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Fittest Means Most Adaptable; Not Strongest

Sunday, January 25, 2015

– by Sheila & Rich Jamison -

The New Year is underway, a time most of us use to reflect on the year that just seemed to fly by, and to refocus our goals for 2015.

It is also a time of year where you will hear just about everybody under the sun put in their market predictions. The best part about these predictions is that very few people let the inaccuracy of last year’s predictions have any bearing upon their gusto for this year’s prophecies.

Is That Bad?

The issue is not that their predictions were so horribly wrong (well, yes, some were horribly wrong) – but rather that predictions of any kind in the market often have undesirable outcomes when an “of the year” moniker is attached. The unspoken idea underlying these is, ‘invest here for 2015 and go do something else until 2016.’

Here’s a quote that will make you think a bit further about that idea.

“It is not the strongest of the species that survives,
nor the most intelligent that survives.
It is the one that is most adaptable to change.
In the struggle for survival,
t
he fittest win out at the expense of their rivals
because they succeed in adapting themselves best to their environment.”
Leon C. Megginson

Beyond Biology

This quotation is usually – and incorrectly* – attributed to Charles Darwin. It was used by Megginson when speaking of Darwin’s The Origin of Species to extend the underlying doctrines to business management.

His point was that Charles Darwin didn’t say that only the strong survive. What he said was that those who survive are the ones who most accurately perceive their changing environment and successfully adapt to it.

Beyond Management

Those doctrines – read the environment and adapt to it – pertain to finance as well as management. In our view, sound portfolio management should not be about predicting what will happen from now until the end of the year. Instead, our approach to investing is based on adapting to the changing environment.

Our Investment Approach:

  • Find the current market leadership

  • Use a rule-based discipline to determine trend change(s)

  • Accept that change (those changes)

  • Take action – move to the new leadership

Supply and Demand

Our discipline is based upon the economic principles of supply and demand, which dictate that we move into assets controlled by demand and away from those controlled by supply. In the end, this philosophy means that while others spend the month of January predicting, we spend all 12 months of the year listening to the market and adapting to changes.

No One Can Know the Future

Some very public market participants have recently called an end to the bull market in 2015, and perhaps the market may prove them right. However, let’s let the market decide. After all, it was in April of last year that a study of 67 economists predicted higher rates on the 10-Year Treasury over the next six months. The title of the article was “100% of economists think yields will rise within six months” and was published on MarketWatch.com.

Fast forward six months and, you guessed it, 100% of economist surveyed were wrong. Interest rates on the 10-Year Treasury actually declined 19% over that time frame, falling from 2.73% to 2.21%. And, as of this writing in early January, rates on the 10-year have continued to slide down to 1.82%.

Where Do We Go from Here?

With that said, we enter 2015 similar to the way we entered the previous three years – with US Equities ranked as the number one asset class out of the six major asset classes. This statement doesn’t sell newspapers or magazines, or improve TV ratings. That’s why all you tend to see discussed today are predictions about when the market will peak and when crude oil will bottom.

As mentioned, US Equities remain the strongest asset class. This has been the case for more than three years now. And as long as that remains the case, we will continue to focus on US Equities for opportunities to accumulate wealth.

Similarly, crude oil has been trading in a negative trend on its Point & Figure (P&F) chart since July 2014 when a barrel of crude was around $99. There is no sign of bottom being put in yet. When the charts begin to show buy signals (i.e. the market tells us crude has bottomed), then we can take some action.

I hope your 2015 is off to a great start, and your New Year’s resolutions are still alive and well. If you have any questions about the particulars of your portfolio, or would like to discuss potential opportunities, please give us a call.

If you think this type of information would be of benefit to anyone you know, please share this communication with them.

*Megginson (professor of management and marketing at Louisiana State University) used this quote, sometimes with slight variations, in management presentations for American businesses. Two examples are in the references cited below. Megginson’s paraphrase of Darwin, slightly recast, eventually became known as an often-cited quotation from Origin. How and when that happened isn’t known, but the quote has become ubiquitous. For example, it can be seen at the California Academy of Sciences prominently placed in the stone floor of its headquarters (although the attribution to Darwin has been removed since its installation).

References:

Daily Equity Report. Staff. dorseywright.com. January 15, 2015.
Key to Competition is Management. Leon C. Megginson. Petroleum Management. (1964) 36(1): 91-95.
Lessons from Europe for American Business. Leon C. Megginson. Southwestern Social Science Quarterly. (1963) 44(1): 3-13, at p. 4.
Six things Darwin never said – and one he did. Darwin correspondence project. darwinproject.ac.uk. Retrieved January 24, 2015.

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.
Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of the date of publication and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities whenever mentioned are for illustrative purposes only and may not be relied upon as investment advice.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.
The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.
The S&P 500® is a market-capitalization-weighted index of common stocks.
Past performance is no guarantee of future results.

© 2015 Jamison Financial Group. Please feel free to distribute copies to individuals you feel may benefit from the information presented. Commercial use is prohibited.