Portfolio Manager and Principal Chris Clark offers insights into our disciplined, long-term investment process by emphasizing the role that contrarian thinking plays in our portfolios. Chris has 25 years of investment industry experience and joined Royce's investment staff in 2007.[/i]
[i]"Tomorrow is the most important thing in life. Comes into us at midnight very clean. It's perfect when it arrives and it puts itself in our hands. It hopes we've learned something from yesterday."
- John Wayne
On a recent family trip to the majestic state of Montana, I spent some time reflecting on the current state of affairs in the world, specifically reflecting on how, in so many ways, we seem to have lost sight of the promise of the future.
Aptly called the "Treasure State" for its abundance of mineral resources and natural beauty, Montana is a study in contrasts. Roughly bisected by the Continental Divide, expansive prairies define the eastern portion of the state, with the western region becoming steadily more rugged and mountainous. Its numerous rivers form parts of three major watersheds that ultimately drain west to the Pacific Ocean, south to the Gulf of Mexico and northeast to the Northern Atlantic Ocean through Canada's Hudson Bay.
Weather conditions vary greatly with some of the coldest conditions recorded among the lower 48 states during harsh winter months offset by glorious summer conditions that are marked by warm days and pleasantly cool nights. Wildlife is abundant, with a broad collection of both predators and prey locked into their timeless drama.
The staggering scale and beauty of Glacier and Yellowstone National Parks is a welcome reminder of the genius of the Congressional action—yes, in the past, this governmental body has done brilliant things—in 1872 establishing Yellowstone as the United States' first national park, setting off an important worldwide movement to preserve and protect public lands.
Traveling on horseback in the Gallatin Range in the southwestern part of the state, I found it hard not to notice the impact that fires have had on the extensive pine forests. For the most part naturally occurring, these fires are usually started by lightning strikes in the late summer when dry conditions often prevail.
While dangerous and damaging in the moment, fires play a vital role in the regeneration of the forests both by unlocking new seeds from the singed pine cones as well as by clearing out the undergrowth that allow those seeds to germinate. Riding through forests that burned ten or twenty years ago, one is struck by the lush young trees growing up underneath their charred ancestors – a welcome reminder that out of devastation springs new life, and with it, yet another cycle of growth and natural renewal.
Today's world is somewhat analogous. The past decade or so has undeniably been challenging with an unusually concentrated number of devastating man-made and naturally occurring tragedies. September 11, wars in Iraq and Afghanistan, the tsunamis in Indonesia and Japan, the earthquake in Haiti, Hurricane Katrina and countless other floods and droughts, the crash of the technology stock bubble and the global financial crisis, with their severe economic and wealth effects, the Gulf oil spill disaster, and, most recently, the wrenching sovereign debt crisis in Europe--all occurring in parallel with a massive media boom allowing for instantaneous and sensational coverage of each event.
In today's world, it is nearly impossible to escape the real-time reporting and graphic imagery of these horrific events. No wonder, then, that we have all developed a somewhat gloomy and shortsighted view of our world. But is it justified?
Is this period any worse than those suffered during the U.S. Civil War, the Great Depression, WWI or WWII, or the Holocaust? I would argue not, but perhaps those generations were mercifully spared the constant media exposure that we cannot seem to avoid. We are a generation being forced to absorb and process current events in real time, which clouds our capacity to consider the vast opportunities that lay ahead.
Investing in today's world is no easy task. Every headline seems to demand action, and many investors are only too happy to comply. The long term is marked in days, not years.
Many traditional investment tenets have been turned on their heads. Thirty years of unprecedented returns in bonds have left them in a far riskier state than investors currently perceive.
By the same token, mediocre and highly volatile returns from equities over recent periods have greatly tarnished their reputation as the durable and economically dynamic entities that they truly are. Fear and paralysis are the dominant modes.
There are days in Montana when a casual observer might be convinced that the apocalypse is at hand. Yet every year, the harshness of winter dissipates, predators are sated, fires recede, and life cycles back to normal. And it has been this way for countless years.
Right now, the future is a source of fear and consternation, evaluated solely by the events of today, and not by the extraordinary promise of what the future may hold.
So instead of only worrying about how we are today, we might do well to spend a moment reflecting on the words of John Wayne, for after all, "Tomorrow is the most important thing in life…"
Important Disclosure Information
Chris Clark is a Portfolio Manager and Principal of Royce & Associates LLC. Mr. Clark's thoughts in this essay concerning the stock market are solely his own and, of course, there can be no assurance with regard to future market movements.