For more than twenty years, three different presidents promised to remove United States troops from Afghanistan. Despite decades of involvement, the death of over 6,000 American service members and contractors and 100,000 Afghans, and more than $2 trillion, the Taliban regained control of the country within a few days of the US’s departure. It is not all that surprising. Afghanistan was never going to be a US victory. But it is human nature to pursue a lost cause, regardless of bad news, a dismal outlook, or even the facts. Often, individuals, organizations, or government bodies will even double- or triple-down on a losing cause. The sunk-cost fallacy.

How often have I heard an investor say, “I’m just holding onto this stock until it breaks even”? Stocks are inanimate things. They don’t have any concept of what price an investor paid. Their price is a product of millions of humans making rational and irrational decisions, often tainted by emotion. Stocks have no memory; they are a product of perception.

So, how do investors decide to give up and change advisers? My clients have a track record they can review; it shows that each time in the past that the Adams Financial Concepts accounts have fallen, they recovered and went on to new highs. But what about those investors whose advisors do not offer a track record? They have only the personality of the financial advisor on which to gauge their success. Some can look to a model or back tested hypothetical portfolio, but does a hypothetical really give any assurance that a portfolio will recover to new highs? I think not.

Things that have never happened before now happen all the time. We may be living through one of those times as I write these words. The Federal Reserve measures inflation by the PCE (Personal Consumption Expenditures), which has been running at five percent (5%) for a year. About half of the PCE is determined by wages. There are now about 4 ½ million more jobs than there are workers to fill them. That situation is getting worse, not better, because the last three administrations have made job creation a major focus. They have succeeded. The United States is creating about 200,000 jobs every month. But there are fewer than 100,000 new workers entering the workforce at the same time.

Normally when the Federal Reserve begins to raise interest rates, job losses are greater than job creation and unemployment rises. People with jobs begin to worry about losing their jobs, and they often cut their spending on nonessentials such as restaurants, travel, clothing, and entertainment. Not this time. 47 million Americans quit their job in 2022, and wages were rising. Instead of cutting expenditures, Americans increased their spending. The wage gains from switching jobs offset the extra cost of groceries, gas, and non-durables.

All of this means that inflation could, and we predict it will, continue for years to come. The Federal Reserve will continue to raise rates to six percent (6%) or maybe a little more. If inflation does not retreat, the Fed will uphold up the rates. Could that continue for a decade? Possibly. I have been predicting that the super cycle would end in a long bout of inflation for over eight years.

Where do investors turn? For those with a financial advisor who has no track record, do you do as the US did in Afghanistan? Do you hang in there and hope against hope that things will change, and you will break even? Or do you move? Our clients are seeing their accounts trend upward. Our clients can see what has happened in the past, how down drafts were followed by new highs.

Kenny Rogers sang “The Gambler” about life – not just poker.

You got to know when to hold ’em, know when to fold ’em

Know when to walk away and know when to run1

It took our government 20 years, with significant loss of life and funds, to figure out it was time to walk away. Ironically, the United States government has a track record. In Vietnam, the United States saw over 300,000 casualties and spent $300 billion. There was a lesson to be learned from that time. but three administrations ignored it. There was a track record, and it was not good. Do you know when to hold’em or fold’em and walk away?

1. “The Gambler.” Track 1 on The Gambler. Capitol Records Nashville. Kenny Rogers. 1978.