Investing in the TAO (Pronounced DOW)

“DO SOMETHING!’ the heroine wails, her fabulously flushed, mascara-streaked face filled with anguish. And so, the Man of Action does…and saves the day and they all live happily ever after.

 

Action men such as James Bond and Jack Reacher have become the heroes that we admire. It is our expectation that doing something, anything, is ‘better’ than doing nothing. And so it is that we’ve come to expect that doing something is what will provide the solution, ultimately deliver the required outcome.

 

But, is this in fact the most constructive approach? As I’ve skipped and stumbled my way through this wonderful journey called life, one of my greatest teachers has been the philosopher, Alan Watts. Through his teachings, he introduces and expounds on the philosophical system of Taoism and the teachings of Lao-Tzu  who was a Chinese philosopher credited with founding of Taoism.

 

Wu Wei is a Chinese concept central to Taoism and a core theme of Lao Tzu’s Tao Te Ching. Translated literally as ‘non-doing,’ Wu Wei is not so much about ‘doing nothing’ as it is about aligning our movement with the greater flow of life. Often referred to as ‘natural action,’ Wu Wei does not involve excessive effort or struggle, but a kind of ‘going with the flow’ where we are able to move with the energy of the moment and respond freely to whatever situation that arises.

 

Some people intuitively interpret ‘non-doing’ as something passive, laid back or lazy. In the eyes of Tao, there are times for action, but if no action is needed based on the laws of nature, then doing anything may be ‘overdoing’.  In fact, sometimes action can do more harm than good.

 

As  Lao Tzu says in the Tao Te Ching: “I do nothing and yet nothing is left undone.”

 

And so, no doubt the reasonable question at this point is ‘what the hey-diddly-ay has this got to do with asset management?’

 

As many of you know Gryphon manages two multi asset funds that are somewhat unique. If it’s time to be in equities, the funds are fully exposed to equities; if it’s prudent to be in cash, the funds are fully invested in cash. The decision to move between asset classes is determined by our own proprietary indicators. Thus, the portfolio manager of these funds, Abri du Plessis, loves to very modestly declare that all he has to do is sit on his hands and do nothing. (He will also tell you that if you sit on your hands, it keeps you from fiddling where you shouldn’t fiddle.) But doing nothing is still doing…the challenge is non-doing…the ‘action of no action.’ But, this can be a lot more difficult than it sounds and so I was inspired to write this article.

 

Lao-Tzu says, "The scholar learns something every day. The man of Tao unlearns something every day... until he gets back to non-doing."

 

Going back to July/August of 2018, Gryphon’s investment team did not expect equities to outperform cash on a risk-adjusted basis, and consequently the Gryphon multi asset funds moved out of equities at the end of August 2018…yes, 2018, and they have been fully invested in cash ever since!

 

As mentioned earlier, these decisions are based on proprietar