The shift in market conditions underway is not surprising—cyclicality, valuation, and the dangers of popularity and overconfidence are well-documented forces only ignored at one's peril. As we've discussed with our clients countless times, the problem is that unhealthy excesses can play out over long periods and reach absurd heights, creating the illusion such conditions are fundamentally sound.  Yet, logic and history provide crystal clear guidance on the inevitable result, so what does that say about those who ignore basic facts?

2023 is likely to be complex; many who suffered most in the past year, though not all, may have little reason for optimism.  What we consider a long overdue return to normalcy will create winners and losers, as has always been the case. Frankly, we live for times like these, in part because talented investors are more likely to win—investors who recognize these forces and do the hard work of both removing poor ideas and replacing them with strong options should be quite optimistic as time-tested principles of long-term investing slowly return to the fore.

This list of principles includes rigor, patience, and risk awareness combined with the value of contrarian thinking and an appreciation of cyclicality and the fact that prices can become highly detached from value.  Another attribute, ever-present in the margins and between the lines, is accountability.

Accountability has many layers, including the responsibility we have to our co-workers, to our clients, and to ourselves. Looking back, Crewcial's decades of success were built on continual reflection and improvement that was only possible thanks to a dedicated group of individuals across every area of the firm committed to upholding the firm’s focus on superior client outcomes.  Each has brought their own unique perspective, passion, and talent to the equation, which has allowed us to continually aim towards a brighter future.

This is not and has not always been easy—at times, ideas and people clash, but nothing new, bold, or different is ever easy. What is so bold about Crewcial?  I believe the answer is multi-faceted, with the most prominent aspect being our unwavering dedication to navigating the long road towards a more equitable and diverse asset-management industry.  We did not end up where we are from being larger, smarter, or better than anyone else; rather, it came about from the way in which we embrace the power of being different while holding ourselves accountable to our responsibility to make every dollar count towards our clients’ missions.

Being both different and accountable is not always a fun combination, as one will regularly be subject to the risk of being both wrong and alone. When this occurs, it is not as a surprise—we know it will happen and this is key to fulfilling the promise we make to our clients. We also know that we grow and learn far more from challenges than the easy road, and Crewcial has always appealed to people who embrace challenges while never losing sight of why they do what they do. Market cyclicality is the reward for our approach—we are able to surmount the difficult periods through patience, in-depth due diligence, the magic of variant perception, and a fundamental confidence to stick to our approach even when markets seem to be telling us we’re wrong.

One reason our approach is so unusually powerful today is that the advisory business has become highly homogenized, with significant amounts of capital allocated to index and quasi-index strategies. This shift is compounded by the prevalence of thematic/top-down investment approaches that allow our competitors to appear thoughtful and active when faced with an ever-changing world; when we point out that well-known events “are in the price,” we know this is both true and not what people want to hear.

This leads to the quintessential question—when clients want to pursue the prevailing trends, should we accommodate this in our strategy even if we know it almost certainly won't work? From a short-term perspective, the answer is easy: Give the people what they want. However, accountability means our ultimate refusal to trade future returns for our own short-term comfort.

Yet, we must be right or else the burden we take on has no purpose.  How can we be so confident? Simply put, three basic principles are at work.

1. Human nature creates risks and opportunities easily predicted and quite consistent across time.

2. A diversified mix of talented, patient, and well-aligned managers emphasizing unpopular areas always works in the end.

3. The secret sauce binding these ideas together is the willingness to be temporarily wrong and alone while abiding by timeless principles. Investing capital is funny that way—in a physical system, forces such as gravity are constant and can be defied only for so long; in investing, such basic laws can be defied for uncomfortably long periods, yet they are still in effect and will ultimately rule the day.

T.S. Eliot wrote “What we call the beginning is often the end. And to make an end is to make a beginning. The end is where we start from.” Each new year is of course an opportunity to look back at the past and forward to the year ahead.  Irony abounds in investing, and sometimes when things are good, we actually should be nervous.  But difficult times for responsible, accountable strategies are a license for optimism, as they are the precursor to better, even great times.  At the end of the day, the only certainty is that the forces we rely upon for success will always re-emerge, and our responsibility to our clients and ourselves translates into accountability to this fundamental truth. We look forward to what the future will bring.