Time and Money

Delwin Graham - Feb 20, 2020
The future is opaque, but there are touchstones. Whereas we invest our money for profit, the vehicle that we invest in must be evaluated in terms of its profitability – either in the short or long term.

It always seems possible to become rich in retrospect – if we had bought Apple (AAPL:NASDAQ) in April 2005 at US$6.00, if we had sold Aurora (ACB:TSX) in April 2019 at CDN$12.00. But as investors, we can’t make money in the past because we get paid in the future. When we look to make a profit on a stock, that capital gain will be realized when we sell it. Similarly, we collect our dividends and interest payments only after our purchase.

And so, while the future provides us with opportunities to profit, it also creates risk. What we envision will happen in an hour, a day, or a year from now is often actually not what happens - “There’s many a slip between the cup and the lip” (Cf., Ancient Proverb). Events happen that you did not or could not foresee. Sometimes we “fall up”; that is, unforeseen events work to the benefit of our investment. However, in a situation where events work to our disadvantage, we often fall into the trap of wishful thinking, that is, hoping that something will come up that will rescue our investment – for example, perhaps OPEC will cut production, or there will be a military incident in the Middle East. These things might come to pass, but as an investor, we are now operating outside of the fundamental unknowability of the future – realizing that things could also get worse. We must react to the facts as they arise, not as we hope they might happen.

When we are talking about the future, we don’t know what we are talking about because the future is unknown. We use trends, models, and historical precedents to build a bridge to the future. Typically, we extrapolate from the past into the future. But of course, the future is unknowable. The trap that we can fall into here is magical thinking, that is, presuming that our models are reality and expecting events to eventually coincide with the ideal – for example, that the world economy must eventually conform to the Kondratieff Wave (Cf., Akhilesh Ganti, “Kondratieff Wave”, www.investopedia.com). A lot of money has been lost by investors waiting for the market to come to its senses – the market can stay “irrational” much longer than you can stay solvent (Cf., Old Stockbroker Saying). Once again, given the fundamental unknowability of the future, we must react with humility to events as they actually occur.

The future is opaque, but there are touchstones. Whereas we invest our money for profit, the vehicle that we invest in must be evaluated in terms of its profitability – either in the short or long term. In the case where we are expecting to profit in the short term – for example, a 1-year GIC – the return that we expect must be reconciled with the reduced risk due to the shortened time span of the investment – not much can happen. However, in the case of a private investment in a tech start-up, the projected path to profitability is much longer, and a lot can happen in that time – the potential for profit must reflect that heightened risk.

As an equity investor, you get paid when you take a capital gain or receive dividend income. In the case of fixed income, you receive interest income. Whereas these payments are anticipated when we make an investment, a macro-economic perspective is required. But any particular investment must be monitored on an individual basis, in order to mitigate the risk that comes with the passing of time – stuff happens, and we must react to it. For a few potentially profitable investment ideas and the monitoring that must accompany them, please contact me at dgraham@cgf.com or 780-408-1518.