A Feel Game

June 3, 2022

By Michael Kayes, CFA Charterholder


This past weekend, while playing with a friend in a golf tournament, I mentioned to him that golf is a feel game, not an analytical game.  It’s a common mistake many golfers make, myself included, to become too technical or mechanical, when what is required is relaxation and feel.  All accomplished golfers have that innate feel, or touch.  I’ve known and played with many of them, who couldn’t explain how they played so well, they just could feel it.

Understanding the key drivers of stock prices at any particular time, and more importantly, in the future, requires a similar feel, yet portfolio managers often make the same mistake that golfers do in that they become too analytical and data dependent, losing that important sense of intuition or feel.  Importantly, while feel might be an innate quality in a golfer, it isn’t necessarily innate in a portfolio manager.  In other words, it can be learned.  How?  By talking to a lot of people across different industries, in different positions, with different backgrounds.  Talk to salespeople, teachers, bartenders, soccer moms, college professors, lawyers and engineers, students and retirees, as many people as you can who are out there each day living in the real- world economy.  This is how you develop a feel for market psychology, and a full understanding of how it works and changes, is invaluable to managing portfolios.

What does the market feel like today?…  Not surprisingly, with the overall market flirting with bear market territory, there is plenty of anxiety and pessimism about the future.  Is this fearfulness overdone or is it warranted?  That may be the critical question that needs to be answered.

One major issue that has been measured, debated, and predicted relentlessly is inflation.  There is no shortage of analysis, statistics, and forecasting models to support a bullish or bearish opinion of the future trend in inflation.  But what does inflation currently feel like?  Inflation psychology, in my view, is being underdiscussed, simply because it isn’t easily measured.  Despite this, how people feel about inflation matters.  It matters in buying decisions, in business decisions, and collectively it impacts future inflation.

The 40-year period of dis-inflation, and even deflation, created a mindset or expectation that inflation would remain low, and over the past 40 years it did.  That mindset is gone.  We are in the early stages of expecting higher inflation in the future, and we are acting accordingly.  I continue to believe that inflation is going to be a problem longer than expected.

If this prediction is accurate, who wins and who loses?…  My sense is companies across all sectors will redouble their efforts to substitute technology and capital equipment for labor, in a quest to drive productivity to offset higher labor and material costs.  Companies that can do this successfully may actually see higher margins and earnings. Companies that cannot will see the opposite.  I expect there will be continued hiccups or earnings misses as companies adjust to this higher inflation environment, after operating for the previous four decades in an environment of low inflation.  During these stumbles, the market is likely to over-react, presenting buying opportunities.

Meanwhile, what is the Fed going to do?…  After being galactically wrong on inflation, my confidence in the Fed raising interest rates enough to curb inflation without pushing the economy into a recession is very low.  At this point, they do seem focused on increasing rates as much as they need to get inflation back down to their target of around 2%.  With inflation closer to 8%, this is going to be difficult to do.  Until the inflation problem is solved and until it is clear that the economy isn’t going into a recession, upside to the stock market is likely limited.  But eventually, assuming there is another wave of productivity growth, once inflation is under control, the market could be poised for a strong recovery from what has been a dismal year so far.

That, in a nutshell, is how I feel.


Michael Kayes, CFA



Exencial Wealth Advisors is an SEC-registered investment adviser. Any references to the terms “registered investment adviser” or “registered,” do not imply that Exencial or any person associated with Exencial has achieved a certain level of skill or training.

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