“What got you here won’t get you there.” — Marshall Goldsmith
Financial independence has expanded at an exciting pace since 2009. The benefit this wealth provided to families in 10 years has the potential to change the trajectory of family wealth for generations.
I love to think about the expanded purpose of that capital and what it truly offers to families; the high-order impact of what can occur if lead intentionally accelerates financial capital, social capital, intellectual capital, and human capital for families to leverage to advance their cause.
The Biggest Threats to Family Capital Advancement
One of my central tenets is to be anti-fragile to any disruption — especially equity market disruption. This caused me to build an offense/defense evaluation as a central differentiator in the Pulliam Family Office process. (Contact me to learn more about what that evaluation looks like.)
I see three big threats to family capital advancement:
2. Linear thinking
The biggest of these is inertia, or assuming the past will reproduce itself linearly in the future. Each of these ignore the three compelling arguments made by Ed Easterling, John P. Hussman, and the yield curve inversion.
Three Articles That Underpin My Alternative Approach
Replace a complacent, linear, inertia-driven approach with one backed by the following articles and concepts.
- Research from John P. Hussman, Hussman Funds: Ground Rules of Existence
“… We expect dismal consequences for the U.S. stock market over the completion of this cycle, and over the coming 10-12 years [for people holding stocks at current levels]. Yet the historical reality is that once speculation shifts to risk-aversion, a period of just 18-30 months is typically required for valuations to revert to average or below-average levels, creating fresh opportunity for value-conscious long-term investors.”
- Ed Easterling, Crestmont Research: Serious Implications: Forecast Skew Over the Next Decade
“As for the appropriate investment strategy: Emphasize the more active and diversified ‘rowing’ strategies over the more passive ‘sailing’ strategies within investment portfolios.”
- The Inverted Yield Curve
When the yields on bonds with a shorter span are higher than those with a longer one, an inverted yield curve occurs, often predicting a recession. This article depicts where that’s led us today.
The Main Takeaway
I believe executives at publicly traded companies are highly susceptible to fragility due to their tightly coupled financial system of income, bonus, incentive stock holdings, restrictive stock units, and incentive stock options all tied to one company, in one sector, all in the U.S. equity market.
However, the overarching takeaway here is not gloom and doom. It is that you must have a rules-based process to evaluate risk and a discipline to act. The next decade will be characterized by which asset classes you own at which times, as well as those you don’t.
To learn about Pulliam Family Office’s rules-based approach, contact me.
Any opinions are those of John Pulliam and not necessarily those of Raymond James Financial Services or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The information has been obtained from sources considered to be reliable, but we do not guarantee the foregoing material as accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk, and you may incur a profit or loss regardless of strategy selected.
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