Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

4th Quarter | 2021

Market insights and analysis


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

Understanding the ever-changing world around us

By David Wismer

It has been an unprecedented and news-packed start to the new year.

Developments last week in Washington, new COVID-related challenges, the complex and ongoing vaccine rollout, Georgia’s Senate races, the realities of implementing the Brexit deal, and the state of the U.S. jobs market and manufacturing sector are just some of the major headlines since January 1.

The impact of most of these will be far-reaching and stay in the news for some time.

Yet, most Americans continued to conduct their daily routines over the last several days. People exercised caution in public settings, grocery stores sold groceries, Amazon packages and the mail were delivered, students attended school either remotely or in person, Zoom meetings were held, and sales calls were made. Unfortunately, these activities were all operating under the large shadow of rising COVID cases, hospitalizations, and deaths.

In our immediate area of interest, economic data was reported by government agencies and other sources, and financial markets functioned normally. Flexible Plan Investments (FPI), as always, conducted the business of providing continuous research for and the monitoring and management of client strategies and portfolios.

The role of information in investing

As a communications professional for over four decades and, in general, one with a serious preoccupation with the news, the topic of “news” is endlessly fascinating to me.

I make a conscious effort to check out news from many diverse and—in today’s world—often conflicting sources. Financial news is usually at the top of my priority list. Like perhaps some of you, the first and last thing I look at each weekday (and Sunday night) is where the index futures are trading.

I read with great interest my colleague Peter Mauthe’s recent article in this space, “Expectations that can lead to bad investing.” (Peter is a member of Flexible Plan Investments’ executive team and has a wealth of industry experience.)

In this article, Peter stated, “At Flexible Plan, investing decisions are made by a rules-based methodology that is quantitative and objective. There is no investment committee to debate current events or any expectations based on the fears, uncertainties, and doubts about the future of markets.”

The article was very good and I thought a lot about its implications.

In fact, I called Peter some days after the article ran and asked him two half-serious questions:

  1. If FPI’s rules-based methodology does not directly depend on short-term analysis of current events, why do you (and other members of FPI’s management and research team) devote so much effort to understanding the current environment?
  2. Why does FPI put valuable resources into publishing a weekly market update for its adviser and investor clientele?

I heard a lengthy pause at the other end of the line. It was as though I had asked Peter, “Why is breathing important?”

Actually, his article partially addressed these questions, as he wrote, “Of course, news about global politics, economics, and currency issues is important to us here at Flexible Plan, which is why we subscribe to so many direct news feeds. … We also pay for multiple market data feeds, so we can quantify what is actually going on in the economies and markets around the world and respond accordingly.”

But I think there are a few other important reasons everyone at FPI considers it critical to understand the current environment, especially the company’s leadership team. Some of these emerged in my talk with Peter:

- I don’t think it matters what industry you are in or what your job function is—to be the very best in serving your constituencies, you need to know your industry inside-out, what factors are driving trends and attitudes, and the environment your products or services are functioning in. (One of my first business mentors, way back in the 1970s, was fond of saying, “There is nothing more important than knowing the world around you.”)

- FPI, I believe, is a recognized thought leader in the investment industry, and the company has been at the forefront of several industry innovations when it comes to the dynamic risk management and monitoring of investment portfolios. But wouldn’t it be shortsighted not also to seek out the insights being presented by other thought leaders, both directly in the industry and outside of it?

- Along these same lines, FPI has dozens of important relationships with highly professional third parties across the full spectrum of the investment products and services that FPI offers. They often publish valuable content, insights, and research that bear examination.

- FPI publishes detailed analysis of important investment topics periodically in the form of white papers. To give one example, “The Role of Gold in Investment Portfolios” examines gold’s performance under seven different market scenarios and four different economic regimes—along with statistical consideration of optimal gold allocations for investment portfolios. I would submit that the thorough understanding of those market scenarios and economic regimes is not just a quantitative exercise. It also requires a thorough qualitative understanding of historical data—obtained, in part, through ongoing study of the market’s historical trends.

- FPI also goes through a constant process of strategy evaluation. This is largely data-driven, but hypotheses and refinements can have their seeds in qualitative observations of, for example, changes in the speed and behavior of market cycles. The advances in computing power—and how industry participants apply that—require constant vigilance, adaptation, and evolution.

- While FPI needs to understand investment trends, both quantitative and qualitative, expertise needs to be maintained in many different areas of its operations: information technology, compliance and regulation, cybersecurity, marketing, and business continuity/emergency planning—to mention a few. And, with the onset of COVID-19, health, safety, and remote-workplace best practices have taken on obvious increased importance.

- A final point is perhaps one of the most important. Peter’s article referred to the conversations he has had with “investors and advisers over the past three months about the many uncertainties we have all had to face.”

It has often been said, “It is a market of stocks, not a stock market.” But it is also a market of investors, both large and small.

Whether one is a financial adviser, the client of an adviser, or a self-directed investor, everyone is bombarded with messaging from the financial news media. Many of FPI’s adviser and investor clients also receive insights from broker-dealers, 401(k) providers, banks, or other financial industry sources.

Legitimate questions are frequently posed to FPI’s frontline business consultants, customer service representatives, and management regarding market trends, strategy performance, and the outlook for specific asset classes or sectors. It is evident that FPI needs to be a proactive leader in sharing information and perspective each week—along with having the capability to intelligently respond to such questions and provide valuable experience-based guidance.

On FPI’s track record of innovation and industry leadership, the company’s founder and president, Jerry Wagner, often says, “Managing the non-traditional is our tradition.” That would not be possible without a thorough and ongoing understanding of the world FPI operates in.

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