Look past the noise and analyze the cold hard FACTS!
On a really cold Monday evening in January, Dashboard was proud to host Jim Bowen, CEO of First Trust Portfolios as our keynote speaker at our Annual Client Dinner. For those of you who have not seen Jim speak before, his passion, energy, and straight-forward communication style is extremely beneficial and honestly quite refreshing in today’s world! Not only did Jim captivate our audience and educate us, he brought up a key concept that really stuck with everyone - “FIGHT THE NARRATIVE”.
Immerse yourself in facts - not some, but all the relevant facts surrounding any specific topic or issue. Then, let the complete fact set affect your decision-making.
FIGHT THE NARRATIVE?? - What the heck does this mean? Quite simply it means immerse yourself in facts, not some, but all the relevant facts surrounding any specific item. Once all the relevant and available facts are known, then let the complete fact set affect and influence your decision/opinion/action. That’s it. But realize this: almost every single media outlet, news report, printed word, tweet, etc. has their own little agenda, their own axe to grind, and as such not all the “facts are made known”. Newspapers try to sell subscriptions, media outlets are motivated by both political aspirations as well as monetary considerations, and yes, we as humans have our own pre-conceived biases as well (more on this later including Anchoring Bias, Confirmation Bias, Loss Aversion and Hindsight Bias). Knowing this, we must make a concerted effort to “FIGHT THE NARRATIVE” – the “story” offered by the media, the news-bite confirming our “feelings”, the Op-Ed issued by the press, the commonly “understood” information – and instead seek out the factual information. Only then can we truly make correct and informed decisions.
Let’s review some common narratives that we must continually challenge:
NARRATIVE: We shouldn’t own bonds since interest rates are at a 30-year low and rising rates will cause us to lose money in bonds for the foreseeable future.
REALITY: Unless you can tolerate perhaps a 50% reduction in your portfolio value (which everyone thinks they can until it happens), bonds need to be present in your portfolio to add a level of stability. Additionally, even if interest rates skyrocket, the volatility in bonds in much much less than that of equities.
NARRATIVE: The stock market is “risky”.
REALITY: The statement that the stock market is risky is pretty much accepted as basic fact nowadays. However, the real risk is NOT investing in the stock market. Yes, it is true that by avoiding the stock market and its “riskiness”, one can achieve a guaranteed rate of return by purchasing government-backed debt. However, over long periods of time, this guaranteed rate of return has fallen woefully short of keeping and increasing one’s actual purchasing power.
NARRATIVE: It is prudent to defer taxation whenever possible.
REALITY: The key misconception in this narrative is the word DEFER. Defer and avoid are vastly different, and quite often, either of their own accord or based on “Narrative-following” advice from their CPA’s, people seek to defer taxation incorrectly. By taking a wholistic and fact-based view of one’s personal situation, it oftentimes makes sense to pay tax now at lower rates, and then reap the benefits of this with a lower lifetime effective tax rate.
There are countless other narratives that we need to continue to challenge and fight. Don’t confuse information with fact, and don’t make decisions without facts. Whether politically motivated, economically motivated, or simply “it’s just the way things are”, those various agendas are not tasked with providing you with unbiased fact-based reporting. They are tasked with selling newspapers and advertisements and possibly pushing a political agenda. As a wise man once said, it’s up to each of us to “Trust.........but verify”! Enjoy your day, read your paper, devour your “tweets”, drink your coffee, but don’t get drunk on the Cool-Aid, and continue to Fight the Narrative.