Wisdom of a Philosopher Child  

• Wisdom of a Philosopher Child  
• ETF Talk: Revel in the Rally With This Small-Cap Fund
• Life Is a Dragon We Can Tame
• On Discarding Humility

***********************************************************

Wisdom of a Philosopher Child

In our last issue, I told you about my dinner party experience answering the provocative question: “Life is… (fill in the blank).” (You can read the entire article in the “In case you missed it…” section, below).

That article elicited some great responses from many of my readers, and from many of my close friends and business associates. One of those friends and business associates is Brandon Brison, creative director for the extraordinary firm CDMG Inc.

Brandon told me that he was home trying to think of a clever response when his five-year-old son, Finn, asked him what he was doing. He told Finn, “I’m trying to fill in the sentence ‘Life is…’ with an answer.” Then he asked the precocious boy what he thought life is.

Finn replied, “Life is what’s real, and not pretend. So we have to not let the pretend things scare us.”

Mic drop!

What an incredibly deep and profound point for anyone to make, let alone a human who has only been on the planet for a little more than 1,800 trips around the Sun.

Unknowingly, Finn stumbled on an idea in academic philosophy known as, “The primacy of existence.” This idea, which dates back to Aristotle, is that existence exists, i.e., that the universe exists independent of consciousness (of any consciousness), that things are what they are, and that they possess a specific nature and identity.

Like I said, pretty deep stuff for a five-year-old philosopher child.

Then Brandon shared with me his own most-excellent response to the “Life is…” question.

I found the response so poignant and so spot-on that I felt impelled to share it with The Deep Woods audience today. So, with permission from the author, here you go…

“Life is a chain we forge a day at a time, that binds our present to our past and our past to our future.

Like the blacksmith in front of the forge, moment by moment we transform the raw material of circumstances and environment into another link in the chain, and every decision, big or small, adds strength and resilience… or weakness and fragility.

Every moment spent moaning about the resistance of the iron or the heat of the forge is a moment wasted.

Whether we like it or not, what we create every day connects to what’s been created by those who have gone before us, back into the infinite past, and it connects us to those who will follow after us.

We can never truly extricate ourselves from the chain we’re a part of. Everyone has a past; everyone will leave a legacy.

The good news is, in the daily forging, we get to choose what we take and what we leave.

And, as we forge, we also decide how to put the chain to work.

The chain can be shackles that hold us down.

It can be an anchor that keeps us secure and grounded.

It can be a lifeline that hoists us out of our darkest pits.

It can be an unbreakable bond uniting people we care about.

The world serves up fire and iron daily, and through our decisions, actions and attitudes, we daily transform what’s served up into another link in the chain.

And if we screw it up … well, we get to try again tomorrow. And that’s an encouraging thought.”

I don’t think I can, or need to, add anything to these brilliant insights. The only thing I will say is that if you are able, try to cultivate friendships with people who think like this and who can write like this and who can express their thoughts like this.

Doing so will enhance your own thinking, and it will make you a better person. I know that’s what it’s done for me.

***************************************************************

ETF Talk: Revel in the Rally With This Small-Cap Fund

American writer John Steinbeck penned, “Thus do the gods speak with tiny causes.”

In our case, the market is speaking with small-caps and now is the time to listen and potentially buy.

On the subject of listening, as some readers may recall, I have previously discussed the current strength of small caps in my Eagle Eye Opener. As a refresher, or perhaps an eye-opener…

“Small caps lagged the S&P 500 by more than 10% in 2023. But they handily outperformed large caps in December after the Fed’s dovish pivot, and are trading nearly 20% below their historical valuation and at a 30% valuation discount to large caps.”

Now, as the majority of you know, I am not here to sugarcoat the reality of things nor do I ignore setbacks. Setbacks are not goal stoppers, whether in one’s personal life or the market. So, with that said, the S&P Small Cap 600 did see a drop a few days prior to this writing.

However, the drop was to its support level and market analysts are viewing this drop to support as more of a reset for another rally, versus a precursor to another small-cap slide.

Aside from technicals, the S&P 600 is trading at roughly 14 times analysts’ expectations for the coming year, and while that is almost one-third lower than the S&P 500’s 19.8 times forecast, it is not a bad thing for investors.

This could, in fact, be a good thing. As valuations are cheap, it won’t take much for them to be lifted higher, and that is what we are seeing. With lowered prices and raised growth expectations, this is a sector that may be enticing.

That being said, let’s take a look at one of the strongest ETFs in the small-cap segment, the iShares Core S&P Small-Cap ETF (NYSEARCA: IJR).

As part of BlackRock’s Core ETF offerings, IJR is often used as a portfolio building block. With only a sliver of the names in the benchmark index, the S&P Small Cap 600, the fund may look under-diversified at first glance. However, IJR’s avoidance of illiquid small-cap names may speak to its strong liquidity. Further, its compact portfolio makes it easier to hedge, which is a bonus when it comes to market volatility and reducing the risk of adverse price movements in the fund.

Generally, the fund will invest 80% of its assets in the component securities of its index and in assets that have economic characteristics almost identical to the component securities of the aforementioned index. The remaining 20% of its assets are often invested in certain futures, options, cash and cash equivalents.

IJR has net assets of approximately $77 billion and $74 billion in assets under management. Speaking to its strong liquidity, the fund has a narrow bid/ask spread of 106.01 x 1000 to 106.07 x 800. Moreover, IJR has a dividend yield of 1.34% and pays a dividend of $1.42 every three months.

The chart below confirms what we have already discussed: small caps fell, small caps are rallying. But confirmation is a good thing. The chart is indicative of continued growth in the small-cap sector as within the last month or so, IJR has transcended expectations in its daily highs. Currently, the fund is trading around $106, which is impressively close to the high end of its 52-week range at $110.

Courtesy of stockcharts.com

Industrials, financial services and consumer cyclicals make up the majority of the fund’s holdings and its top 10 holdings include: BlackRock Cash Funds Treasury SL Agency (XTSLA), 1.91%; Cytokinetics Inc. (CYTK), 0.71%; e.l.f. Beauty Inc. (ELF), 0.69%; SPS Commerce Inc. (SPSC), 0.62%; Fabrinet (FN), 0.60%; Applied Industrial Technologies Inc. (AIT), 0.58%; Meritage Homes Corp. (MTH), 0.56%; Ensign Group Inc. (ENSG), 0.55%; ATI Inc. (ATI), 0.50% and Mueller Industries Inc. (MLI), 0.47%.

In summation, small caps are winning the race right now. Cheap valuations, a strong growth outlook and ample buyer-backing create the golden triad for this segment of the market. And the iShares Core S&P Small-Cap ETF is no exception — in fact, it may potentially be the standard for interested investors.

As with any investment, investors must do their own due diligence and understand that small-cap stocks are susceptible to market volatility, but IJR’s tidy portfolio may help as a hedge against such ups and downs.

On a final note, I will attest that often it is hard to appreciate the small things sometimes, whether in our private life, professional life or even our investing life. However, right now, it is time to appreciate the small things — especially the small caps.

I will leave you with a quote from 20^th century Spanish philosopher and essayist Jose Ortega y Gasset, a native Spaniard who lived during a time of heightened political volatility and surely came to appreciate the small things. “For the person for whom small things do not exist, the great is not great.”

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.

*****************************************************************

In case you missed it…

Life Is a Dragon We Can Tame

“Life is… (fill in the blank).”

This was a most interesting and quite revealing question posed to the participants of a recent dinner party I attended.

The question was asked by an extremely learned and wise man who my readers likely know; however, I will refrain from mentioning any names other than my own in this story in order to, as they say, “protect the innocent.”

I love this question because it goes to the essence of how one feels about his/her place in the universe. And, based on one’s answer, you can tell a lot about that person.

For example, one guest responded to the question “Life is…” with a reference to the classic film, “Forrest Gump.” That response was… “Life is like a box of chocolates. You never know what you are going to get.”

By this answer I could tell the person was heavily influenced by pop culture. More importantly, I could tell they viewed life as a series of events that happen to them in which they are forced to react. Now, while it is true that events beyond our control happen to everyone every day, the essence of life is not, in my view, a series of events that we are forced to react to.

In my view, man is a being of self-made soul, and we can choose to react to events and make the world our own — if we have the mettle to do so.

This attitude was reflected in my own response to the probing “Life is…” query, which I will reveal right now: “Life is a dragon we can tame.”

Admittedly, this response came to me via a flash of self-plagiarism, as it bears a close resemblance to a lyric in a song that I wrote that says, “The world’s a dragon we can tame.”

But what does this actually mean, and what does it say about me?

It means the recognition that life is by nature a struggle and that existence is not a spectator sport. In order to survive, and especially to prevail, one must recognize first that life requires purposeful action directed via the only tool of survival man is equipped with, and that is his reason.

You see, it is only through reason that we can know what the world is made of, how it works, why things happen, how we can affect things and how we can, if you will, tame the dragon.

The dragon is, I think, an apt metaphor for life. Think about what a dragon represents. It represents all of mankind’s most primal fears wrapped up in one mythical creature. A giant serpent that flies, and that also breathes deadly fire!

Indeed, humans have long been inculcated with fear of the serpent, and it’s no surprise that one makes such a dastardly appearance as the deceptive trickster who promotes what God has forbidden in the Book of Genesis.

Then there’s the fire factor, of which humans are deathly afraid, and whose destructive powers must at all times be guarded against. Then, there is the flight element, a factor that humans have long marveled at, but that until very recently in our history could neither comprehend nor harness.

So, life is indeed a dragon — but it’s one we can tame, and we can tame it because we have a tool, i.e., our rational faculty, that allows us to study our primal fears, unpack the reality of those fears, figure out solutions to the problems creating those fears — and then to take the kind of human action needed to conquer those fears.

I think what this says about me is that I am a man directed by rational action, and one who sees the world as a place where the achievement of values is possible despite the struggle.

Or, stated more poetically, I’m a man who knows that life is a dragon we can tame.

Ok, now it’s time for you to weigh in.

So, please send me an email with your answer to the question: “Life is…”

I am very eager to discover what you have to say to this probing question, and you can bet that I will be presenting my favorite answers in a future issue of The Deep Woods, so make your response count!

*****************************************************************

On Discarding Humility

“When people put you on the pedestal, don’t come off it acting like you’re humble. Because if they put you up there, that shows how high they can see. Stay there and pull them up, and they’ll grow faster.”

–Victor Wooten

Victor Wooten is one of the very best musicians working today. He’s a master bassist, a fantastic teacher and five-time Grammy Award winner who has collaborated with a diverse group of artists from Dave Matthews to Béla Fleck. He’s also an author, and his book, “The Spirit of Music” is one that I recommend fervently.

In this quote, Wooten talks about the flaws in being “humble” and not acknowledging what you’ve done, the position you’re in and especially what you might mean to others. If people look up to you for what you’ve done, be proud of that. Moreover, help them get there, too. In my view, there is too much false humility out there. If you’re admired in your field, I suspect you’ve earned it. So, wear that moniker proudly, and help lift every voice and sing.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods