The Odyssey

With a little luck and insomnia, I managed to get tickets to Christopher Nolan’s The Odyssey on opening night. We must have purchased the last two tickets available in the theater because the seats were located in the front row in front of a speaker. So, for the next three hours, we felt like we were on the ship alongside the Greek hero, lashed to the mast, sea-tossed, lost on an island eating lotus leaves, and finally, making our way home.

One of the benefits of not having read Homer’s The Odyssey in 40 years is that when the story unfolds on a screen just a few feet away, there’s a feeling of familiarity but not expectation. I simply could not remember everything that was about to happen to Odysseus, his crew or his family. What would happen to Telemachus? What about Odysseus’s dog? What I did know immediately, though, was that I had been given some wonderful material for an investment letter.

First of all, July itself was a bit of an Odyssey, with markets rising and falling on an intramonth basis about 3.5%, before ending essentially the same place where they began. The flat finish belied the month’s volatility, with AI enthusiasm and hopes for peace in the Middle East driving markets higher and fears of an AI spending bubble and continued fighting sending markets lower. The flat finish was more of a coincidence than a signal of a calm market. The market has been dominated by the AI narrative for several years now, but there are other narratives re-emerging, such as rising inflation and the Fed’s reaction, geopolitical risk and growing wariness about the economic returns of trillions of dollars expected to be spent on AI infrastructure. Competing narratives often make for better stories as well as healthier markets.

The Odyssey, of course, is the ultimate epic fable and describes far more than just a few weeks in the market. It’s a fun way to think about the entire investment experience, and more. So here goes:

The Cast

The Cyclops

The Cyclops, the gigantic one-eyed monster whose father just happens to be Poseidon, is a gift to allegory seekers. The Cyclops could certainly represent market concentration among the gigantic tech firms and the danger they represent to index investors, but in the end, the role goes to the Federal Reserve. What could be more representative of the Fed than a blind ogre trying to be a shepherd? The cyclops has limited ability to change the world around it, but it does have massive brute strength, and if investors get caught on the wrong side of it, they will be eaten alive. The Cyclops has to act on imperfect information, given that its only eye was cruelly put out by Odysseus, and there’s some concern that the beast might not be up to the task of taking care of the flock.

Scylla and Charybdis

That brings us to Scylla and Charybdis, the twin terrors of a narrow strait (of Hormuz?). Sail too close to Scylla, and the monster will pluck men from the deck and eat them; sail too close to the whirlpool of Charybdis, and face potential total destruction. Perhaps these are played by inflation (Charybdis) and risk (Scylla). The Fed is supposed to be helping us sailors navigate these dangerous waters, but the Fed can be a blind ogre. Investing involves taking risks, and we know we are going to lose a few men along the way. That is simply what it costs to seek the journey. The whirlpool of Charybdis is inflation, which is what happens if one chooses to do nothing. Eventually, inflation will devour the entirety of an investor’s purchasing power. Odysseus figured out that it was better to steer closer to Scylla, take a few losses, but continue the journey.

Calypso and the Lotus Eaters

In the movie version, the stories of the lotus eaters and Calypso are told singularly, with Odysseus shipwrecked on the lovely Calypso’s paradise island for seven years, eating the powerful lotuses and forgetting he’s supposed to be at home. Calypso represents complacency and the effect that near-term comfort can have on a hero’s journey. Who could blame Odysseus for lingering a while with the enchanting, immortal Calypso, especially when she is played by a sun-kissed Charlize Theron? Of course, complacency in markets is terribly dangerous and comes in many forms. Usually, it’s a lack of price discipline. When investors overpay for stocks, but they keep going up, what’s the harm? Or when investors pile into index funds seeking diversification but without purpose, some argue that it creates certain distortions. At any rate, it’s always important not to “lose the thread.”

The Trojan Horse

Okay, this one is a little bit on the nose, but it’s got to be AI. Even though the fable of the Trojan Horse is actually from The Iliad and not The Odyssey, it’s more than a little relevant to the story. Is the Trojan Horse a gift worth bringing inside the city walls, or will it result in the fall of a civilization? In retrospect, it seems at least a cursory examination of the contents of the horse might have been of some benefit to the Trojans. In our world, companies are racing to build out AI infrastructure, spending trillions of dollars to do so. Will these companies (and the world) see investment returns from these outlays, or will the Greeks be back soon with a vengeance?

The Gods

Odysseus and his crew experience adventures with good outcomes and bad outcomes (for the crew, mostly really bad), and it’s rarely clear whether these happen because of divine providence or because of the acts and desires of the men themselves. The gods inform the men and yet play havoc with them; our impulses and desires act upon us similarly. We are perpetually guided by our nature to take risks, to perform acts of bravery and genius and also acts of utter stupidity and pride. We get turned into pigs because greed is in our nature. We eat the forbidden cattle after being told again and again and again not to do so, and we pay dearly for our transgressions. All we can do is create systems to help protect us from ourselves, such as lashing ourselves to the mast so that we do not leap overboard when we hear a Siren’s song.

Odysseus

Odysseus is the long-term investor. He is cunning and determined. He is also not above making catastrophic mistakes. He is everyone, and he is “nobody.” To the extent he can rely on his wits and discipline, he can put himself in a position where his success, while far from guaranteed, is optimized. Along the way, he must resist his earthly desires and the whims of the gods. If he can do so, he has a chance to make it back to Ithaca, wipe out the suitors who seek his wife and his throne and live happily ever after.

The End

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For more information, please reach out to:

Burke Koonce III
Chief Investment Strategist
bkoonce@trustcompanyofthesouth.com

Daniel L. Tolomay, CFA
Chief Investment Officer
dtolomay@trustcompanyofthesouth.com

This communication is for informational purposes only and should not be used for any other purpose, as it does not constitute a recommendation or solicitation of the purchase or sale of any security or of any investment services. Some information referenced in this memo is generated by independent, third parties that are believed but not guaranteed to be reliable. Opinions expressed herein are subject to change without notice. These materials are not intended to be tax or legal advice, and readers are encouraged to consult with their own legal, tax, and investment advisors before implementing any financial strategy.