investors is to invest in the businesses that have a long-term perspective and are looking towards meeting the needs of their customers and not just their shareholders. These companies will not avoid a short-term drop in the value of their stock price during the next downturn or recession. What we also know is that over time these ‘losses in value’ will recover over time in a line always trending higher. The businesses that will breathe in the fresh air from the next cycle are those that have invested in R&D and have a long-term commitment to providing needed services and products in a manner that is sustainable for the company and for the harmonic relationship between people and their environment – our ecology. I have attached a chart below to illustrate.
As we have discussed in our personal meetings, our investments are for the long term. They are in the service of your visualized future. I look forward to meeting many of you in the coming months to discuss your investment portfolio in the service of your financial plan, a living plan intended to support you to realize your vision of the role you wish to play in bringing about the world you want to live in.
In your service,
Bernard
