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2nd Quarter | 2021

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Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

Remember what the Dormouse said

By Jerry Wagner

One of my favorite gifts for Christmas was Haley Reinhart’s album “What’s That Sound?” Reinhart was a finalist on “American Idol” in 2011. I was repeatedly surprised while watching the show by the range and emotive power of her singing voice, and I have followed her career ever since. In recent years, she has been one of the stars of Scott Bradlee’s popular Postmodern Jukebox shows.

The album seeks to evoke the sounds and feel of the 1960s. It draws mostly on the California sound post-1965. It was even recorded on tape using instruments and equipment of the era at the famed Sunset Sound studios in Hollywood’s heart on Sunset Boulevard, where every band of the ’60s seems to have recorded.

The 2017 album was eerily prescient. Many of the songs were taken from the anti-war era and referenced the turmoil America experienced at that time. But rather than fueling the protest, the songs included on the album seemed to add a voice of reason in counterpoint to the protests then and now.

“There is an undeniable connection between the late ’60s and now,” says Reinhart. “They’re both turbulent, yet hopeful times. As I thought of what songs I’d like to reinterpret, I wanted to bring these similarities to the forefront. I also feel the urge to spread the revolutionary idea of people coming together through love and music.”

What did the Dormouse say?

One of the songs that I loved when it was recorded by Jefferson Airplane in 1967 was “White Rabbit.” I truly appreciated Reinhart’s version of the Grace Slick–written classic.

As I listened to the final lines of the song last weekend, I thought of the theme for this article:

When logic and proportion have fallen sloppy dead
And the White Knight is talking backwards
And the Red Queen’s “Off with her head!”
Remember what the Dormouse said:
“Keep your head. Keep your head.”

I thought the lyrics were perfect for today’s politics and the financial markets and that the Dormouse’s admonitions to “keep your head” were great advice in dealing with both.

One small problem: When I checked online to confirm the lyrics, I found out that I had it wrong. I had misheard the words and been singing the wrong lyrics for over 50 years!

It turns out that the actual final lines are:

“Feed your head. Feed your head.”

This is an example of a mondegreen—a fancy word someone invented (it’s not even in my two-volume dictionary) for when a person thinks a lyric says one thing when in fact it doesn’t.

Does that make me a “mondegreenist”? (See, I can make up words too.) I guess so. And so are many others, as the internet is full of people looking to find out what the Dormouse really said. It turns out that we did not really remember what the Dormouse said, or at least what Ms. Slick recalled.

My interpretation, and that of many others, was that the tune referenced the Dormouse’s actual suggestion to Alice to mind her head as was implied in Lewis Carroll’s original “Alice’s Adventures in Wonderland.” But it turns out that is not what was written by Slick when she penned her classic song.

I’m not sure what Grace Slick was referencing with her final lines. Supposedly, she admitted that she wrote the song following an acid trip. So maybe she got it wrong. (I know, it’s her song, and she can write whatever she wants.)

In any event, it’s been suggested that perhaps the phrase means either to keep taking the drugs or, as Slick later expressed, to keep your mind open to learning. Not wanting to start over on this article and waste an already written introduction, let’s go with the second interpretation!

The dilemma

As we approached the election and certainly in its aftermath, I have had many discussions with clients and their financial advisers that have gone something like this:

“I don’t know what we are going to do if [insert Biden or Trump] is elected. The world is coming to an end. Should I sell my stocks?”

First, I have to say, if the world is coming to an end, there are better things to do in your last days than worry about selling your stock. And secondly, more seriously, this is a classic example of letting the headlines or your personal political stances guide your investment decisions.

Regardless of the truth of either version of the presidential anxiety, investor returns in the markets are rarely immediately affected by such concerns.

Instead, a fundamental investor would say that markets reflect earnings, yield, and economic expectations, while a technical analyst would say prices reflect the collective opinions of all investors buying and selling in the marketplace each day.

Of course, when it comes to the election period, we have shares being traded by tens of millions of investors on different sides of the political fence. They have different views of what their candidate’s election will mean for the nation’s future. But they are always split, often offsetting each other, and the immediate aftermath of an election does not provide sufficient time to determine which side will be right in the long run.

So perhaps it comes as no surprise that when we look at a chart of the S&P 500 for the periods after both elections (end of October to January 11), they look remarkably similar. And this year, after four years of President Trump’s policies, the pandemic, protest, looting in the cities, a warp-speed vaccine, a Biden victory, disillusionment with the voting process, and a Capitol protest and incursion, the 2020 election aftermath actually topped the much-heralded 7% Trump rally of 2016 with a gain of its own of 16%.

Have a plan and stick to it

As I’ve written many times, whether it is trying to invest by following headlines, financial talking heads, so-called market experts, or political predictions, none of these sources are likely to lead investors to long-term profits.

Instead, investors need to approach the market with a plan. Is the management of their investments going to be passive, active, or some mix of the two? Passive remains invested in a static mix of investments, while active is responsive to what is happening in the markets.

Also, investors have to be disciplined. They have to stick with their plan. This is especially difficult if one listens to the aforementioned sources of noise that are endemic in today’s financial discourse.

For passive investors, the urge to give up on their buy-and-hold philosophy may take hold as stocks plunge 20%, 30%, 40%, and over 50% in the periodic meltdowns in our financial marketplace and all others throughout the world. To make matters worse, these investors often fail to return to their plan when markets start to rise again and, unfortunately, for years afterward.

For active investors, doubts creep in when their active strategies start to underperform the popular index benchmarks. This often occurs during whipsaw or seesaw markets, when prices are going nowhere. But it is also the case when markets are rallying.

This does not mean that the strategies are not working. Single alternative, active strategies are not designed for all market environments. They generate most of their value-add during downtrending markets.

When clients see their active strategies lag, they can start looking around for other strategies to “keep up with the Joneses.” These investors need to understand what their strategies are designed to do and what they cannot do before they invest, not when they need to be following their plan.

It’s time we stop and find an answer for both

In summary, in keeping with this article’s theme, I guess you could say that the passive investors need to “keep their heads,” while the active investors need to “feed their heads.” The former investors need to control their emotions, while the latter need to learn more about their strategies to better control their expectations.

Many investors find that a combination of a passive strategy within a portfolio of active strategies can provide the right mix to help control both emotions and expectations during trying times, be they financial or political or both.

Having a financial adviser to create your plan and provide counsel at such times can be the difference between success and failure in your investments.

In all events, keeping your head in trying times (not just when the Red Queen is after you) is essential to not only your financial success but also your personal peace of mind—whether or not it is what the Dormouse said.

The title of Haley Reinhart’s album is taken from the lyrics of another iconic song found on the album—the Buffalo Springfield hit “For What It’s Worth.” As is always the case with Reinhart, she sings it so passionately on the recording.

I think, just as was the case in the late ’60s, that in periods such as the one we have just gone through, and likely will have to endure again in the future, it is once again time for us as a nation, both sides, to ponder the words so movingly written by Stephen Stills in that song:

What a field day for the heat
A thousand people in the street
Singing songs and they carrying signs
Mostly say, “Hooray for our side”

It’s time we stop
Hey, what’s that sound?
Everybody look, what’s going down?

Paranoia strikes deep
Into your life it will creep
It starts when you’re always afraid
Step out of line, the men come and take you away

We better stop
Hey, what’s that sound?
Everybody look, what’s going down?



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