Today, TJX Companies Inc. reports fourth-quarter numbers, likely boosted by Christmas shoppers
And with the continuing spotlight on Chinese companies listed in the United States, Alibaba Group Holding Ltd. reports fourth quarter results on Thursday, likely with lower total revenues. Also in the e-commerce category, eBay Inc. reports fourth quarter results today and it will be interesting to see whether revenues have dropped as individuals have trended back to shopping in stores.
If any further proof of continued market volatility were necessary, we got it again several times last week, as stocks rose and fell depending on the outlook for the Russia-Ukraine imbroglio. Stocks closed lower on Friday as rising tensions led investors to shed risky assets before the holiday weekend. Ahead of today’s opening they are dropping again.
What is unclear at this time is whether and to what extent any American companies will lose revenues due to sanctions.
Regardless of how this crisis plays out, it is reasonable to believe that volatility will remain a market force for the short and medium terms, whether caused by this confrontation, the Omicron crisis, Middle East tensions, another virus crisis, supply chain issues, inflation worries, interest rate hikes, the Washington follies or other factors.
I have previously discussed several strategies for dealing with volatility and all of them are still valid. Meanwhile, Eben Burr, behavioral finance educator and president of Toews Asset Management suggests the concept of red teaming.
At its simplest, red teaming involves asking outsiders to help find fault with a plan. It very generally resembles a more sophisticated version of the informal sounding board process with the colleague in the next office.
Red teaming has different applications in different sectors, Burr explains.
In cybersecurity, one has a red team try to hack a computer system and this approach has proven its usefulness.
In the corporate world, a red team can find fault with a growth and expansion plan.
In the military, the red team plays the part of the opposing force and tries to see how they might foil an attack. (The techniques originated in the military to overcome the biases that arise in any group decision making.)
In practice it means assembling smart trusted people to challenge the logic, strategy, process, and premises to force one to defend a plan and see its weaknesses therefore enabling improvement, Burr explains.
“We all have limited perspective on the projects we work on and need an outside perspective to help us see our blind spots or where a competitor may be able to take advantage of us,” he says.
A financial advisor looking to try the red team approach would seek a knowledgeable colleague in a different practice which would allow for a different perspective, Burr says.
By comparison, an advisor from the same firm may not have a different view. Regardless of the selection process, the role of the chosen individual or individuals is to challenge a proposed client investment plan of an advisor who is then required to defend it. The advisor finishes the process either with more conviction about the plan or with a clear picture of its deficiencies.
And if the process works, the client gets the benefit.
Al Emid is a financial journalist, broadcaster and author with two books underway.
The Emid Report on Volatility 2022 – the next in the series -- is scheduled for release in Summer 2022 and his book on foreign investing is scheduled for release in January 2023.