Change is Constant – But So Is The Wait
By Greg Sweeney, Chief Investment Officer, Bell State Bank & Trust
Heraclitus of Ephesus, a Greek philosopher around 500 B.C., is known for his doctrine of change being central to the universe. He is also credited with the saying, “The only thing constant is change.” If we were to apply this theme to the last 30 years in the United States alone, we would find it to be true nearly everywhere. In fact, the list of changes would be so long it would occupy volumes of books. Thinking it would occupy space in a book is naïve in itself. In today’s world, the list would reside in gigabytes or terabytes in a “cloud-sourced” electronic database – and that is yet another indication of the constant changes, even in our own lifetimes.
Responding to Change
Change usually dictates some sort of response. If one thing changes, everything related to the initial change will respond or change itself. Think of a car pulling away from a stoplight that just turned green. When the first car accelerates, the car behind it could accelerate at the same time. That goes for all the cars at the light; they could all accelerate at the same time, assuming they all accelerated at the same rate. Instead, the car in front gets some space before the second car begins to move forward. There is a certain amount of change needed before the second, third and fourth drivers respond. The farther away from the initial change (in this case, the position in line away from the first car), the longer the driver stays stopped, waiting for all other drivers in front of him to respond to the change.
The smaller the change, the quicker the response. The stoplight turning green is a simple change, and response happens quickly. Now ask yourself, how long would it take those same drivers to respond to an accident just down the road? That would ball up traffic for a long time.
Waiting tends frustrate most people. Once again, consider the stoplight. What percentage of drivers are comfortable and perfectly happy with delays created by stoplights or traffic? Without having specific data from some big study on the subject, it appears safe to say, not many.
Here is the real kicker: Humans do not like change unless it directly benefits us. People get frustrated just having to take a different street to work when their normal route closes for maintenance.
The same phenomenon occurs everywhere, including the economy. Small changes work their way through the system quite rapidly, with very little disruption. Big changes will ball up things for a long time. Right now, there is a lot of big economic change occurring. Some of it is self imposed (change to healthcare law, for example), while some is in response to unforeseen circumstances (like the national debt of Greece). Without debating whether it is good or bad, right or wrong, we all get frustrated when we are pulled between change and the wait that must take place before we respond.
It will continue to take time to move through economic events: large regulatory changes, demographics, European debt issues and our own debt issues in the United States, to name a few. We are “caught in the traffic” of slower economic growth around 1.5%, excess debt, home value uncertainty, low interest rates and volatile stock markets. When the traffic jam clears, we will once again be on our way. In the meantime, we aim to be as productive as possible with diversification, allocations, asset classes, income needs, capital preservation and other prudent investment management themes used to control risk and generate returns in the current environment.
Contact Greg Sweeney to start the conversation about your plan for long-term financial security.
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