Good morning,

I trust everyone enjoyed the weekend and found some time to get out for some spring cleaning…perhaps as a healthy distraction from the disappointment of that Toronto Maple Leaf’s game…..again, the leaf’s have fallen – sorry leaf nation….next year?

I recently read a quote that resonated with me and has provoked several topics and themes around true wealth that I have started to think through with writing. Jose Ortega once proclaimed that “Life is a series of collisions with the future; it is not the sum of what we have been, but what we yearn to be.”

This profound reflection is a beautiful way to articulate the nature of life and the human experience, suggesting that life is not merely a linear progression of events but rather a series of collisions with tomorrow. It highlights the interconnections between our past, present, and future and the role of relationships and ongoing growth and development in shaping our sense of identity and purpose……check this out….

Stanford Business School Experiment

In 2009, Stanford business professor Tina Seelig split her class into groups and issued a challenge:

Each group had $5 and 2 hours to make the highest possible return on the money.

At the end of the challenge, they'd give a short presentation on their strategy.

What happened next was awesome….

Most of the groups followed a simple approach:

• Use the $5 to buy a few items.
• Barter or resell those items.
• Repeat
• Sell final items for (hopefully) more than $5.

These groups made a modest return on their initial $5.

A few groups ignored the $5.

They thought up ways to make the most money in the 2 hours of allotted time:

• Made and sold reservations at hot restaurants.
• Refilled bike tires on campus for $1 each.

These groups made a better return on their initial $5.

The winning group took a very different approach.

They had three realizations:

• The $5 was nothing more than a distraction.
• The 2 hours of time was not enough to make an attractive, outsized return with a mini-business (like selling restaurant reservations or filling bike tires).
• The most valuable "asset" was actually the presentation time in front of a class of Stanford students.

Realizing the value of this hidden asset, they offered the presentation time to companies looking to recruit Stanford students. They struck a deal to sell the time slot for $650, netting a monstrous return on the $5 of initial capital.

The losing groups thought in linear, logical terms and achieved a linear, logical outcome.

The winning group was able to think outside of the box and chose an unlikely path…..

So, what can we learn from this story?

Eliminate Distractions

There will often be an "obvious" solution that appears simple, straightforward, and seemingly correct, but is ultimately misguided and entirely wide of the mark. The $5 was merely a red herring in this challenge. It was a deliberate ploy to divert attention from the real objective. To discover the optimal course of action, you must circumvent potential distractions.

Establish a Solid Foundation: Asking the Right Questions

Asking foundational questions is a crucial step in the process. It allows you to gather essential information and establish a solid understanding of the task at hand. By probing deeper, you can uncover hidden details, identify potential challenges, and gain valuable insights that will guide your approach.

Some key questions to consider at this stage could include:

• What is the ultimate goal or desired outcome?
• Who are the key stakeholders, and what are their needs and expectations?
• What are the relevant constraints, such as time, budget, or resources?
• Are there any existing solutions or previous attempts that can inform our approach?
• What are the potential risks or roadblocks that we should be aware of?

Crafting a thoughtful solution takes time and effort, but it's a crucial exercise when facing a problem with the potential for non-linear, or unpredictable, rewards. Investing the necessary time and care to thoroughly understand the challenge and explore various approaches can lead to more impactful and sustainable outcomes, even if the path to success is not immediately clear.

Identify the High-Impact Approach

After analyzing the problem and considering various solutions, it's time to identify the approach that will have the greatest impact. Like our investment strategies we employ in our portfolio construction expertise, I call this the "high impact" approach - the strategy that will yield the most significant results with the available resources.

To select the high impact approach, consider the following factors:

• Effectiveness: How well will this approach address the core issue?
• Efficiency: Can this approach be implemented with reasonable time and effort?
• Impact: What will be the scale and magnitude of the positive outcomes?
• Feasibility: Is this approach realistically achievable given the constraints?

By carefully weighing these factors, you can pinpoint the approach that will deliver the greatest return on your investment of time and resources. This high impact approach should become the primary focus of your efforts moving forward.

As you are confronted with decisions, take a moment to carefully consider the available options before making a decision. Evaluate the choices thoughtfully and make a deliberate, well-informed choice. Slow down and evaluate the options on the table and find the path most likely to generate the asymmetric, attractive risk-adjusted returns.

“If you do not change direction, you may end up where you are heading” Siddhartha Gautama

I know many of you choose to skip over the market observation section, so I’ve made it easier to scroll to my thoughts and ideas for the week ahead at the bottom of the morning musings. If you’d like to skip the market commentary you can client here, The Road Not Taken

And now, to the Markets…..

Global equity markets finished the month of April a bit lower as they digested the gains made since last October. Markets largely spent the month grappling with sticky inflation and diminishing prospects for interest rate cuts in the U.S. In the past week, policymakers at the U.S. central bank acknowledged these challenges, contrasting with other regions where officials continue to telegraph upcoming rate cuts. Below, we offer insights from the first quarter earnings season, which is nearing its completion.

Overall, corporate earnings results have been solid. The first quarter earnings in the U.S. are on track to grow by nearly 5% year-over-year, surpassing expectations. Management commentary has been predictably mixed. Some leaders have highlighted resilient consumer demand, strong backlogs, and tailwinds from reshoring activity. Others have pointed to higher interest rates, geopolitical tensions, sluggish growth in China, and a strong U.S. dollar as key challenges.

As in recent quarters, most of the U.S. earnings growth has been driven by some of the largest stocks. Prior to earnings season, the “Magnificent Seven” group of technology-related stocks were expected to see earnings-per-share (EPS) growth just shy of 40%, while the rest of the S&P 500 was projected to see an earnings decline. On average, the large tech companies have exceeded expectations but experienced muted stock price reactions in response to the results. This reflects a combination of above average valuations that already reflect elevated enthusiasm and higher than expected capital expenditures largely tied to artificial intelligence-driven efforts.

Interestingly, earnings momentum is expected to shift as we move through the rest of the year and into 2025. The earnings growth rate from the tech heavyweights is projected to decelerate, from levels that exceeded 30-40% recently, to the mid-teens. A slowing in earnings growth does not necessarily imply weaker stock prices. After all, the lower growth rates are still impressive in absolute terms. But investors may need patience as earnings grow more slowly and take more time to catch up to valuations.

Meanwhile, the “rest” of the market is expected to see an acceleration in earnings growth. Outside of tech, earnings have been suppressed over the past year by cyclical factors such as higher costs, borrowing rates, and economic uncertainty among other things. However, with growing conviction in the resilience and strength of the U.S. economy, forecasts suggest earnings will accelerate, and in certain areas, outpace the tech sector for the first time in a while.

We welcome the potential for a broadening of earnings growth and would see it as a healthy development for the equity market. Nevertheless, a shift in earnings momentum between tech and everything else could potentially lead to some changes in market leadership and bouts of higher volatility, even if temporary. Whether that transpires or not, our clients’ equity portfolios remain well-diversified, making us confident in their ability to perform, regardless of which sector or group of stocks leads the way.

The Road Not Taken

We can reflect on the how we can shift our mindset of understanding that there is not one path, there’s not even the right path, there’s only your path.

“No one saves us but ourselves. No one can and no one may. We ourselves must walk the path.” Gautama Buddha, Sayings of Buddha

Three Transformative Steps to Shift Your Mindset:

1. Challenge Your Assumptions: Question the beliefs and perspectives that have shaped your thinking. Actively seek out new information and diverse viewpoints to broaden your understanding.
2. Embrace Curiosity: Cultivate a curious mindset. Approach problems and decisions with an open and inquisitive attitude, rather than relying solely on familiar solutions.
3. Experiment with Alternatives: Be willing to step outside your comfort zone and try different approaches. Experiment with new ideas and strategies to discover innovative solutions.

As we head into the week, remember…..

There is no one purposeful profound path, only a pathway of delineated decisions and deliberate direction.

Pave your way with confidence, creativity, and courage, if you can forge your way with intention, you can ensure you enjoy the road less travelled.

The Road Not Taken by Robert Frost

Two roads diverged in a yellow wood,

And sorry I could not travel both

And be one traveler, long I stood

And looked down one as far as I could

To where it bent in the undergrowth;

Then took the other, as just as fair,

And having perhaps the better claim,

Because it was grassy and wanted wear;

Though as for that the passing there

Had worn them really about the same,

And both that morning equally lay

In leaves no step had trodden black.

Oh, I kept the first for another day!

Yet knowing how way leads on to way,

I doubted if I should ever come back.

I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference.

Be well and enjoy the moments,

Derek Henderson