What Must We Believe?

As human beings our Achilles heel is the tendency to cling to our beliefs in spite of conflicting information. It is not our fault really we are wired to take intellectual shortcuts and beliefs about the world around us is one way we do that. We are social being's and the social narrative matters a great deal to our decision making. Drinking the Kool-Aid so to speak.

I thought it would be interesting to view the current investing climate through the lens of what we must believe in order to justify some of the things we see in todays investing environment. The root of the dilemma in my mind is that if we are to be good stewards of our investment capital, then we need to be able to discern when our beliefs are flawed. How do recognize that we are part of the matrix of group think and therefore unable to make different choices that might be in our best interest? We all fall prey at times to believing the current narrative and use it as a short cut to decision making. Our thoughts are the result of what we consume informationally. What if this information is propagandized to a particular narrative. What if it does not serve us.

I once read that when Charles Darwin encountered something that contradicted a cherished conclusion or belief he was obliged to write it down within 30 minutes. It is said he did this because he knew that his mind would begin to reject the discordant information. The dreaded rationalization of belief in spite of observed dissonance. I have found myself in this rationalization spiral many times in my life. It does not always end well.

It is in this vain; the questioning of what we must believe to be true for our expectations to be valid, that I wish to explore. I believe not entertaining this exercise, might be at the peril of our plans. This is not hyperbole or a pessimistic view of the world. I look forward to the possibilities of opportunity around the corner, born in strife and unexpected opposites of our belief narrative.

I do not shrug off opportunity today, I just understand that there are two sides to every coin. Todays valuations are optimistically blind. The same can be applied when everyone hates investing. When the tide turns and it is a negative environment, the majority will be pessimistically blind. There are too many studies that show both individual investor and the large institutional investors fall prey to this. With that lets dig in and try and write down some things that contradict some of our cherished beliefs.

Stocks are reasonably valued because of low interest rates.

Well this is partially true. The reason is because interest rates factor into the valuation models that price all assets. The lower the rate applied to the discount models, the higher the prices are today. The opposite is also true. What we must believe then to justify current valuations is that the level for interest rates are going to remain low for the foreseeable future. This is far from a foregone conclusion. It does not take much of a move higher to dramatically affect the values of stocks, bonds, real estate, etc. I do not plan to place my financial future in the hands of this cherished belief that is a wide spread narrative. You may have heard it as TINA, There is no alternative. Absent this phenomenon, the valuations are incredulously ridiculous.

Inflation is forever moribund.

Famous last words? I don't know anymore than anyone else whether inflation is going to pick up or not. The truth is that we are seeing inflation in many areas of actual life, but the government chosen measure do not show it. Tell that to people that must buy housing, fuel, food, health care, education etc. In other words things most people MUST buy. This matters because it is what the system right now must believe. The reason is because if inflation starts to pick up then it affect interest rates. (see above for why that could matter). The officials in Washington tell us that they want just a little. Is that like being a little pregnant? Believe if you must, just beware of it as you decide your financial plans.

Government deficits and overspending don't matter

It is a common belief that because we buy, sell and borrow in our own currency that we do not have to worry about these trivial matters of math and finance. I get really jumpy when a narrative like this that goes against common sense becomes a main stream idea. To believe that there are no issues is a bit delusional. Why you ask? Because we are not on an island by ourselves. We are a collective world citizen and what we do does affect others in this global community. It is all based on confidence. Is it possible the world loses confidence. Yes. When? Nobody knows. I can say it has happened before. It is entirely possible it happens again. Why does it matter? When someone loses confidence in ones ability to pay, whether it is an individual or a government, the interest rates that are charged get raised to compensate for the risk. Remember what happens when interest rates rise?

I will stop there. The point of the exercises is not to determine what or if any of this happens. The point of the exercise is for you to step out of the narrative machine and question what it is that you must believe in order to accomplish your financial goals. Is it the status quo? You have to decide, as a necessary part of our planning must include return expectations for our investment endeavors.

Remember the true definition of investing is to set aside money today with the reasonable expectation of getting more money in the future.

Today, the expectations being accepted as common knowledge could very well lead to huge disappointments for those not courageous enough to ask... What must I believe.

So what do we do? Well that is the million dollar question. I know what I have done for myself and my family (and clients) and I am willing to discuss with anyone, just DM me. I will say that I believe it prudent to either for yourself or in conjunction with your advisor review the expectations on the three above mentioned items. Review them and adjust them so that they are NOT in your favor. (ie. if you believe rates will stay low; double or triple them) See what that does to your plan and adjust accordingly (which will more than likely mean you need to save more). One of the hardest things we can do as human beings is challenge what we believe, especially in the context of a larger narrative and belief system. Give me a shout if you want to discuss. I wish you success and prosperity.

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Lewis B. Walker Jr., is a CERTIFIED FINANCIAL PLANNER ™, professional dedicated to the education encouragement and empowerment of individuals.

He uses the perspective from his journey of going from financial insecurity and five figures in debt to financial stability using hard work and an attitude of one hundred percent responsibility for his circumstances. He believes that money and all that goes with it begins first with the internal game and through commonly used tactics anyone can work towards becoming less financially insecure and find success on their terms. With his twenty plus years of counseling success he knows that money alone does not create true wealth, but with better money comes better lives. He writes about his perspectives on what he believes are the five realms of a truly wealthy life: Physical, Intellectual, Social, Spiritual and Economic.

He is a Financial Consultant with LPL Financial. For more information about Bob or hiring him to speak or assist with finances, send a message through LinkedIn.

The opinions are that of the author and are not indicative of LPL Financial or any other affiliations. Markets are extremely unpredictable and nothing in my post should be construed as advice or a prediction in any form. Securities are offered through LPL Financial, member FINRA/SIPC. The investment products sold through LPL Financial are NOT FDIC insured. These obligations are not obligations, nor endorsed, recommended or guaranteed by any government agency. Insurance products offered through LPL Financial or its licensed affiliates. The value of the investment may fluctuate. The return on the investment is not guaranteed. Loss of principal is possible.                   

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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