Things change… or do they?

On November 6th, the U.S. S&P 500 was up 2.5% – reportedly the largest post-election rally ever in the United States. So, the markets must think Trump will be a real help, right? Well, the day after the 2020 election – when Trump was booted – the U.S. market rose 2.2% the next day, the second largest post-election day rally… go figure.

In theory, sizeable market moves are driven by real change, but have things really changed? Administrations in the U.S. change with regularity and typically can’t implement their more “ambitious” election platform policies. There is no clear evidence that Republican or Democratic administrations lead to measurably different equity market returns. So, perhaps these market moves perversely reveal that some things don’t change? The markets are collectively just humans who inherently dislike uncertainty. In the face of uncertainty, investors will pay less for stocks. Also, humans have a natural tendency to want to do something and typically prefer to be part of the herd (follow the crowd!). In the lead up to an election, the spin cycle of “Sell, Buy, Repeat!” drives price volatility. Now that the uncertainty has been removed (well, some of it – who knows what will actually happen?), are we just experiencing a relief rally?

Things change….

Of course, things change. In the time before the railroads, electricity and transistors, the world economy moved to an entirely different beat. So too with people. Penicillin and vaccines have dramatically changed the lives and life expectancy of all of us. The extent of these long-term changes are frequently underestimated (or are at least out of mind). In the short term, these things don’t change much, so we tend not to notice. As an example, vaccines may have saved over 150 million lives in the last 50 years.^[1] Did you think of that (and all its implications) when you received your last flu or COVID jab?

… or don’t they?

On the other hand, some things don’t change… and we are not referring to death or taxes. Much of human behaviour is based on innate instincts that developed millennia ago and don’t change. Our dislike of uncertainty, a bias for action, greed, fear, a desire for short-term rewards, a need to stick with your peeps (your tribe – whether of cultural or religious stripes), natural leaders and followers, are just some examples.

Using this framework, historic events – such as wars, the Israeli-Palestinian conflict, the global financial crisis, populist governments, innovations – become more understandable. So too for trading and investing (while each is inherently different, many conflate them). For financial success, without the detailed explanation,^[2] suffice to say that what people want and do now is not necessarily the same as what they need for their long-term benefit. There is much about financial and investing success that requires one to actively resist instinct. One may need to save for the future, whereas most people want to consume more now. In investing, the short-term pursuit of trading wins is tempting and easy – plus this seems smart and is exciting. A disciplined approach in positioning your portfolio for long-term success is hard (and when it is out of step with the in-favour trends, can look foolish; regardless, it always seems boring).

Nexus Investment Management

What does all this have to do with our business? It seems to us that resisting many of the natural instincts for change are in our and our clients’ longer-term interests. Over the past 25 years, the Nexus staff complement has tripled and our assets under management have grown twelve-fold – more steady progress than change.

Looking at other investment firms, many have changed. Human instinct played a role. Some firms chased each investment trend, others offered an increasingly-broad array of investment choices – aimed at satisfying short-term client wants, but not necessarily longer-term client needs. Leaders of some smaller firms hesitated to transition ownership to younger partners. A number of firms were sold to the highest bidder. As these changes occurred or as these firms were integrated by the acquiror, this did not always lead to the best outcomes for clients and employees.

For Nexus, we would argue that little has changed. Today, as it did in 2000, Nexus has a singular focus and approach to meeting our clients’ needs. Our niche continues to be serving Canadian private clients and foundations. Our tailored approach to meet each client’s financial planning needs remains. The investment landscape has evolved and, so too, many of our security holdings have changed, but our investment philosophy remains unchanged. It is the approach that we think is best suited to our clients (and we too are clients) over the long term. This approach falls in the “what you need” category, and at some points at least, may not dovetail with “what you want”. Adhering to a disciplined long-term investment approach of holding a diversified portfolio of quality investments with a reasonable valuation doesn’t jive with all market environments. Indeed, our approach was deeply out of favour in the 1998/99 tech boom. Today, our approach is again out of step with the current tune being played in the equity markets. Throughout it all, we have achieved a strong track record. The firm has also maintained its independence. Now part of the Focus group of companies, we retain the essential elements of independence, with full control over our strategy, investment approach, operations and hiring. Individual staff have and will change, but our “people” collectively remain the same – same vision and principles. We self-select those who prefer a methodical “slow and steady” approach to growing our business in a way that will more-assuredly lead to long-term success for our people and our clients – kind of the same way we pick investments.