How Is Progress Defined?

By Paul H. Sutherland

This article appeared in the June 2018 FIM Group Newsletter.

My boys love to build. They stack yoga blocks, couch pillows, blocks, Legos, and even the food on their plate till it collapses under the weight or the awkward physics of their creation. They are enthusiastic as they build and are “Look, Dad!” oriented as the structures get higher and sometimes a bit danger­ous with the goal of standing on top. They naturally enjoy falling with the collapsing structure and go back at it again and again. 

Investors often seem to follow this same path, not realizing that companies do not grow to own everything, and that there are only so many people who are going to eat Grey Poupon mustard or continue to buy gas-guzzling vehicles. Everything is cyclical. And every cycle has in it, on average, 2,300 counter cycles. Oil prices go up and people think that hybrid or electric vehicles look attractive as the price of filling up the car stings. This view favors their switch­ing to solar, wind, and more efficient gas and hydro energy sources. However, habits change slowly, and most humans are not early adopters, not ready to embrace new realities until there is often significant discomfort or even pain. Thankfully, we humans are somewhat rational in our behavior and will hear the drum roll of progress if things seem cheaper, better or more convenient. 

Progress always involves risks. You can't steal second base and keep your foot on first. - Frederick B. Wilcox

This “cheaper, better, or more con­venient” march is often called progress. Some progress is reactive, such as burning wood and other stuff used to be in cities for food, light, and heat, though it was not very good for the quality of life. And progress toward more urban-oriented heating, cooling, and lighting systems is in some cases mostly a reaction to problems and side effects of the things that used to work. 

I say all this because it seems that a wave has been building for quite some time that affects how people “see” investing. Thus, making investments is getting to the point where it might follow the path of my three little boys as the blocks, pillows, and stuffed animal mountains collapse when the physics can no longer support 110 pounds of bouncy boys. They will walk away laughing or crying, “He pushed me” or “You broke my mountain!” They will have experienced little harm and maybe even learned that unstable, unsustainable structures eventually collapse. As they mature, with luck they will anchor on this learning as they study life topics such as personal relationships, investments, business, physics, politics, chemistry, economics, and more. 

As I have discussed the current unstable and unsustainable trend of oversim­plified index or passive investing (as in “just own the latest ETF idea and give up!”), I will not rehash the silliness that is seducing old and new alike. 


I am finally back in the USA and enjoying clean air, being with nice and happy people, drinking water from the tap, and taking showers in water that doesn’t smell. Recently I was preparing for my first meeting with a client who asked me to review his portfolio’s performance. A friend had suggested indexing and promoted its remarkable risk (less benefits) and said that the client could have earned a lot more in the past few years through that strategy. 

We have a program for all clients who use our portal (see sidebar) that shows their portfolio’s future scenario, based on a series of assumptions. So I did a number of scenarios of that client’s portfolio, using many assumptions. I used the client’s longer-term perfor­mance and took a 10-year view. I won’t get into the specifics of this client’s goals, constraints, hopes, and dreams, but I will say it felt good knowing that we did our job. The job, in this case, was having the client’s kids be educated, pay off debts, own a second home, and reach an income goal; we found that all aspects of that mandate were tracking ahead of schedule. Yes, the past few years’ results “coulda shoulda” been better, but we as a team decided the risks were high enough that we would not join the index or ETF mania and instead would stick to our client-centered, values-driven, risk-adjusted, bargain-hunting approach (which in today’s climate might be called a “more conservative” or “traditional” approach).

Our Job

I felt a bit proud as I reviewed the client’s performance and financial situation. The client had been a client of ours for many years; their portfolio values were 1.5x what they had invested, so every ~$2.00 net investment we had managed had become nearly $5.00. But, and most important, the client’s goals had been articulated and revised over the years. And were tracking was way ahead of schedule on being the goal of retire­ment. This is not an isolated client experience, as most of our clients know. If you are worried about whether you’re tracking and on schedule to retire, or stay retired, or have enough income, or educate your kids, then  reach out for us to run some scenarios and discuss. We are always happy to sit down with you and go over your portfolio, review your goals, and see how things are tracking. It should be comforting for you to know that your portfolio and its management are on track, are sustainable, and are doing their job, without your speculating or making any assumptions.

Meggen PetersenComment