If you are like me, around this wonderful time of year, you have several family traditions that you look forward to not only completing, but also passing onto the next generation. One tradition we started a few years ago was to bring our kids to a Christmas tree farm to pick out and cut a real tree for the house. Since we are already in North Carolina for Thanksgiving with family, this tradition becomes a lot easier than back home in Florida.
If you have ever trekked the hills of a Christmas tree farm you know there are a few things to keep in mind when selecting and cutting a live tree. The first is that those things sure to do look a lot smaller out in the open mountain than they do in your living room. Now, I am not saying we have ever gone all out Griswold Family Christmas, but there has been a year or two where when the net came off of the tree in the living room more than a few bottom branches needed to be trimmed! The second lesson is that the more you walk around the more they all start to look the same. Full disclosure, my wife would disagree with me on this point, but I am telling you after herding my crew up and down the slopes, at least one child inevitably throwing a fit about something, freezing our Florida tails off in the mountain weather, and walking through hundreds of rows of trees they really all do look the same. Might be a branch or two out of place, but once you stuff that thing in the corner with lights and a thousand ornaments will anyone really notice? I know you can call me The Grinch too. The third lesson is that even in the Christmas tree world, there is no such thing as a free lunch! When searching for a farm on which to cut a tree there are several options in North Carolina but the frills vary greatly! You want “Free” hot chocolate, warm apple cider, horse drawn hayride, festive music, pictures with Santa and elves running out to cut down your tree, well you will pay for those in the price of the trees for sure. The free, as usual, is not free at all. We have seen prices of those trees double and triple at the places with the most “free” extras. You didn’t fool me with your slick Christmas extras! Yeah, I know Grinch again!
The one new thing I was not prepared for this year was the shortage of farms who were open and selling trees. Apparently, like everything else in the world right now, there is a shortage of Christmas trees. You can read about several reasons with a quick Google search that will show anything from climate change, to increased input costs, higher insurance premiums, reduced planting rates, and stockpiled Covid demand. I am sure some of those things have an impact, but when we were speaking to local tree farms it seemed the number one reason was over harvesting the past two years. Apparently, during as well as after all the Covid shutdowns and there was a spree for live Christmas trees which were obviously sold outdoors in plenty of space. Farm after farm oversold and harvested trees to new masses of people who flooded the market. We had to drive almost 2 hours away into the far less populated areas to find a farm with trees for harvest. Fortunately, we did find the perfect family tree and hauled it all the way back to the Sunshine state where I am happy to report is decorated and ready to go for Santa.
This new challenge is indicative of this whole weird economic cycle coming out of the past few years. Higher inflation, strange consumer trends, and shortages of things that are not typically in shortage. Supply chains across the globe have been affected with wait times on anything from new cars to computer chips to toilet paper. However, this Christmas tree issue is one that was more interesting to me and got me thinking of a common mistake that business owners and investors alike make when it comes to finances. That is the ever-present Fear of Missing Out or FOMO! This emotion can force us to make unwise decisions based on short term trends or what the rest of the crowd is doing. Since there were some lean years and higher competition, tree farmers did not want to miss out on this flood of new customers and therefore oversold trees which left nothing left to harvest for several years. Add on to that the higher cost of fertilizer, water, and labor you get a recipe for failure.
We can sometimes make that mistake with our investments as well. We hear about an investment option or opportunity that someone is doing or a new craze in the news like Cryptocurrency, and think to ourselves, “I need to be doing that!” When investing outside of your plan in things that may or may not fit within your risk tolerance can be very fragile. Just because someone says they have earned something more than you have, doesn’t mean it is right for you to chase that thing. In fact, people are quick to share their wins, but often slow to share their losses. I have become a firm believer in “Slow and steady wins the race.” When you are not down large double digits in returns you live to fight another day and therefore do not have to chase larger outsized returns. FOMO can drive us to make fragile decisions so be careful. Unlike Christmas trees on the side of the mountain, all investments are not the same. There can be great variation and when you get it home (aka…in your portfolio) you may be really unhappy with the results when the net comes off!
For the month of November, the Defender Series of portfolios ended positive and did not experience the larger swings of the month. For December, we continue to remain defensive as there are now 12 out of 12 negative categories in the model. That can historically be a bearish sign forward looking over the next 3-6 months. Again, our goal is not to get caught in with FOMO, but rather remain extremely disciplined in our approach to building wealth. We are still positioned to participate in some of the upside in the markets if they occur with our alternate signals and positions. May you and your family have a blessed Christmas and I hope you find the perfect Christmas tree!
The Top Risk On asset classes are as follows in order of momentum:
- None
RISK OFF TRADE
Due to the increased Risk Off position for December 2022 we are still holding that position as very short-term treasuries to continue to harvest a yield while waiting. This position has very little sensitivity to interest rates and has a very low cost to hold.
HEDGE TRADE
With a higher Risk Off position in the portfolio, our hedge trade becomes less important and can detract from performance if we have too much exposure. Therefore, we will maintain a reduced hedge position for the month.
Disclosures – The Pacific Financial Group
Kidder Advisers is not affiliated with The Pacific Financial Group, Inc. (TPFG). The information presented is believed to be accurate but has not been independently verified. TPFG makes no warranties as to the accuracy of the information or any representations made or implied. Articles cited/linked to are the express opinion of the third-party author. There are no affiliations between TPFG and any third-party links. All information may be changed without notice. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service and should not be relied on or deemed the provision of tax, legal, accounting or investment advice. Past performance is not a guarantee of future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss.