What is Your Duration?
By Julien B. Booth
December 22, 2020
I hope this note finds you well, safe, and ready to share Christmas.
As the world has seemingly changed in minutes (that seem like months), we have confronted the Post Covid era and adapted to a fresh, New World.
After a month’s long bout with the cross currents of politics, monetary policy, company valuations, et al. the catharsis ultimately came.
It is memorialized on the office wall. New world, many new lessons, we have to change.
I have determined it primarily comes to Duration.
Duration is a statistic utilized primarily by income investors, but its application is imperative to all. It ultimately simplifies to the application and appreciation of Time.
Growing up in the pre-smart phone era (proud 48 yr. old Gen-Xer), the understanding of Time was inherent. Post smart-phone that is no longer the case.
2020 has largely been about un-learning many “fundamentals”, that just ain’t (it is a real word Mom) so. The Boy Scout Law is powerful and my go-to, but it only governs close relationships; the greater world largely disdains it.
Learning in the financial markets is an absolute imperative and is the aphrodisiac of a constantly varied world. We enjoy it.
While we do not subscribe to the instant-space (immediate) that the world now expects, we do have to confront the reality of instantaneous markets, fierce competitiveness, and a world (and some investors) who do not care about the long term (dare I say more than a few months).
Un-learning 25 years of scars takes time (and they are not to be forgotten). Patience is a virtue, but one fewer and fewer have.
While it makes managing money difficult, for patient investors it reveals tremendous opportunity. We appreciate the challenge.
Net, net, one’s duration can be applied to most any decision or relationship. The appreciation for duration is to be cherished. For example, the relationship duration with a trusted friend who provides honest counsel.
The composition of our investments will be forced to change over time. For now, we hold well capitalized companies that pay massive income (5%+) vs. the current yields available (2% range).
These securities are household names with strong balance sheets and defensible businesses (per our duration), but over time they too will change. The world cares little for the GE’s and Sears’ of the world.
The world of eternal (per your duration) 0% interest rates is re-ordering the financials markets. Once upon a time, making actual money was the expectation. The giants of the “New World” have proven this “once truism” moot.
That said, we do not plan to buy any Lyft, Uber, Tesla, Snowflake, or Softbank anytime soon. We still prefer companies that create actual profits. (It’s a duration thing that Millennials may not understand).
On a more personal note, I am incredibly grateful for the time, interest, real conversations etc. that we have with each of you.
The duration of our relationships is my true-North indicator of trust, kindness, integrity, and respect.
Thank you.
JBB