Article content

There are so many important lessons we can learn from history. One very relevant one was by a Greek slave named Aesop, who in 500 BC began writing his now famous fables, one of which is Avaricious and Envious.

Two neighbours came before Jupiter and prayed to him to grant their hearts’ desires. One was full of avarice (greed), and the other was eaten up with envy. To punish them both, Jupiter granted that each might have whatever he wished for himself, but only on the condition that his neighbour got twice as much.

Article content

The Avaricious man prayed to have a room full of gold. No sooner said than done. But all his joy was turned to grief when he found out his neighbour had two rooms full of the precious metal. Then came the turn of the Envious man, who could not bear to think that his neighbour would have any joy at all. He prayed that he might have one of his own eyes put out, which meant his neighbour would be totally blind.

Article content

Nothing is more powerful than greed and envy when it comes to money. Greed is relatively easy to understand, but in order for envy to be a driving force, you need to have a baseline or reference point to compare to something else that is better than your present situation. Or as Warren Buffett once said, “It is not greed that drives the world but envy.”

Those in the sales industry know this all too well. For example, a common tactic among realtors is to purposely show their clients a few not-so-desirable homes first and then follow it up at the end with more attractive homes they think their clients would want to buy.

We’ve seen investment advisers deploying a similar anchoring or benchmarking tactic, such as comparing their tech-heavy portfolio’s performance this year against lacklustre indexes such as those in Canada and Europe or even the equal-weight S&P 500 as a means to secure new business.

Article content

Article content

You don’t own Nvidia Corp.? Don’t worry, they say, you didn’t miss out since market pundit Tom Lee recently said it has the potential to be a 10-bagger over the next 10 years, giving it a market value greater than the entire U.S. economy.

Exchange-traded funds and other fund launches often feed into this and correspond with the hottest market segment, knowing full well there is an excellent correlation between fund flows and recent performance.

I’m sure we’re not alone in noticing that the most-traded and fastest-growing ETFs happen to be those focused on the Nasdaq or semiconductors. Feel like you missed out? It’s OK, play catch-up by owning the leveraged version of the index, which we’re all too happy to provide, fund providers say.

The problem with envy is that you’re never going to be happy because there is always going to be someone or something better out there. It could even prove to be destructive if you take greater and greater risks to try to beat everyone else. You could end up losing a proverbial eye.

This is why we’re a huge fan of investing based on your own goals and objectives and designing strategies around achieving them while minimizing the risk. Suddenly, it isn’t about beating everyone else, but doing your own thing.

Article content

Let me give you an example of one such strategy we’ve deployed that suits this approach.

There has been a lot of market talk around the sustainability of the past two weeks’ rotation out of U.S. large caps into U.S. small caps, which will benefit from an improvement in the broader economic outlook of the U.S. economy. Unfortunately, this rally resulted in a structured note paying us a nice 10.3 per cent coupon on the iShares Russell 2000 ETF being called away, leaving us with funds to redeploy.

So, we bought the ETF outright paired with an at-the-money put through to January 2025 and made it costless by selling an out-of-the-money put and call with the same strike date. As a result, the payoff profile is such that our new position on the Russell 2000 will have a capped upside of eight per cent over the next six months and full downside protection on the first 13 per cent in case we get it wrong and the U.S. economy stalls.

An eight per cent return over six months may not be sexy for those chasing tech stocks, but it more than meets the goals and objectives for all our clients.

Article content

Or as Epictetus, a famous Greek Stoic philosopher, said, “Keep your attention focused entirely on what is truly your own concern, and be clear that what belongs to others is their business, and not yours.”

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

_____________________________________________________________

If you like this story, sign up for the FP Investor Newsletter.

_____________________________________________________________

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Article content