2023 Q2 Client Letter
To the Clients of Resilient Asset Management:
Greetings from World HQ in beautiful (and stormy) Downtown Memphis.
Informal Poll: Raise your hand if on New Year's Eve 2022 you predicted the NASDAQ increasing in value by over 37% and the S&P 500 by over 15% by the midpoint of 2023?
I expect there are few hands raised, especially for the NASDAQ...mine certainly isn't!!! True, this performance was very largely attributed to a select few names - we know them, so I won't bother listing any here. Wonderful companies they are indeed....and very deserving are they of the valuations afforded them.
Quick commercial reiterating the dynamic and unpredictable nature of capital markets:
Capital markets are very unpredictable and market quotations can fluctuate wildly.
Never forget these words. The first half of 2023 was a didactic example of this axiom.
End of commercial.
Revisiting a previously discussed topic, don't assign excessive weight to any market prognostication...they are indeed ubiquitous. And be PARTICULARLY wary of anyone explaining outcomes after the fact when the same individual offered no foretelling...unfortunately, the supply of these individuals too is quite large. On the bright side, opportunities abound to sharpen your skill of ignoring talking heads.
Where markets go from here is anyone's guess - sadly I can't provide a prediction and never will. Volatility, uncertainty, and patience are the antes for superior long-term equity market returns...that's the nature of the game.
What I can provide, however, is assurance that we live on the greatest capitalist canvas our world has ever known - The United States of America. Anyone predicting anything other than future prosperity for our United States will ultimately be proven demonstrably wrong....of that, I am beyond 100% confident.
And America's unbounded capitalist potential is infectious - much more so than COVID could ever dream of being. Many like-minded countries (and their Citizens) around the world share our capitalist spirit. Collectively, this results in a better world for all of us - yes, you heard it here - the betterment of our World continues to rise unabated. And financially speaking, numerous opportunities to share in this abundant growth - conveniently by way of passive investment - are available to all of us.
For the naysayers and their dire predictions - dutifully accompanied by chart after chart and "insight" upon "insight" - I have but one word in reply - SCOREBOARD.
For those looking for longer-winded evidence, I refer you to the May 20th, 2023 issue of The Economist. An article therein describes the "Club of Rome", which met in 1972. This enlightened "group" was concerned about the "state of the planet" at the time. They fed all known data about farming yields, natural resources, population trends, and various other "factors" into a computer. The result of the computer's number crunching was pretty grim: "the highest standard of living possible was one stagnating at half the American level of the time." Fast forward fifty+ years to 2023: the global population has doubled and World Gross Domestic Product (GDP) has quadrupled. Like I said above, SCOREBOARD.
You may have read an article or two about "the economy". The threat du jour, of course, is recession - pundits are handicapping the start, the duration, and the associated pain. These predictions fall in the same (circular) bucket as the aforementioned market predictions.
While capitalism is wonderful, it comes with some unpleasant side-effects - including (among other things) recessions. Anyone thinking they can sidestep future recessions and their associated pain is on a serious fool's errand. The first half of 2023 is a picture perfect example of this.
The prudent course is to fortify your financial life so when recession happens - trust me, the next one and many more thereafter are coming - you have the financial means to endure them and see yourself through to the other side. Never require ideal conditions to succeed...that leaves way, way too much to chance.
Regardless of market performance or economic conditions, my steadfast advice of being "brilliant on the basics" is ALWAYS in force:
- Have a Cogent Estate Plan
- Stay current on your Income Taxes
- Insure against catastrophic risk
- Save an adequate amount while living your best life
- Have an Emergency Fund for those times when life throws you a curveball
If ALL those areas are granite-like in your financial foundation, you're maximizing your chances of thriving through any temporary macroeconomic setback, predicted or otherwise.
Changing gears, buckle up, this is the "Spinach Portion" of the letter - Cybersecurity.
We just completed our Annual Cybersecurity Awareness training at Resilient Asset Management. I wanted to share 2 stories and a few suggestions for your own Cybersecurity Awareness.
Story #1: An elderly lady answered a phone call from an individual purporting to be from her bank. For security purposes, the "associate" said he was going to authenticate the elderly lady via text messaging. He asked her to read back the code he texted to her. Thinking this was a security measure, she dutifully read back the 6 digits.Because of the bank's "dedication to Cybersecurity", the elderly lady had to repeat the process several times during the call. Well, it turns out that the "associate" was actually a cyber criminal using the elderly lady's compromised password to access her bank account. Then, he was having the elderly lady supply him with the authentication codes the real bank texted to her phone.Each authentication was actually a bank transfer of funds out of her account. Sadly, this repeated process only stopped when the elderly lady's account balance was $0.
Story #2: An individual was in a public restaurant using her smartphone. For a variety of reasons, she was using her PIN-code to unlock her phone, NOT the facial recognition software.While departing the establishment, a nefarious individual grabbed her phone. When she later tried to "remote wipe" her phone, that functionality had been disabled as the thief had casually observed her entering her PIN code and was thus quickly able to access her phone and start wreaking havoc.
In truth, either of these stories could very easily be any of us. Cyber criminals are relentless in their pursuit of others' resources. So we must always be on the defensive with our devices, and more specifically, with our Cyber hygiene. Here are some pointers to assist with your cyber posture:
1) Keep the software on your devices up-to-date - this can be set to auto on your devices.2) Set-Up Multi-Factor Authentication (MFA) whenever it's offered. This strategy is widely-recognized as a particularly powerful cyber defense.3) Set-up PIN codes for any smartphone app connected to your finances...this will hopefully keep criminals at bay who may gain access to your device.4) Use a Password Manager - this will eliminate the need for duplicate passwords. This is a very cost effective way to have long, challenging, and unique passwords.5) Avoid ALL Public Wi-Fi Networks...use your cell phone as a Hot Spot instead. If public Wi-Fi is unavoidable, only access via a Virtual Private Network (VPN) - there are many free options out there. Personally, I NEVER use Public Wi-Fi.6) Treat all emails as unsecure. And avoid attaching sensitive documents to emails.7) Never enter into a dialogue with a financial institution where you did not initiate the call. If your financial institution calls you - very (almost exceedingly) unlikely these days - tell them you will call back at the Customer Service number and go from there.
No list of Cybersecurity measures is complete - the criminals' techniques are ever-evolving. Regardless, in the cyber crime world, the "easy" target is still the quick, profitable one. So inasmuch as you're able, be a "hard" target...the criminals will move on to the next person. If you incorporate the techniques listed above, I can't guarantee protection, though I can say you will be much more fortified than most.
End of the spinach portion of the letter.
Some reading material for the hard core amongst us:Artificial Intelligence (AI)As I am sure most are aware, AI made a big splash recently with "ChatGPT" going on-line. If you don't have an account, get one...interacting with the service is quite intriguing. We definitely plan to incorporate AI into our processes.With any technological evolution, predictions - both of prosperity and gloom - will abound. You know what I think about predictions. Here is some more evidence for you: Adobe released their "Generative AI" service FireFly recently. The uptake on the free accounts was 800% more than they anticipated...and there are numerous tech-savvy geniuses at Adobe!!!In any discipline, sometimes it is enlightening to read the insights of someone you truly respect. In this case, I can think of no one more qualified to opine on AI than Marc Andreesen. If you have never heard Mr. Andreesen in an interview, I highly encourage you to listen to him - in short, he's brilliant. I would seriously not want to play him in any strategy or knowledge game...that would be beyond humbling. I even question if I could land on an Aircraft Carrier better than him and I've done it over 400 times!!!Conveniently, Mr. Andreeson did write what I think is an authoritative article about the future of AI. Here is a link to it: ANDREESEN AI ARTICLE
AI is an interesting beast - the overall impacts of which we will not know for some time. For me, I suggest keeping in mind an old saying: "No matter how rich you are, you're never smarter than your mother."
When I think about AI, my impression is the Chatbots will have superhuman ability to arraying facts no human will ever match. However, just as most children never seem to exceed their mother's wisdom, my gut tells me humans will maintain superiority over the algorithms in a very meaningful way. The human brain is both an evolutionary masterpiece as well as a super-capable adversary of those seeking to artificially exceed its abilities.Undoubtedly many will disagree with my notion...we'll see, AI literally just hit the street - the brain has had quite a bit more "evolution time".
In closing, a quick advert for the annual Tailhook Convention. For frequent attendees, the dates are a bit non-standard this year: 24-26 August, which is a bit earlier than normal. I have attended for the past 2 years - Jen was able to attend last year as well. We are BOTH headed back this year and very much look forward to seeing any Resilient Asset Management Clients there.
We plan on hosting another Client Dinner this year, so if you plan to attend, PLEASE let us know you will be there. At a minimum, we at least want to say hello in-person. Call it old-fashioned - the in-person meeting simply can't be replicated.
And finally, a big thank you to ALL the Clients of Resilient Asset Management. Assisting you with achieving your financial goals inspires me to come to the office every day. Put simply, without you, there is no Resilient Asset Management. We absolutely look forward to continuing our service to you and your families.
Please enjoy the rest of the 4th of July Holiday with friends and family and then the remainder of Summer after that. I will write to you again next quarter.