May 19 , 2008

Has the Smoke Cleared?

This is precisely why ‘market timers’ get it wrong more often than they get it right. If you are to profit from market swings, you have to rely on imprecise and indefinite data, as well as rumors and instinct, in order to make decisions. As a result, an aggressive market timer who read the tea leaves correctly can score strongly, and, conversely, he can crash and burn when his suppositions fail to materialize.

The investor’s dilemma is that sitting back and waiting for the so-called “smoke” to clear is not really a viable option.  By the time that happens, if steps haven’t been taken to invest, or to sell, one would have missed out on the opportunity to profit from the situation.

BUT DOES THE SMOKE EVER CLEAR?
While it is clear from the historical perspective that by the time  “the smoke clears,” it’s usually too late to act, I can also argue from a philosophical perspective that, perhaps,  “the smoke never clears.”

Over the years, the Frye Financial Center business model has changed and developed in response to clients’ changing preferences and needs, resulting in the Independent Wealth Management Boutique concept that defines our present incarnation. There have been a few constants over our 30 years of business in South Florida, in terms of client behavior (If you did the math… yes, I was in my early 20’s when I began!). Throughout all my years advising clients, one ‘constant’ has been how often I hear the retort, “that sounds great! —As soon as the smoke clears” in response to my pointing out important planning or protection steps that I believe require immediate action. The clients are referring to the “smoke” or complications they are experiencing in their own lives, as well as market uncertainties.

Usually, when I hear that common refrain, my first instinct is to reply, “Can you define exactly what that means to you…because, I’m not certain, philosophically, if 'the smoke ever clears'. But, of course, I restrain myself and ask for an approximate projection as to when ‘smoke clearance’ will occur.

THE BRUTAL REALITY OF SMOKE CLEARANCE
Ultimately, in just about all cases, we do end up providing the proscribed services to our clients. If this were not the case, then it would be clear that our business model was a failure---it isn’t.  In fact, some of you logicians out there could argue that if Frye Financial ultimately provides the necessary services, then we have empirical proof that “the smoke does eventually clear.”

However, I will argue in response that if we look at the timing of when some of these vital services are finally provided, we would reach a different conclusion.

For example, in the Estate Planning area, clients ascribing to the “when the smoke clears” philosophy usually end up procrastinating until the occurrence of an epiphanous precipitating event before completing their Wills, Trusts, etc. That event, unfortunately, is usually a death in the family or a newly discovered illness or a special need.

Has the smoke cleared in those situations?…Hardly!

In the Asset Protection arena, clients often seek our advice and services after a potential negligent act or some unfortunate accident or incident has occurred. As you might imagine, Asset Protection options are much more limited after potential problems have occurred. And, as far as the anticipated ‘smoke clearance’ in these cases?  Unfortunately, in these situations, it was actually the thickening  of the smoke that prompted action.

In the Financial Planning/Retirement arena, often individuals in their 50’s and 60’s (and older) approach us in a panic when they finally accept that they will actually have to either slow down or retire someday. After years of hearing and reading about the need to have a financial and retirement plan in place, they react suddenly and make an appointment. Has the smoke cleared for them?

And finally in the Portfolio Management area, as I mentioned before, clients often seek to make investments when they feel things have stabilized. In those cases, markets often have already reacted to the good news and they are trading at a very high level. While the client thinks the “smoke has cleared,” he or she is often mistaken. Often, new fires have already begun to burn, but few have the vision to spot the early signs of smoke on the horizon.

MY SMOKY CONCLUSION
I don’t need to tell you that summer is around the corner; a bit of time spent in your car after it has been baking under the South Florida sun is reminder enough. Summer months generally translate to slower times in S. Florida; less business and less traffic. I would recommend that everyone kick back a little, recharge your batteries and even try to read some of the journals that have been piling up on the floor next to your desks.

I would also suggest that you take the time now to review your financial, estate and asset protection strategies and take any needed action, while you have some time on your hands.

Ironically, today as I write this piece I can smell and see the smoke from the brushfires that typically erupt near the Everglades at the end of each dry season, just prior to our summer rains. So while the summer is slower here, in more than one sense, it doesn’t mean that the smoke clears.

In fact, I personally believe that the  "smoke" never clears in our lives, as it is the smoke that defines what our lives are all about. A life with little or no smoke may be a life without challenges or a life that is empty. Or, perhaps, the only time the smoke clears is when we finally leave this good earth. So I guess our only alternative is to learn to accept and appreciate the smoke---

I leave you with the following two quotes:

For a long time it had seemed to me that life was about to begin-real life. But, there was always some obstacle in the way. Something to be got through first, some unfinished business, time to be served, a debt to be paid. Then life would begin. At last it dawned on me that these obstacles were my life. -- Alfred D’Souza

Waiting for the fish to bite or waiting for wind to fly a kite. Or waiting around for a Friday night or waiting perhaps for Uncle Jake or a pot to boil or a better break or a string of pearls or a pair of pants or a wig with curls or another chance. Everyone is just waiting. -- Dr. Seuss

Austin A. Frye, MBA, JD, CFP®

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