Pennsylvania Investment Observer

Lacking Distinction

by Daniel J. Nestlerode

We live in the soup of language, using and being used by the thoughts in our heads (expressed by words), the words that come out of our mouths and the assessments we make of the communications that others make in spoken and gestured forms.Aside from the tonality and the body language sides of communication, we often form positions and take sides in matters where the language itself lacks powerful distinctions. That is, the selection of the words themselves leads to no further understanding and no course of action that might change a situation. For example, if we see our physician for our maladies, we are seeking the opinion of another who can make certain distinctions about our bodies and thereby intervene in an effective way to change something. The medical profession has gotten very good at making distinctions about the human body and its usual breakdowns. Yet there are some conditions for which the medical profession does not yet have a productive distinction. Not having a useful distinction, then the physician cannot make an intervention that is useful to the patient. For example, the notion of having a virus usually means that we cannot directly intervene in the progress of the disease. Being diagnosed with "stress" is another distinction that leads nowhere. As science studies viruses and other human conditions and new distinctions are discovered, then more useful interventions become possible.

In another arena, we make the distinction about the poor or poor people. Since 1968, the United States has spent $3 trillion dollars to eliminate poverty in America. Yet today we have about the same percentage of the population determined to be poor people as we had in 1968. Either we spent the money ineffectively or there is something about the distinction poor that doesn't point to a way to make these people no longer poor. From another point of view, we notice that poor people are often not competent operating in a market based economy. They don't seem to have the skills or behaviors that people who are not poor seem to demonstrate. So for me, the notion of poor people is a dead end. However the notion of incompetent people leads me to a possible solution to the issue; the proper education reinforced with rewards for appropriate behaviors.

So when we are framing problems and positions in words, it is critical to step back and look to see if the distinctions we are making are sufficient to lead to a solution. All too often, they are not and we are stuck with the problem, and a point of view, that leads nowhere.

Distinctions are particularly important in the investment markets. Investing is an optional human activity. Many people live long and fruitful lives and avoid the investment conversation entirely. However, if you have money beyond your immediate needs, you are an investor. The following question then is what kind of investments are you using? To some, cash is an investment. It has certain characteristics, such as it is readily tradable for other stuff on the one hand, but it slowly depreciates in value as prices rise. Cash does not grow in value, except during times of deflation.

The investment markets seem to follow patterns of development over time. Periodically, the market shifts patterns of development, and the nature of the market changes. Some investors make money and some lose money, but the net of all investors is normally positive. The problem investors have is fixating on a set of distinctions that worked in the past but doesn't seem to help investors make money in the present. The investment markets involve a constantly unfolding set of distinctions over time, requiring even the smartest investors to pay attention. With Wall Street, there is no "set and forget" investment strategy that works in all markets. So while we only have the past to guide us, we have to continually pay attention to the unfolding markets to avoid running off of the proverbial road to investment success. I hope I have made that issue distinct.

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