“The four most dangerous words in investing are ‘this time it’s different’”

Sir John Templeton, American-British Investor

The Butterfly Effect

October 15, 2019

In 1962, a young IBM salesman named Ross Perot sat flipping through magazines as he waited for a haircut at a Dallas barber shop. He picked up a copy of Reader’s Digest and stumbled upon a quote by Henry David Thoreau that would change his life: “The mass of men live lives of quiet desperation.”

As Perot contemplated his future, he realized it was time for a major change. Despite being IBM’s top salesman in the entire state of Texas, he was not happy. Against the advice of his friends, he quit his job the very next day and began to formulate his plan for a company called Electronic Data Systems. While his new company struggled at first, Perot would ultimately build it into one of the largest technology firms in the world. He sold it to General Motors in 1984 for $2.5 billion.

Perot would use his riches to support a variety of causes he felt strongly about. He soon found his next calling politics. In 1992, he became the most successful independent candidate for President in American history. Running against George H.W. Bush and Bill Clinton, he would ultimately garner an incredible 18.9% of the popular vote. Historians point out that the majority of those votes came from people that would have otherwise voted for Bush. Clinton would end up with 43% of the votes while Bush would finish with 37.4%.

Sometimes, a seemingly insignificant decision can change everything – a phenomenon referred to as “the butterfly effect.” The term was coined by mathematician and meteorologist Edward Lorenz, who established the theoretical basis of weather and climate predictability. Lorenz argued that a simple movement, like that of the flapping of a butterfly wing, could give rise to a tornado halfway across the world. Is it possible that a barber’s decision to place a copy of Reader’s Digest in his waiting room changed the modern history of America as we know it?

In today’s stock market, “insignificant” developments may point towards the possibility of something much bigger on the horizon. Later in our commentary, we’ll be digging into these “signals” and evaluate what they might mean for investors going forward.

The article above is an excerpt from the Q3 Quarterly Market Commentary. Here is a link to the most recent issue. Complete the form below if you would like to get this emailed to you each quarter.

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