This January saw Team Tyo wrapping up our portfolio audit. The process took three months and saw us create a comprehensive way of evaluating our portfolios and making sure every dollar we manage is generating the value it would. But the process wasn’t without its share of hard questions. The chief questions being: How do we use historical data to see what might happen in the future?
The problem with the future
The problem with the future is that we don’t know what’s going to happen. I know that’s obvious, but when you look at the problem of directing real people’s money with an eye toward the future, you really start wanting a crystal ball. We want our decisions to be driven by data, hard facts, and reason, but the future has no data or facts. What we do have data and facts about is the past. I liken this process to driving a car forward while only being able to see through your rearview mirrors.
Objects are closer than they appear
If that has you properly terrified, don’t worry it’s not quite as bad as it sounds. Unlike real life roads and highways, knowing what’s behind you is actually quite useful in the financial markets. While market history rarely repeats itself word for word, it often rhymes. Knowing what happened in similar situations in the past gives us a framework for dealing with the present. Is it the same a s having a crystal ball? Absolutely not. But it does restrict the realm of possibility enough for us to make smart choices that are likely to get us the results we want.
It's all about probability not possibility
And that is really what the whole portfolio audit was about, making sure that our portfolios give you the highest probability possible of hitting our performance benchmarks into the future. And while we don’t expect pinpoint precision, we do expect to be right more often than not giving you, the client, smoother more consistent returns over time. But it’s important to have realistic expectations of what we can do. Can we give you positive returns when all the major market indices are down? It’s possible, but not probable. More than likely, we’re looking to limit losses relative to our benchmarks so we’re in a better position to rebound. And that’s an important point to remember: In the end we must work with the markets we’re given, we can’t make them ourselves.
Predictions meet reality
The start of this year has been a good lesson in dealing with the markets we have. With equity markets dropping around the world in January, we all were reminded that markets move in all directions and sometimes that means down. But I want you all to have complete confidence that Alex and I are doing everything we can to get the absolute best out of what the future throws at us, even if it what it throws is bad.
If you’d like to learn more details about the audit, reach out! Otherwise, rest assured we’ll never stop trying our best to squint into the future.