Strike a (Re)pose

Thank you to everyone who attended our holiday party on Friday. And for the many more of you who couldn't make it and who trust us with your life savings, thank you, too! It is a blessing to be of service to you.

We are coming to the end of a most interesting year. January dropped like a rock, beginning this year with the worst two weeks in history. We're likely ending this year with solid, positive gains for the stock markets. Who would have thought that this year would deliver returns well within the average for the market?

Well, I did, and said so in the Periscope I wrote back then, but I digress...

Almost no one predicted Brexit. Few predicted Trump. Almost no one predicted (insert your big worry here).

Madonna might have predicted this year when she wrote her classic pop-rock song, "Vogue":

Look around everywhere you turn is heartache
It's everywhere that you go (look around)

Sounds like the headlines from the nightly news.

This year was both a rock concert and a rockslide. "Strike a pose" is a mantra for a pop-star and the law for rocks and grains of sand. There are lessons in physics class for us investors.

The angle of repose is the angle at which loose materials become stable. This is extremely important for building roads--witness the incredible engineering feet along I-70, at the exit to Colorado's gambling Meccas, Central City and Blackhawk. The angle is just right--the road is stable, almost all the time.

Each boulder that fell is predictably unpredictable. The slide is chaotic--no one knew if, when, or how it would fall. However, the total result of the slide is a predictable, stable shape. The boulders would not fall any farther, except randomly. Here's a fun video that describes how it works, if you have a few minutes.

Chaos drives each boulder randomly down the hill and the laws of inertia stack them up in a more or less orderly fashion.

Stocks are like that. Each stock is random, but the aggregate may be predictable over long periods of time. At any point in time something will move the markets randomly, but we won't know what it is and, when we think we know, we'll be wrong.

This year, the "sandstorms" may be upwardly volatile. Nothing you watched on television, searched on the internet, or read in the various papers or magazines, prepared you for the populist capitalist uprisings around the world. And, had the experts known about them, they likely would have predicted the results wrong anyway.

Each stock-market-moving-scary event, like a boulder, is predictably unpredictable. The result, however, can be a sand (or boulder) pile delivering, over long periods of time, predictably high average rates of return. And, over any short horizon, complete (sometimes wonderful) chaos.

For more on this in a similar but scholarly and wise vein, e-mail newsletter readers check out Nick Murray's "2016 and the Sandstorms of Volatility." (E-mail for a copy of the article.)

Madonna could be a great or horrible investor; I have no idea. But her lyrics give us good advice: We cannot control it, so we've got to "Move to the music...go with the flow!"

See you soon!

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