Thoughts on a 20-year Tail Hedge

20 years, Linkedin tells me, since the full-service accountancy Walker & Company, Ltd. became Walker Insight, plying our trade in data, forecasts, synthetic hedges, and price discovery. We found the competing demands of our trade plus the quotidian and very loud demands of tax compliance competed to avidly for our brain space and our time, so a firm was [re-] born.

To what end? Forecasting is widely seen, with some justification, as pointless, impossible, and also, an implicit forecast is embedded in EVERY decision no matter how small. What does one gain from outsourcing it to those with their own agenda and (worse) presuppositions? I can’t prove here that I’m somehow free of the gnostic error that I am one of the few fit to instruct other less-enlightened people striving in the trenches. You’ll have to take my word, for sake of argument here, that I think the opposite is true.

“The most improper job of any man, even saints (who at any rate were at least unwilling to take it on), is bossing other men. Not one in a million is fit for it, and least of all those who seek the opportunity.” – Tolkien

The enlightened experts are always the ones doing the job, including those whose doing the job has (often by accident) promoted them to the ranks of owners, managers, directors…capitalists if you please.

I’m only the secondary consigliere--challenge assumptions, be the sounding board, help the person with skin in the gain make their best decision…and also, to change course on the occasions it turns out not to be their best decision.

Everyone wants a deliverable and when “forecast” doesn’t cut it, I admit I’m a bit flummoxed. As I said above: EVERY action has a future expectation embedded in it already. It’s an essential, an irreducible, so trying to defend it feels like trying to elaborate on what you mean when you say “is.” If someone is used to navigating rooms in the dark, how do you describe the advantages of turning the light on?

But that’s forecasting, and the uncanny thing is, those who do it for long enough, yes with my assist, find themselves setting plans and meeting them--even those who have to grow food out of doors, of all the outlandish, unpredictable, and nonlinear ideas.

We have been lulled into a sense of ease, in terms of financial/economic acumen, of the sufficiency of mere competence in your vocation. And apologies, there’s nothing “mere” about competence. But in an age of endless, suffocating regulation and centrally-managed (I’m using the term very generously) currencies, it’s just not enough. Read the economic room wrong, and you almost can’t be competent enough to recover. Read it right: even only middling competence can be very profitable.

We have had a long, a very long, run of cash infusions and low and declining interest. Nearly a generation. There’s a limit to extrapolating that trend, and not unlike Wile E. Coyote trying, and failing, to find terra firma beneath his feet, that’s where we are at last. We’re just waiting for gravity to look sharply in our direction and send us plummeting.

The most striking thing about real forecasting, real attention of cap rates, cost of funds, non-ergodic data sequences, is this: you can jump out a plane and think you’re flying, or you can know you’re not and grab the rip cord before it’s too late.

Am I Chicken Little? “The end is near,” and then eons later when finally proven right, claim prescience?

I don’t entirely care. I love the big hit, the big play, and it’s true, a powerful element of Walker Insight is our effective construction of a forecasting approach that’s part tail hedge and part insurance policy. On the other hand: working in the trenches with my clients, I can report that even as we reserve some dry powder for the Big Event (“dry powder” to over-optimizing credentialists = “inefficient use of capital”), they *outperform* the competition. Even as they arguably leave money on the table, their operations are atypically profitable.

It's an insurance policy that makes money too. I can tell you it’s not fun, but then again, go broke in slow motion then suddenly is an expensive way to have fun.

I had not planned for my career to be a de facto tail hedge against central bank policy, although it’s partly turned out that way. When interest rates do their thing, asset prices do theirs, and it creates the illusion of risk-free interest. Why bother planning when life looks like this?

Risk-free interest is inevitably followed by interest-free risk. We are very close, and it may just be that good planning and forecasting, always vital to performance maintenance and tune-up, is about to be that once-or-twice-a-career force multiplier. Ask me about farmland prices in a year or two.