April 25, 2013
What now, Lieutenant?
"What now, Lieutenant?"
Newly-minted Marine Corps officers are often faced with this question, particularly in their first 6 months of training in Quantico, Virginia. It is meant to prepare them for the inevitable moments when they encounter great challenges and high degrees of uncertainty, when the Marines in their charge ultimately turn to them for guidance and leadership and ask: "What now, Lieutenant?"
Uncertainty, fear, and confusion are sentiments all investors encounter at various times. Many will delay making investment decisions in hopes that a period of less uncertainty is just around the corner. They will be disappointed. The idea of "certainty" is a fallacy, as there will always be political, economic, and market headwinds to address. The current landscape provides a laundry list of questions—how long will central banks hold interest rates near historic lows, are record highs for equity indices justified, how will fiscal problems be resolved in the U.S. and abroad, where is the next source of political instability around the globe, how do we best stimulate the current low-growth environment? In times like these, it is not at all surprising to hear committees and individuals ask "What now?", "Where do we go from here?"
This speaks directly to the critical need for having a clearly-articulated investment policy and a disciplined process for decision making to achieve mission success. Together, they provide a framework that helps prevent investors from being susceptible to the near-term guesswork and emotional swings of the market. A roadmap will not eliminate uncertainty, but it will serve as a tool to help navigate through the most challenging periods.
And a decision process based on valuation (the concept that the "price" you pay for an asset is the biggest determinant of your long-term future results) lends itself to greater predictability than speculating about government policy, currency manipulation, or the sentiment of the herd.
As Chief Investment Officers (CIOs) to our clients, we not only have a responsibility to help each client shape their respective investment policies to appropriately reflect their specific objectives, but we also have a duty to implement an investment plan that is driven by a logical, disciplined approach devoid of emotional guesswork. When CIOs are doing their jobs well and managing expectations within a framework agreed upon at the outset, clients should not have to ask "What now, CIO?"
Patrick A. Torrey
Pat is an Investment Officer with Hirtle Callaghan and represents the firm in the Mid-Atlantic region. Prior to joining Hirtle Callaghan, Pat worked at Gardner Lewis Asset Management and Goldman Sachs, where he managed foundation, endowment, corporate pension, and private client relationships. Previously, he served as an infantry officer in the United States Marine Corps. Pat earned a B.S. from the University of Virginia and an M.B.A. in finance and economics from the University of Chicago Booth School of Business.