Mobile Bay is protected by Fort Morgan on one side and Fort Gaines on the other. There’s history— “Damn the torpedoes! Full speed ahead!”—and an abundance of life at the intersection of the bay and the Gulf of America. Within a relatively short distance, you have marshes, reefs, grass flats, and world-class pelagic fishing.
“Where’s the blue water?”
Down here, that’s about the first question asked when contemplating a run offshore to find tuna or any other pelagic fish. Most days, you are looking at 75 miles offshore, sometimes much more than that. The location of the blue water matters.
The word blue doesn’t do it justice; that’s not really what it is. I’m sure there are scientific reasons for the color change, but when you get in it, it’s like entering a new world. Out there, the pace of everything slows down, and the wonder of creation is undeniable. You are out where the wild things are.
The Leak
If I polled the audience, I’d guess most readers of this note would be interested in going offshore. But… what if the boat had a leak? Even just a small leak?
I’d guess the majority turns into a minority on that tuna trip invite.
No sane person would go out in the Gulf on a boat with a known leak. No amount of bilge pumps changes that.
This hypothetical boat has no impact on your life; your money, on the other hand, that’s a different story. That leak needs to be addressed.
Your Time and Energy
Your client’s money is their stored time. At some point, they traded their time and energy in return for that money.
You can always earn more money, but you can never earn more time.
That’s why there’s more to defending purchasing power than most people think.
It’s our opinion that this risk is structural and is not going anywhere. Our system is designed to leak value from your money. Your “safe” assets have a hole in the hull and no bilge pump.
The traditional view of safe assets is a risky one to influence your asset allocation.
Signal and Noise
A high-level goal of any client is to generate the highest compounded return possible. If we can generate higher returns with similar risks, I’ve yet to meet a client that would opt out of that.
If compounded returns are the objective, we need to focus on the more impactful pieces of information. There’s so much information hitting us in the face daily. Almost all of it is noise.
The signal, to be a broken record, is the system we are in. I get reprimanded for oversimplifying, but I just don’t think I am.
We run fiscal deficits, and that’s not changing. Deficits must be funded with bond issuance. That means new debt is all but guaranteed… and it’s coming in size.
I won’t give you the soapbox again, but new debt = new money in the system. More supply of money with the same amount of goods and services means those goods and services are going to cost more.
Imagine the computer you’re reading this on. What if that was the only tradable good in the market and the supply of money was $100? If all of a sudden, I increased the money supply to $200 while the computer remained the only tradable good, the computer is now worth more $.
The dynamic is not the computer being worth more. It’s each dollar buying fewer computers than it did the day before the money supply expanded.
If you have capital to allocate, the search is on for places that can defend against the money printer and purchasing power destruction.
Asset Allocation
This is where you improve outcomes.
Wealth management in general operates under the impression that bonds are safe, they generate positive returns, and they can help protect against your equities.
Bonds = safe
Stocks = risk?
We’d argue against all of that logic. If the goal is compounding returns, holding bonds in too great a size might be the biggest risk you have.
Aptus as a business is designed to help give you the confidence to view the world differently. We want to impact your ability to adjust your asset allocation away from bonds and towards stocks.
We can sound cynical about the backdrop we have, but we are so bearish we are bullish. With a long-term horizon and despite the bumps along the way, the inflationary pressures are inevitable, and risk assets should continue to rise. Allocate accordingly.
Conclusion
This is Si-guy and Luke weighing in a monster tuna from earlier this summer:
Everything about this trip will be remembered for years to come. Thankfully, the boat was leak-free.
We are an options-based shop looking for ways to help you address the leakage in portfolios.
We believe options are unique in their ability to help defend against left tails (large drawdowns) while simultaneously onboarding more stocks within allocations. This shift should lead to higher compounded returns. That’s good for your clients, your business, and hopefully ours!
Better in the tails… that’s what we aim to be.
We will continue to build and work to improve the services and relationship we provide. We are thankful for your trust. If you have any questions at all, please reach out.
Disclosures
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.
This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy. Investing involves risk. Principal loss is possible.
Advisory services are offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama. ACA-2608-5.