One of my favorite times of the year is late spring and early summer here in Florida. My reason for the time frame is not only the weather (which has been pretty fantastic) but also because that is peak growing season here in our area. Ever since I was a kid, I loved growing and cultivating crops. I think back to my days in the National FFA Organization (Future Farmers of America) where we had to have agricultural projects to learn through the hands-on approach. I grew up on a farm outside of Pittsburgh, PA and had lots of space to try all kinds of crazy adventures, which is where this love for growing food was developed.
The only thing I did not expect when I moved to North Central Florida, was just how difficult it would be to grow stuff. I figured with all of the great weather and sunshine, gardening would be much easier. After the first year, I learned quickly how wrong I was. It is just flat out hard to grow anything here. Sudden cold snaps early, trying to beat the craziest bugs, avoiding 4 million kinds of fungi, fighting noxious weeds, and controlling soil moisture are all great battles in winning the war of successful gardening. It took a few seasons of trial and error and a lot of failure before I was able to harvest anything.
One of the first lessons I had to learn was that genetics are everything. Selecting the right varieties of the things I wanted to grow proved to be one of the best solutions.
You have to pick the variety that is suited for these harsh conditions and resistant to as many diseases as possible. If not, you are simply wasting your time. One week your plants will look amazing, and the next week, you have a disaster on your hands. This is where the old saying, “An ounce of prevention is worth a pound of cure” comes to life! Getting the right mix from the start will save you a ton of heartache. The next major lesson was timing is everything. Too soon and a late frost will crush you, too late and bugs and fungi will destroy you. Beating the hot and humid summer of Florida is crucial to success. Not only that, but once the temps are in the 90’s and humidity at 100% each day, you don’t really want to be in the garden anyway. This was very different in Pennsylvania because the middle of the summer (June – August) was your peak growing season. I learned the hard way why hardly anyone grows vegetables in the summer down here. It is just darn near impossible.
There are several others, but the final lesson that was really important was managing water and soil health. Growing plants in a primarily sand-based soil can be an uphill battle. The beginning of spring it hardly ever rains because it is our dry season, then once June hits, it rains almost every day. Ground cover and irrigation helps to prevent a lot of problems. Exposed soil causes all kinds of issues such as rapid moisture loss, spreading of disease, and loss of organic matter. Protecting and enriching the very foundation of plant growth cannot be overstated and that begins and ends with water management and soil enrichment.
As I look at our portfolios and the Capital Defender Series, it is very much a financial garden. Selecting the right investments and deploying those at the right time are very important to success. We have spent countless hours ensuring that what we are investing in gives our clients a good opportunity to be successful. Just as pests such as weeds, bugs, and fungi can sneak into a garden, unwanted guests can sneak into our portfolios.
Some of those unwanted financial guests are things such as volatility, rapidly shifting asset classes or favored investment styles, unexpected drawdowns, and perhaps most importantly the unexpected need for excess withdraw. Taking the time to prepare portfolios for these events allows investors to harvest more from their portfolios, which is precisely what the Defender Series of investment models seeks to achieve.
In our opinion, what has worked in the past may not always work in the future and we must be prepared to change and learn new ways to drive consistent returns. The market we are experiencing right now is fairly unique. With market cap weighted indexes, meaning allocations to companies that make up the indexes are based on the size of those companies, a few very large companies are moving the markets positive while sheltering the real data underneath that performance. In other words, your portfolio can have a disease that you can’t even see yet. That disease is unrecognized risk. Not understanding what your exposure is to just a few companies is similar planting things in your garden without know how they react in various environments.
They might do extraordinarily well and provide you a great harvest, or they very well might not survive the week. While there is no perfect financial solution, the Capital Defender Series seeks to adjust to changing environments while at the same time managing the various risks in the market by adjusting to momentum as well as evaluating overall fundamentals. We are continuously seeking to adjust when the potential risk is just not worth the possible reward. While there is no way we can know the perfect solutions and exact answers, staying disciplined and risk focused usually works very well in the long term.
For June, although the market headlines and the returns of the Nasdaq 100 are showing all roses and sunshine, momentum is slowing coming back out of the virtually every other asset class in the market. Also, the leading economic indicators are approaching the lows during COVID in 2020. Factor in high lending rates, sticky inflation, and decreasing manufacturing data and we have some real headwinds in the months to come. Now, there are always reasons to not invest, and managing risk with unique strategies allows us to position for some gains through uncertain times. With that said, we will be reducing risk and exposure to equity markets in June as we approach a month full of economic data reports. It is our hope in another month we could know a lot more about the direction of these markets.
Happy gardening!
Disclosures – The Pacific Financial Group
Capital Defender Advisors and Bison Wealth are 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.