Investing in Turbulent Markets

Markets have gyrated wildly since the impact of COVID-19 become obvious. High to low, the S&P 500 had dropped a third before a strong rebound. You probably have to return to the Great Depression to find greater market swings in such a short period of time. I'm occasionally asked what to do in a market like this. Here is my general response.

Long before there was money and markets, the brains we live with today evolved to survive in a hunter-gatherer subsistence society. Most of these traits are still useful in a modern society (which raises another question regarding how advanced we really are). For example, following the pack provides a degree of safety today as it did nearly 2 million years ago.

However, many of our traits developed for surviving in a primitive society do not apply well to investing. For example, extreme caution when securing a food source is very applicable to pre-modern life where a month without food can end one's life. But this same loss aversion does not work well with investing where it is reasonable to make long bets with money you may not need for decades.

So in today's turbulent markets, your primitive brain may want to sell out, probably a poor long-term move. But logic that ignores some common human instincts may see new potentials in a cheaper market. Simply, buying low and selling high, a good rule of thumb for investors, is a modern investing construct but not one of our natural traits.

Also remember that market timing is mostly a loser's game, and probably even more so in today's virulent markets. Market prices are at least partially a reflection of the collective confidence of future business and profits.

There are reasonable but conflicting arguments that it will take us two years just to recover from this virus; that business will quickly return to normal; that there is no going back; that significant numbers of people will not return to their profligate borrowing, spending and busyness; that the economy will be worse than the Great Recession.

With this mix of forecasts, here are my suggestions for you. First, do not make net sales from your equities. They are relatively low and it is generally best to buy low and sell high.

If you have decided that you have taken on more risk than is appropriate, then write out what you believe your allocation should be. When the markets return to their recent highs only then make this change to your allocation. If you do wait and then hesitate to adjust your allocation, a common behavior, have a conversation with yourself as to why you are quick to sell low but then hesitant to sell high.

Second, holding is OK, and what I recommend until the markets at least stabilize. However, this could be a long wait. The 2000 dot-com market crash took nearly three years to reach its lows.

Finally, if you can do it (and this is what is probably hardest to do with our primitive brains), the best path forward is to do some periodic buying into equities while they are below their 2020 highs.

Here are some further considerations before changing your past strategies. If you can't stop yourself and you do make some transfers out of equities, I urge you to write down what you do and then check how it feels once the markets return to highs.

Consider your emotions at this time. With very real illness and death surrounding us, volatile markets are probably not your greatest fear. Excessive stress does not help us make what should be careful, long-term investment decisions.

There are exceptions to every rule. But my guess is that most exceptions are excuses to go back to bad investing choices that will probably get you the opposite of what you seek.

Finally, by historical standards, the market is still not cheap, which mixes up your options even more. Good luck and thanks for listening.

McCormick Lodge

In 1964, after years of wrangling between environmentalists and competing interests, President Lyndon Johnson signed into law the Wilderness Act. The act created a formal mechanism for designating wilderness, and immediately set aside several million acres of land across dozens of federal land areas to be managed by the new National Wilderness Preservation System.

The entrance to McCormick Wilderness

Under the Wilderness Act, the land is to be restrained from human influences so that ecosystems can change over time in their own way, as much as possible free from human manipulation. As the Act puts it, "the earth and its community of life are untrammeled by man."

Today, there are over 750 wilderness areas in portions of our national parks, forests, wildlife refuges and other public lands, managed across various federal agencies, primarily the National Park Service, U.S. Forest Service and the U.S. Fish and Wildlife Service. They total over 100 million acres across all but a handful of states.

The McCormick Wilderness is one of several wilderness areas in the Upper Peninsula of Michigan, where I am originally from. But when I was a kid, my aunt and uncle worked at what was then the McCormick Lodge, a lavish, mostly abandoned but perfectly maintained lodge hidden away in one of the most remote areas of the U.P., a land that itself is mostly unknown to the world.

This is the story of the McCormick Lodge, and how it came to be part of the National Wilderness Preservation System, one of America's environmental treasures, and how this allows all of us to forever enjoy one small piece of primeval northern forest.

In 1778, just after the Revolutionary War, Robert McCormick emigrated from Ireland and settled in the Blue Ridge Mountains of Virginia. McCormick made several models of a reaper but none proved successful.

His son, Cyrus Hall McCormick, studied his father's records of failed reapers and eventually developed a working version of the reaper. In 1834 Cyrus received his first patent on the reaper, a machine which dramatically altered farm production methods.

Cyrus continued working on the design until, in 1847, he moved to Chicago and opened a reaper factory which eventually became The McCormick Harvesting Machine Company. He continued developing the McCormick business until his death in 1884. He died a well-known and very wealthy man.

His son, also Cyrus Hall McCormick, was born in 1859 and at age 25, upon his father's death, took over officially as president of his father's company (although his mother actually controlled the company). In 1902, at the suggestion of JP Morgan, McCormick merged the McCormick business with several other companies that had also developed harvesters and reapers, forming the International Harvester Co.

At age 36, McCormick became the first president of the new company. Cyrus Bentley was a young attorney who represented the McCormicks in this transaction. The Bentley and McCormick families had known each other for years, and the Cyruses had become close friends.

The same year his father died, 1884, McCormick also went on his first camping trip. While at Princeton, he had become close friends with one of his professors, William C. Gray, an avid outdoorsman who often camped throughout the U.S., but especially throughout northern Wisconsin and the U.P.

One day Gray invited McCormick to accompany him on one of his camping trips. They traveled by train to Champion, Michigan, just down the road from where I grew up. They followed the Peshekee River, a river I know well, north to a campsite on the edge of a then unnamed lake.

Yellog Dog Falls

Gray had wanted to visit the Peshekee River area as much for its geological interest as for its abundance of wildlife and rugged scenery. Its lakes and swamps contained the headwaters of four river systems, the Yellow Dog, Dead, Huron and Peshekee, three flowing into Lake Superior and the Peshekee flowing south to Lake Michigan via the Michigamme and Menominee Rivers.

In the following years, McCormick and his attorney, Bentley, began to frequent this area. They would set up a temporary base camp on a small rocky island in this lake which they eventually named White Deer Lake.

Separately, along Lake Superior miles northeast of this island, community executives from the local county seat, Marquette, set up an exclusive club in the Huron Mountains, which still exists today as the Huron Mountain Club. It is a large tract of land along Lake Superior comprising thousands of acres, including several inland lakes.

In 1902, Bentley accepted an offer to join the Huron Mountain Club. Bentley was an avid hiker, and often hiked to White Deer Lake from the Huron Mountain Club. He had an idea to build a trail along the same route.

McCormick, who also was a member of the Huron Mountain Club, liked his friend’s idea, and together in 1903 he and Bentley purchased nearly 160 acres for less than $500 that included the island they camped at so often, and the west end of White Deer Lake.

Through nearly a dozen additional purchases, they established a tract of several thousand acres. In 1904 McCormick started building on the property, beginning with several cabins on the island. Soon they moved construction to the main shore.

Eventually, there were seventeen massive log lodges, boathouses and outbuildings scattered across the island and the surrounding woods, built of log and chinking, with verandas and balconies. But they still referred to this place as the “Rough Camp."

At the same time, Bentley completed his cabin at the Huron Mountain Club on Lake Superior at the mouth of the Pine River, along with his trail to White Deer Lake. This trail, and various other trails along a similar route, were referred to as the Bentley Trail.

The Bentley Trail developed into an elaborate trail system built between 1904 and 1920 by Bentley and many hired men. Most of it was made to be walked by anyone, even women in dresses with their parasols. The trail was about thirty-eight miles, the last ten miles covered by boat and wagon.

For years, the two Cyruses, their families and many hired men built trails and cabins, lodges and dams, and even a dredged channel in the area of White Deer Lake. By the 1920s, well maintained trails led to lakes and waterways, where boathouses sheltered light, swift Rushton rowboats. Some of the pathways around the main lake became level boulevards three feet wide, with hewn log walks at the water’s edge equipped with pole railings.

Cabins and more amenities were followed by sailboats, rowboats and canoes. They sank well points for water, imported a generator and installed telephones. Electricity and plumbing were installed. An entire staff of chefs, wagon drivers, butlers, cleaners and errand boys were hired to keep the lodge operating smoothly. The camp acquired a fleet of motorcars, including a Model T coupe.

Friends and business associates of both families, young and old, visited McCormick's Lodge year round. Guests often arrived in formal attire, ill prepared for the camp life of fishing and hiking. They were furnished with a trail map in a folded leather case with their initials embossed in gold on the cover. A supply of rain coats, hats, boots and other clothing, fishing equipment and other gear were kept on hand.

Chimney Cabin

Guests hiked, fished, swam and picnicked on lakes and rivers throughout the area. They drank whiskey and fine French wines. In the evenings, they would clamber into boats and canoes, sitting on the water listening to classical and popular music pouring out from one of the cabins. The lavishness of the entire McCormick Tract can hardly be overstated.

Life at White Deer Lake now was comfortable for both families, although Bentley still preferred the less stoic life of the Huron Mountain Club. The McCormicks dropped their club membership in 1920, but the Bentleys spent more and more time there.

Cyrus McCormick eventually retired from International Harvester so he could spend more time at the McCormick Lodge. Later, a rift developed between Bentley and him. Their partnership was dissolved and McCormick became the sole owner. Shortly after, Bentley’s health failed and he died in 1930.

By the 1930s, McCormick's sons, Cyrus and Gordon, made much more use of the property, including boating, swimming, ping pong and tennis on a clay court. October 1935 was Cyrus McCormick's last visit to the site. He died the next year at the age of 77. Ownership to the McCormick Tract went to his son, Gordon McCormick.

Gordon, an architect, began a renovation project of all the buildings that continued into the 40s. They built a new boathouse. Central heating was installed, roof beams were raised, chimneys rebuilt, stories added, plumbing modernized, interiors repanelled, roofs and porches extended, and balconies moved from here to there and back again.

Fanciful bridges and rustic gazebos crowned stream crossings and scenic spots. Curiosities included gnarled furniture, a floating tennis court and a driving range where guests hit floating golf balls onto the lake.

During the forties, Gordon spent little time at the lodge. He visited briefly in 1947 and never returned. For the last twenty years of his life, he would plan visits. Supplies would be ordered, and everything made ready. Then, invariably, he would fail to appear.

For years the camp ran pretty much as always, under the direction of a hired superintendent and several men. The camp stood as a beautiful museum of northwoods craftsmanship and culture, year after year, its forest untouched, the trails, bridges and walkways kept in perfect shape for the man who never used them.

In the 1960s, my aunt and uncle, Ina and Leo Wuorenmaa accepted positions as caretakers of the McCormick Lodge. Aunt Ina was responsible for feeding the workhands. My uncle had what he described as the best possible job, living and working in the woods he dearly loved. He and the other workers maintained the trails, land and lodge.

Because of our relationship, we could visit McCormick's. The old Native American trail along the Peshekee River that Cyrus McCormick first traveled was now a paved road along an abandoned railroad bed. At the turnoff to the McCormick Lodge was a narrow one-lane road that wound through the woods, ending at the lodge at White Deer Lake.

Our uncle showed us the beautiful buildings, the boat house, the hand-drawn ferry to the island, and the lodges and accommodations. He showed us drawers full of new, fine clothing - shirts, pants, underwear, sweaters - anything Gordon would have wanted on a visit.

As years went by, competing parties, recognizing the value of the McCormick Tract, and realizing the health issues with Gordon, worked on plans to assume ownership of the McCormick Tract. The state of Michigan worked with the McCormick estate to make it into a state park. About a half-dozen other groups had plans for the property, including the Nature Society, several universities, the Boy Scouts of America and the Nature Conservancy.

But Gordon had his own ideas. He considered the nature groups and strongly wanted the area to remain a wilderness. He decided, though, that it would have more protection in the hands of a government agency.

White Deer Lake

Gordon died in 1967. Knowing his health was failing, just days before his death he transferred ownership of the entire McCormick Tract to the U. S. Department of Agriculture, to be added to the U.S. Forest Service. This was his best bet that the land would be preserved much as his father had found it.

It worked. A year later, the Forest Service auctioned off the entire contents of the buildings, an event I attended. Eventually, most of the buildings were removed or destroyed, and the entire 17,000 acres that Cyrus McCormick had purchased were established as a wilderness area in the Ottawa National Forest, renamed the McCormick Wilderness.

Today, the McCormick Wilderness has returned to about how it was two centuries back when Cyrus McCormick was first tent camping there. There are very few people, but lots of wildlife, including bear, moose, otter, mink, fox, deer, pine martens, beaver, fisher, bobcat, coyote and wolves. And very rarely a lynx or cougar. Roaming through the land, you can occasionally find remains to the dozens of buildings once on the property.

The glacier-scoured hills of McCormick Wilderness were last logged in the early 1900s. There remain small patches of huge virgin white pine scattered among rugged rock outcrops. The land remains the pristine headwaters of four river systems. Its mostly rocky and hilly terrain with cliffs and outcrops contains eighteen lakes plus numerous swamps and muskegs. The few people who journey onto this land get to experience one of the country's great pieces of primeval forest.

Trails Today in the McCormick Wilderness

The Bentley Trail to the Huron Mountain Club is gone, but in place are several new rustic trails, including several miles of the North Country Trail, a 4600 mile footpath that when completed will take you west to North Dakota and east to Vermont.

There are a few ways to access the McCormick Wilderness. The most common is County Road 607 (Huron Bay Grade), 3 miles west of Champion, Michigan, along U.S. 41, just a couple of hundred feet west of the Peshekee River bridge. Go north 9 miles and the entrance is on your right. One trail follows the original road to White Bear Lake. The North Country Trail also cuts through from this same point.

Just Do the Math

Overweight and obesity have become national and world problems that do not seem amenable to easy fixing. My experience with the problems reveals an easy concept that obviously isn't easy to do. 

Since I can remember, I've often said "just do the math." Very young, I came to trust math as a system that holds true regardless of time, space or life itself.

Most of my life, I've also been aware of my weight and the prevalence of diets. It seemed that my mother tried them all, including the Air Force Low-Carb Diet. I don't remember any of them working.

The diet plans are endless: Grapefruit diet; low-carb, low-fat, low-proteins diets; Atkins, zone, fasting, Keto, Weight Watchers, South Beach, vegan, paleo, and of course, the Subway diet.

Tens of millions of Americans are on a diet each year. Amazon lists thousands of diet books. My hunch is there isn't much new said in most of them and that they mostly don't work well. I suspect that our society - busyness, cheap and processed food, a focus on wealth and prestige, and the low cost and availability of food - lends itself to easily gaining weight.

From young, I was mostly tall and thin until middle school when I gained some weight. I vividly remember moving into the "husky" sizing at that time. I lost the weight before I entered high school and one of my life goals still is to be buried in the same sized Levi's I wore as a teenager.

Over the past several years, I had gained a few extra pounds, and set out to lose them. I found that technology has come up with some quite accurate and helpful health tools. Mostly, they can track your exercise ("steps" plus more specific activities), what you eat, your weight and lots more. I have spent over a year logging everything I eat, my exercise and my weight.

What happened and what did I learn? Most of all, I learned how amazingly accurate your body is at balancing calorie intake and calorie burn. Yes, your body does seem to have some different responses depending on the food source and timing, and how they are burned. But mostly, it is just simple arithmetic.

When you ingest more calories than your body burns, you gain weight. When you burn more calories than you eat, you lose weight. Yes, it isn't much more than that. Most discussions to the contrary are seemingly justifications for bad behaviors.

I quickly learned that if I ingest less than 2300 calories a day, regardless of their source, I steadily lose weight. If I increase the calorie input a bit or reduce my exercise, I quit losing weight and if I increase my net calories just one or two hundred a day, I start gaining weight.

I'm tall with a small build. I have often been told that I have a tape-worm and that I'm lucky to be able to eat so much and not gain weight. But that is not what the math says. The math says I move a lot and I don't eat excessively. My protein and fats are high and my simple carbs are low. That is, I mostly eat what the computers recommend.

I did learn some other things that seem to be true. There is ample evidence that how your get your calories can be significant to your health and diet. High protein foods stem hunger more than carbohydrates. The saturated fat story is overblown. I returned to whole milk a couple of years ago and it has had no negative effect on my weight nor my cholesterol.

Finally, I've learned that for me, it's much easier to control what I eat if I have to log it. I'm a grazer and it's a bit shocking how many calories I can eat if left to myself.

There are scores or even hundreds of ideas for controlling our weight. Most of them probably have some merit and have surely worked for someone. But behind these diets is some simple math that your body can't fight: They either are trying to reduce your caloric intake, increase your caloric burn or some of both.

Life at -53 Degrees

Yesterday morning, the windchill at our house was about 53 degrees below zero. We live in a very nice refurbished old home in one of the original neighborhoods of Duluth, Minnesota, one of the coldest urban areas in the lower US.

I have lived most of my life in this climate. I remember getting bragging rights as a grade-schooler because we were in school with air temps in the thirties below zero.

At these temperatures, anything outside can be difficult. Putting out the garbage is its own chore. There are safety concerns, too. If you find yourself accidentally locked outside picking up the paper in your boxers, embarrassment aside, you only have minutes to get yourself into a neighbor's house.

A few years ago a local young woman died from hypothermia very close to her home. Inebriated, her friends dropped her off after a late-night party and drove away before she got inside.

So yesterday I took my own extreme measures to get to work. I wore my silk long underwear and flannel lined jeans, a warm Henley and a wool vest. Wool socks and winter boots are nonnegotiables in this weather.

I ran my vehicle for several minutes before leaving. Finally, I put on my ski jacket and mittens, grabbed a beanie and facemask, and headed out.

Vehicles do not like cold weather. Left outside, any vehicle, old or new, may or may not start at these temperatures. They require gasoline to vaporize, and that's a challenge in the cold. The best insurance that a car operates in extreme cold is to check the battery in the fall and check tire pressure before the cold arrives.

In a garage, almost any vehicle will start at almost any temperature. Windchills affect vehicles as they do people, and protection from wind is a big advantage. I initially keep my speeds low, but once warm, cars run fine.

I made it to work and soon realized that like many aspects to our lives, cold is another issue to deal with. But even at -53, once I accept my extreme cold routine, I can get through my life fine with about the same discomfort as walking in a cold rain.

When I was a kid, I knew nothing else and it never occurred to me that you could spend a winter without winter jackets and Sorels. Today it's -29 and, yes, I'm getting used to it.

Revitalizing a Rural Economy

Much has been written about the problems of our economically distressed rural areas. The reality is that many of the reasons these communities were developed - agriculture, mining, forestry - although still important industries, have dramatically reduced their need for labor. 

I grew up in Ishpeming, a small city nestled in the gorgeous Upper Peninsula of Michigan, surrounded by amazing waters and forests, with four striking seasons that rotate from beautiful summers and falls to frigid cold and endless snow. It was once booming with its numerous mines.

But I've spent decades watching this wonderful city deteriorate economically, and I understand why: The same mining industry that brought my relatives here from Finland and Sweden now operates on less than a quarter of the labor required to produce the same amount of iron ore.

However, I am very familiar with one idea for helping many of these rural areas, and that is the domestic version of offshore software development. It goes by various names, including onshoring, domestically sourced IT, domestic outsourcing and rural outsourcing. Regardless of name, it's a relatively easy concept that works.

Unlike most jobs from a few generations back, software development does not require people to work in proximity to each other. For a variety of reasons, the cost of living in rural areas can be half or less that of an urban area. 

Somewhat surprisingly, it is not difficult to find highly skilled technical people like myself who are very happy to leave an urban life behind and live in a rural community. Economically, this is a win-win for clients and communities. Not surprisingly, this concept is catching on across the United States.

So how is this done? The simplest way is already widely done across the country, and that is securing a telecommuting arrangement with an employer and moving to wherever you want, provided it has high-speed internet access. With a phone and a laptop, you have most of what you need to work.

However, few will take this risk, and need a more structured environment to make this change. This essentially is a company that finds clients that accept remote software development and software engineers to work for them. 

Getting from a single telecommuter working out of a spare bedroom to a large organization with dozens or even hundreds of highly skilled technical people earning high salaries in rural areas takes more than a few steps. Let me share my experiences in this area.

The initial problem, as in many startups, is getting launched. The first decision is where to locate. This may be easy because, like me, you may have once lived in a rural area that has broad appeal to many, such as a tourist destination. You probably need some sort of small urban anchor that can provide families with the basics of modern life, such as retail, services, education and healthcare.

So how to start? My standard answer for several young techies wanting to jump start their moribund metro life in a Dilbert cube is to rent a large home in one of these areas, and all live and work in one place. That is, return to their college dorm days.

Most likely at least a couple will be able to get their current employer to agree to let them continue their employment as telecommuters. However it is done, the idea is to accept a period of hard work and low income, not so unusual with a new business.

From here, it's critical to name yourself, put together a marketing plan, keep expenses and rates low, and build a foundation to survive in the somewhat turbulent world of consulting. Marketing starts with a website and a LinkedIn company page. 

Then move onto Twitter, Glassdoor, Indeed, Facebook and other social connections. I suggest you don't end the day without someone posting something somewhere that has your name and what you do on it. Monitor and grow connections to your LinkedIn company page. This is all critical even when everyone is working "60-hour" work weeks because eventually you will need more clients and workers.

A word on expenses. Your competitive advantage will always be price, so never abandon this. Make sure any potential client knows that you are "30-50% off metro rates," and make sure that you really are. Otherwise, you are just another bunch of techie prima donnas who at best are somewhat better than the millions of other IT workers that are much more accessible than you are working from some mountain hut. 

And don't fool yourself into believing you can be just as effective working remotely. All things being equal, it is almost always an advantage to have people working in proximity to others. Both communication and relationships are easier and better. But organizations will often gladly put up with your work-style inconveniences if they can significantly cut their costs.

The concept of offshoring originated outsourcing the Y2K fix to cheaper emerging markets such as India. These countries have remained strong competitors in US software development, and rural outsourcing will continue to compete with them. To some degree, you will always find your pricing sandwiched somewhere between them and Silicon Valley.

But foreign resources have several of their own problems, such as language, culture and time-zone barriers, plus sometimes legal issues with foreign services. These all present opportunities for the rural outsourcing firm.

One misconception of low-cost rural organizations is that people are glad to give up the financial rewards of urban life in order to life a substandard life in a rural environment. This simply need not be true. Even with significantly lower rates, employees working in a rural environment, from a cost-of-living perspective, can easily earn as much or more than high priced urban areas.

From the start, it is important to structure your environment so that it works regardless of location. Connect everyone electronically via cloud services, including your phone system, email, documentation, company systems and software development tools. Everyone should be able to move to another location and your company should function well.

These disciplines will ensure that you are as virtual as possible, so that people and clients can literally be just about anywhere and your operation runs as seamlessly as possible. These steps will all help compensate for your big negative: You are geographically located in an inconvenient area.

If you start with a couple of developers supporting a couple of clients, it doesn't take much for you to need more help. This can be tricky but eventually you will learn that there is a strong cadre of people that are very interested in migrating out of a city. Online advertising, a LinkedIn company page and social networking are critical in getting these connections developed before you need additional workers.

You will find that hiring into a rural community is very different than normal hiring. Your pool of resources is probably not nearby. Further, your first challenge is less about finding a specific skill and more about finding an individual who wants nothing more than to live in an area like yours. And to make things more difficult, these individuals may not even be aware of the opportunities you offer.

Therefore, posting ads and searching online databases probably is not going to help you much. Instead, you need to get your name out into areas where individuals you seek may live, realizing that these individuals may not have even considered the opportunities that you are offering. You also may find yourself hiring great raw material that you then train into your particular technical skill-set.

But once you develop a network to proper areas, you will find people who already understand that urban salaries can become play money when a basic house with barely a yard sells for a million dollars. They are looking for a sense of security and a set of basic benefits, such as access to healthcare, paid time off and a 401K. But otherwise, you may not need to sell yourselves as much as you think.

Since your costs will be significantly lower than what your clients normally pay, if you market yourself properly, there is almost unlimited work available in software development, and your growth will probably be limited most by your ability to secure resources. That is why recruitment is so important from the start - by the time you need the people, you may not be able to find them. But eventually you well may be able to build an organization with scores or even hundreds of software developers.

Once a structure for formal telecommuting is in place, the same model can work in other IT areas besides software development. We have expanded into business analysis, quality assurance and project management. Other avenues to consider are database and system administration, plus other areas outside of technology, such as engineering, that can also be done using the same concepts.

And because you have establish an environment that works regardless of location, you may find yourself able to hire people that telecommute from other low-cost areas. We have had people working remotely for us in six different states from coast-to-coast. Depending on the area, they may be seeds to a whole new set of resources.

If you have any questions or are interested in additional information or help in engaging in this area, feel free to contact me via this site; or Twitter, LinkedIn or Google via JonJosephA.