Don’t Blink: Investment Process in Action as Stocks Notch All-Time High

Often it is the case that the subtlety of the markets catches us off guard.  If we look away, or even blink, we can miss the nuance of volatility, especially when it seems the entire world is trying to distract or convince us to bid allegiance to a narrative.  It just so happens we are in one of those moments now.  

Here at Higgins & Schmidt, our investment process has been operating swiftly.  Just two weeks ago, the markets roiled as headlines made predictions and cast lots on the prospects of calamity (depending on where you get your news) for the war with Iran and collateral economic damage.  Before the digital ink could dry on the social media weaponry, deliverance was had (for the stock market at least) as the S&P 500 erased the nearly 10% correction and marked a new all-time high.

There is a certain dislocation between the rhetoric, human tragedy, and stock market performance during times of crisis and uncertainty.  As I’ve mentioned before, specifically in our post at the outset of the war in Ukraine, we understand that compassion and empathy are not always the product of our application or defense of Modern Portfolio Theory.  We respond to uncertainty anchored in process and our commitment to our fiduciary responsibility.  In the moment, there is a certain temperament required to hold the line.  While the headlines do their best to turn up the heat, we go to work.  Allison Schmidt’s article from two weeks ago explains the first part of the investment process.  Check out her article here.  As the S&P 500 bumped the negative 10% threshold, we incrementally increased exposure to the index itself, so as to maintain or slightly increase equity exposure across the portfolio.  This is an emotionless action designed to maintain portfolio integrity and position our clients on the side of historical probabilities.  As the stock market declines in moments of uncertainty, the historical probability of positive outcomes increases.  

With respect to politics and geopolitical events such as war, our process is agnostic.  Our optimism is not blind; it’s founded in the idea that we lean into the probabilities of positive outcomes.  That being said, uncertainty and specifically images of war are jarring.  The human experience with violence triggers empathy, anger, and fear.  As the emotions persist, our natural stress response is to react and address the stressor.  In the moment, we pass the information we’ve been given through our moral, theoretical, and practical filters to inform a course of action.  In the process, we asses the locus of control to be internal or external; in our control or outside of our control.  Since we can’t stop the war, the strife, or the market volatility, we start to rationalize questions about our current course of action; are we doing the right things?  With endless sources to validate our doubt and countless hucksters selling the promise that you, “can have your cake and eat it too.” We are, in the moment, emboldened and maybe we feel justified to do something that historically be the wrong thing to do; sell.   

This is where process is paramount and the mantra at Higgins and Schmidt Wealth Strategies is Perspective. Process, Poise.  These simple words coined by Allison Schmidt at the height of the early COVID market panic ring as true today as they did then.  Maintain perspective: stay focused on your long-term objectives and use a broad sense of history and likely outcomes as context.  Stick to the process: At Higgins and Schmidt Wealth Strategies, our clients are invested in a manner that is designed to support their unique objectives and goals.  We assume markets will behave like markets do; unpredictably volatile and long-term, up and to the right. (We never know why things will happen, but we know it will happen.)  Stay poised:  Stick to the plan and let your past experiences inform your current temperament.   Each bout of volatility should increase your resilience. You are stronger today than you have ever been before.

As I mentioned earlier, last week, the S&P 500 captured a new all-time high, triggering a full rebalance of our model portfolios.   The table has been reset, and once again, the process has prevailed.  This is also a good time to remember, however, that all corrections and ultimately more significant bear markets are different; some recover very quickly, while others last years.  With the market recovered, we acknowledge that the environment that caused the volatility has not.  The market has a way of reeling from the initial shock of an event and quickly lifting its eyes to the future.  I advise people to be prepared for additional volatility; not because I have a crystal ball, but because volatility is ever-present.  I cannot tell you what the headline will read, but there will be one.  Your own inclinations will determine how you feel; however, your perspective will determine how you act. Our process will support your objectives and your and our poise will determine how you succeed.  

Our investment process is designed to be a directional repositioning and rebalancing process that enforces the idea that equity exposure should be maintained during periods of market decline, and market risk exposure should be limited so as not to exceed stated client risk thresholds during periods of rising markets.  While the thresholds mentioned in reference to the S&P 500 are triggering events, HSWS does not promise a price at which an investment purchase or sale is made.  While our process is deployed broadly across the accounts we manage, there are certain unique situations that may affect the application of the process at the account or client level based on the discretion of either the advisor or client.