The great Austrian economist Friedrich Hayek begins his essay, The Use of Knowledge in Society, by asking “What is the problem we wish to solve when we try to construct a rational economic order?” The same question applies for advisors trying to help their clients construct their own rational economic order.
He goes on to say that “economic order is determined precisely by the fact that the knowledge of the circumstances never exists in concentrated form.” For investors, it is widely dispersed throughout capital markets and contained in prices. However, knowledge of future capital market returns does not exist, in any form.
Reliable investment strategy decisions require an objective procedure, and it begins with our relationship with reality. Cognitive awareness of what we can control is the essential next step, and then purposeful action directed at the investor’s cash flow needs. Logic is our method for keeping in touch with reality while pursuing rational objectives.
Hayek makes the case “that economic problems arise always and only in consequence of change.” Because of this, flexibility with investment strategy, situational awareness, and principled behavior is far more reliable than the market forecasts of industry experts who possess scant knowledge- and the track record to prove it.
While they tie themselves into knots over supply and demand, we will integrate your client’s time and money, prices and markets, matter and spirit with facts and values. This is radical. This is Poetic Justice.