Can we truly live and invest heroically? Can we truly stare
into the abyss of pain, despair, and disaster and somehow draw strength from
those encounters? Could we contemplate
on the fragility and uncertainty of our lives and portfolios and summon the will
to act bravely, to bear the burdens of change, and to make sacrifices for
greater causes other than ourselves? Could we capture the idea that, in the
midst of a storm, the safest place to be may not be the harbor? How much risk
should we embrace in order to be liberated from our fears?
As Joseph Nye explains in his excellent book The Future of Power, there are two power shifts that are taking place in this century: “a power transition among states and a power diffusion away from all states to nonstate actors.” To that we should add that there is also a valuation transition from tangible to non-tangible capital, along with a revolution in nanotechnology, energy, artificial intelligence, robotics, finance and the medical sciences, all of which are destined to alter the course of doing business as well as of humanity’s trajectory for decades to come. Those shifts will create a feeling that we are bending the arrow of time as hard and soft power create an amalgam of diffused smart power that seeks to alter the international balance of power including the redefinition of what money is.
Some of the societies before our own that were facing the
same challenges and dilemmas (including the contemporary American society in
the early 1970s), were successful in overcoming the rising uncertainties and
establishing a path of future success. What is that element that makes or breaks
societies/nations when historical shifts take place? In our humble opinion, the
unique element that distinguishes the winners from the losers is a paideia
where the reality of tragedy becomes part of the economy’s DNA.
The economy is a set of social institutions and oikonomos is
just a steward of resources entrusted to her/him for the advancement of the
goals of the beneficial owner of those resources. Stewards who fail to foresee
potential disasters and tragedies and who lack the foresight to prepare for
such tragedies and shifts, are simply incompetent and unworthy of trust. When
we choose a financial manager and/or vote for a leader, our criterion should be
her/his judgment and foresight, like when we choose a surgeon to operate on our
heart.
The destiny of our economies and societies-at-large (let
alone our portfolios) are at the hands of fallible persons who, even in their
hour of triumph, are perched on the precipice of catastrophe. Catharsis in
ancient Greek tragedies was the moment when the audience recognized that the
horrifying outcomes they were witnessing were eminently avoidable. A paideia where
tragedies are embraced is a paideia that embraces timeless truths about human
nature and relationships.
“An understanding of tragedy remains indispensable – as it always has been – to the study of statecraft and the preservation of world power”, as so eloquently put by Hal Brands and Chares Edel in their outstanding book The Lessons of Tragedy: Statecraft and World Order. In our hubris, we believe that the arrow of progress is only moving forward, but the reality is that human history is full of collapses at historical turns when power and existing dynamics shift and change.
As we stand at the dawn of 2021 and as we are facing a world
that is destined to change (geopolitically, geoeconomically, technologically,
biomedically, etc.), the first questions we should be asking ourselves about
our portfolios is: How safe are my investments? How are they anchored? How are
they hedged? What will happen to my retirement income if a catastrophe materializes?
The history of international affairs – and to some extent
the financial history itself – is a monument to tragedy. However, whenever our
leaders and portfolio managers create margins of cushions, they eventually
create an escape clause and a valve in holding the forces of upheaval at bay.
As the leadership of Paul Volcker in the 1970s and 1980s demonstrated, we can
thrive in the midst of collapse when foresight and decisive leadership leads
the way (Volcker foresaw the dollar crisis and the collapse of the Bretton
Woods in the 1960s and by following his advice, the US came out triumphant of
the 1970s tragedy and the collapse of the Bretton Woods Agreement).
We expect 2021 to be a decent, if not a good year, for
equities and the markets overall. However, acts of omission are multiplied when
acts of incompetent commissions subjugate states, societies, and portfolios
into serial amnesia and make us lose our sense of tragedy. When serial amnesia
hits our portfolios, then the fundamental lesson of order and anchoring is
thrown out of the window. Order and anchoring mean that we arrange our affairs
and portfolios in such a way that descent into tragedy and chaos is prevented
and/or is cured with escape clauses. Let’s not forget that catastrophe arrived
in the Athenian democracy at the peak of their golden age of innovations.
Unless the public comprehends the depths to which we might sink absent
anchoring, discipline, paideia, and courage, we will not be able to ascend to
great heights that are awaiting us all.
The virtue of preparing for catastrophe and tragedy – while applying contextual intelligence that capitalizes on trends – is that it seduces us into celebrating life and returns into their fullness as we are warriors of humility characterized by clear-headedness and resolve in identifying opportunities and drafting strategies which, paraphrasing Demophon (the Athenian King in Euripides’ Heracleidae responding to the Argive diplomat who was demanding the expulsion of refugees), are designed in such a way that preserves capital, liberty, uphold value, truth, justice, and make us masters of our own house, even if that meant that we may opt for means other than dialogue when tyrannical forces endanger our way of life and/or our allies’ way of life.
Portfolio Anchoring & Capital Allocation at the Dawn of Power Shifts
Author : John E. Charalambakis
Date : December 2, 2020
Can we truly live and invest heroically? Can we truly stare into the abyss of pain, despair, and disaster and somehow draw strength from those encounters? Could we contemplate on the fragility and uncertainty of our lives and portfolios and summon the will to act bravely, to bear the burdens of change, and to make sacrifices for greater causes other than ourselves? Could we capture the idea that, in the midst of a storm, the safest place to be may not be the harbor? How much risk should we embrace in order to be liberated from our fears?
As Joseph Nye explains in his excellent book The Future of Power, there are two power shifts that are taking place in this century: “a power transition among states and a power diffusion away from all states to nonstate actors.” To that we should add that there is also a valuation transition from tangible to non-tangible capital, along with a revolution in nanotechnology, energy, artificial intelligence, robotics, finance and the medical sciences, all of which are destined to alter the course of doing business as well as of humanity’s trajectory for decades to come. Those shifts will create a feeling that we are bending the arrow of time as hard and soft power create an amalgam of diffused smart power that seeks to alter the international balance of power including the redefinition of what money is.
Some of the societies before our own that were facing the same challenges and dilemmas (including the contemporary American society in the early 1970s), were successful in overcoming the rising uncertainties and establishing a path of future success. What is that element that makes or breaks societies/nations when historical shifts take place? In our humble opinion, the unique element that distinguishes the winners from the losers is a paideia where the reality of tragedy becomes part of the economy’s DNA.
The economy is a set of social institutions and oikonomos is just a steward of resources entrusted to her/him for the advancement of the goals of the beneficial owner of those resources. Stewards who fail to foresee potential disasters and tragedies and who lack the foresight to prepare for such tragedies and shifts, are simply incompetent and unworthy of trust. When we choose a financial manager and/or vote for a leader, our criterion should be her/his judgment and foresight, like when we choose a surgeon to operate on our heart.
The destiny of our economies and societies-at-large (let alone our portfolios) are at the hands of fallible persons who, even in their hour of triumph, are perched on the precipice of catastrophe. Catharsis in ancient Greek tragedies was the moment when the audience recognized that the horrifying outcomes they were witnessing were eminently avoidable. A paideia where tragedies are embraced is a paideia that embraces timeless truths about human nature and relationships.
“An understanding of tragedy remains indispensable – as it always has been – to the study of statecraft and the preservation of world power”, as so eloquently put by Hal Brands and Chares Edel in their outstanding book The Lessons of Tragedy: Statecraft and World Order. In our hubris, we believe that the arrow of progress is only moving forward, but the reality is that human history is full of collapses at historical turns when power and existing dynamics shift and change.
As we stand at the dawn of 2021 and as we are facing a world that is destined to change (geopolitically, geoeconomically, technologically, biomedically, etc.), the first questions we should be asking ourselves about our portfolios is: How safe are my investments? How are they anchored? How are they hedged? What will happen to my retirement income if a catastrophe materializes?
The history of international affairs – and to some extent the financial history itself – is a monument to tragedy. However, whenever our leaders and portfolio managers create margins of cushions, they eventually create an escape clause and a valve in holding the forces of upheaval at bay. As the leadership of Paul Volcker in the 1970s and 1980s demonstrated, we can thrive in the midst of collapse when foresight and decisive leadership leads the way (Volcker foresaw the dollar crisis and the collapse of the Bretton Woods in the 1960s and by following his advice, the US came out triumphant of the 1970s tragedy and the collapse of the Bretton Woods Agreement).
We expect 2021 to be a decent, if not a good year, for equities and the markets overall. However, acts of omission are multiplied when acts of incompetent commissions subjugate states, societies, and portfolios into serial amnesia and make us lose our sense of tragedy. When serial amnesia hits our portfolios, then the fundamental lesson of order and anchoring is thrown out of the window. Order and anchoring mean that we arrange our affairs and portfolios in such a way that descent into tragedy and chaos is prevented and/or is cured with escape clauses. Let’s not forget that catastrophe arrived in the Athenian democracy at the peak of their golden age of innovations. Unless the public comprehends the depths to which we might sink absent anchoring, discipline, paideia, and courage, we will not be able to ascend to great heights that are awaiting us all.
The virtue of preparing for catastrophe and tragedy – while applying contextual intelligence that capitalizes on trends – is that it seduces us into celebrating life and returns into their fullness as we are warriors of humility characterized by clear-headedness and resolve in identifying opportunities and drafting strategies which, paraphrasing Demophon (the Athenian King in Euripides’ Heracleidae responding to the Argive diplomat who was demanding the expulsion of refugees), are designed in such a way that preserves capital, liberty, uphold value, truth, justice, and make us masters of our own house, even if that meant that we may opt for means other than dialogue when tyrannical forces endanger our way of life and/or our allies’ way of life.