A Reminder About the Big Picture

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on May 16, 2017 4:46:12 PM

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big pictureLooking back over the past couple of weeks, my overall approach has been one of looking at the big picture rather than the details. And when you do that, the big picture is actually quite good. In many ways, we are in a boom time like we haven’t seen since the 1990s. I know that goes substantially against the narrative out there, and there are important differences. But there are also more similarities than you might expect given the news coverage.

I am on my way to California for a Commonwealth conference to give a talk on this very subject. Not only this subject, of course, but I think a big-picture context is useful for viewing where we are today. It is also the same context that suggested that the economy was still in the green-light zone during the first quarter and that the market pullback at the start of last year was not, in fact, the big one.

The “outside view”

There’s another way to look at this: Daniel Kahneman’s classification of the outside view, which incorporates data from other times and other situations, versus the inside view, which relies on data about one specific situation. He notes that the outside view is both less appealing intuitively, but also more successful empirically. The big picture, which extrapolates the current details and compares them to other, similar situations, is implicitly an application of an outside-view analysis.

What this big-picture approach tells us is that we can look at what happened in and after other boom times to gain a better perspective on what the future might bring than we could get just from looking at the current state of affairs. By comparing where we are now to where we were then, and then looking at what happened next, perhaps we can find some guidance.

Echoes of the 1990s

Throughout the past couple of months, I’ve been providing a similar analysis to conference attendees—comparing the past 10 years with the 1990s. What started as an exercise in outside thinking actually morphed into a much deeper thought experiment as the comparisons kept proving out. While history does not tend to repeat itself, as the saying goes, it does tend to rhyme, and today’s story rhymes quite a bit with that of the 1990s.

Once I finish giving my final presentations, I plan to do a set of blog posts here outlining my arguments and giving some supporting data and thoughts that don’t fit well into a 45-minute speech. For the moment, though, remember that the big picture remains positive—and bear that in mind as you read the news.

As for my travels, this conference is the second to last I’ll be attending this spring; I have one more to go next week. It’s been great to see old friends, meet new ones, and trade ideas and thoughts on the markets, clients, and how best to serve everyone. I have also been privileged this spring to participate in four (and counting!) giving back events at which Commonwealth advisors and other conference attendees work to make the communities we visit better places. The most recent event involved some construction and cleaning work at an orphanage in Hungary. It was particularly meaningful personally, as we brought my son home from an orphanage in Viet Nam. Big picture, I am grateful for the chance to give back.

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