Dear Clients and Friends,
Historians disagree on when Falconry first emerged as a form of human/beast cooperative hunting, but it is widely assumed to be at least as old as written history. Ancient Humans cajoled the mightiest of raptors (Hawks, Eagles, and Falcons) to hunt for them, and over time this cooperative hunting method was adopted by multiple cultures including the medieval European cultures. Essentially, the Falconer would adopt a bird of prey, something like a Hawk, and the hawk was then used to hunt small mammals and birds as meat for the human. Today, we commonly use the Falconry Proverb, “A bird in the hand is worth two in the bush”, as a cautionary statement of risking what you have (bird in hand) to gain something potentially better (two in the bush). But as we will see, the Falconer, the Hawk and the Bird might have greater meaning given our current economic predicament.
The Falconer has a Hawk, whereby they are able to catch multiple Birds hidden somewhere in the bush. If the investor is the Falconer, the Hawk is available cash, and the Bird represents undervalued assets. Having cash in a bad market is like having a hawk in the midst of a field of Doves, the Bird in the hand is worth potentially multiple Birds in the bush. The Falconer takes care of the Hawk regardless of hunting conditions, and there are times where having cash can seem burdensome to the portfolio, but maintaining cash is just as important as taking care of the prized Hawk. There are also times where the conditions pose risk to the hawk, and under these circumstances the Falconer has to hold tight to the Hawk, knowing that high risks don’t always generate high returns.
Today, markets are still setting new highs, driven largely by the performance of a few mega-cap companies (Apple, Microsoft, Amazon, Google). To many investors, these large tech companies have a very bright future, and over the last 5 years money managers have continued to pile cash into their stocks, making them larger than anything the market has ever seen. At the same time, pockets of speculation have evolved in corners of our markets. This has led to a market that has plenty of risk, but also offers a reasonable investor a seemingly better alternative over cash and bonds. Covid may have exacerbated this shift, whereby investors were moved further out onto the risk spectrum to compensate for ultra-low interest rates.
Falconers tend to hunt with a Hawk that is a little hungry, but not too hungry. A famished Hawk will take risks that are unacceptable to the Falconer, but the mildly hungry Hawk will listen to the Falconer and take measured risks. We, as investors, want to hold the right amount of cash and have a mild hunger for assets, but an unquenchable thirst for risk will end in disaster. This means that we will take risk when the odds are in our favor, but like the Falconer, will only take measured risk when deploying our cash as a weapon. This takes skill and patience, and it involves some level of risk. But the Falconer never forgets the value of the Hawk in their hand, knowing that the Bird in hand is worth much more than two in the Bush.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All investing involves risks including loss of principal. No strategy assures success or protects against losses.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.