Earlier this month, my nine-year old son participated in an annual tradition amongst fourth graders at his school: The overnight field trip to the Phoenix Zoo. Many parents of the fourth graders, including my wife, were looking forward to this event as a night when school faculty serves as free overnight childcare for our energetic kids. Prior to the event, I was feeling a different set of emotions, as in a delusional moment some months earlier I had volunteered to be one of the adult chaperones.
The agenda for the field trip included an evening program by zoo employees, and another one the following morning. Sandwiched between those educational sessions was the element of the trip I dreaded: “Sleeping”. 108 fourth graders, five teachers and a handful of foolish parents like myself were expected to sleep in sleeping bags (no mats or cots allowed) laid on the concrete floor of an undivided room about half the size of a basketball court.
As I talked with my wife about the upcoming evening, she conveyed to me an important piece of advice that two friends who had attended last year’s trip had given her: “The best place to set up your sleeping bags is in a corner of the room. That way, you won’t have wandering kids stepping on you all night as they each make their way to the bathroom.”
As the evening program was winding down, I held my son’s and my bedrolls and duffel bags, and eyed the nearest corner of the room. Remembering the tip from my wife’s friends, I was prepared to be Hero Dad, sprinting to that precious corner the moment the teachers excused the kids. When the evening program ended, mass chaos broke out. Kids trying to pair up with friends, parents trying to locate kids, and teachers just trying to get out of the way. I, however, remained focused on the goal at hand and bee-lined for my sacred corner. After bumping a half-dozen shoulders and hurdling a blonde- haired girl who had fallen in the bedlam, I made it to corner, only to find . . .
. . . Eight kids and five other parents already arguing over who had rights to the corner. My head slumped in dismay. My son and I stood and surveyed a 15-foot radius around the corner, where not an inch of concrete was visible amongst the sleeping bags and their human owners. My son looked at me desperately and said, “Dad, we’re not going to have anywhere to sleep, this is going to be the worst night ever!”
At that point, I couldn’t help but agree. Clearly, the “secret tip” my wife had communicated was no secret. It seemed every parent and child on the trip had the same information and was quick to act on it. But as I started to trudge away from the corner, I was surprised at what I saw: In the center of the room, an eight-foot island had
formed, devoid of bags or people, a peaceful circle in the chaotic sea around us. My son looked at me, I triumphantly pointed forward, and we strode to our new site; relishing in the fact that it was large enough not only for us to spread out but to create a buffer zone such that our heads and appendages would be safe from late-night feet.
On the bus ride home the next day, I thought about how my experience parallels that of the financial markets. It is common to get excited about a pharmaceutical company whose groundbreaking drug just received FDA approval or feel pessimistic about the broad stock market because the economy is showing signs of a recession. In either case, it is important to recognize that news, just like the field trip “tip” I had received, is likely to already be known by the public. When information flows freely in a competitive market, it is nearly impossible for any individual to get a persistent “edge”.
In the financial markets, we think this means investors should generally act as though security prices are “fair”; that is, prices already reflect all public information. When you are tempted to sell your stocks after reading a scary news headline about the economy or buy shares of a glamorous tech company that just announced a great new product, remind yourself that what you are reading and hearing does not give you an advantage. The same holds true for the investment managers who charge high fees with the promise to identify “mispriced” individual stocks or markets. Be leery of these types of claims. You are likely to be better off investing in a lower cost, highly diversified strategy that seeks to capture the returns of the markets, not outguess them.
In addition, we have attached a link to our updated Form ADV Part 2B. This Brochure Supplement provides information about TFO Phoenix personnel.
We welcome your questions and wish you and your family a festive, safe Thanksgiving holiday.
CHUCK CARROLL, CFA, CAIA
CHIEF INVESTMENT OFFICER
TFO PHOENIX, INC.
TFO Phoenix, Inc. is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.