Where Investors Are on the Eisenhower Decision Matrix

Dwight D. Eisenhower isn’t talked about much these days, but I still think about him from time to time. The General who would be President is responsible for many things, good and bad, that continue to influence our lives.

In the military, he notably led the invasions of Africa and France in World War II.

As president, he ended the Korean Conflict by threatening to use nuclear weapons. He shut down Joseph McCarthy by invoking executive privilege. He started NASA after Sputnik and famously oversaw the Interstate Highway System. And he signed the Civil Rights Act of 1957.

He also started our involvement in Vietnam and took part in coups to overthrow elected governments in Iran and Guatemala. Interestingly, between the military and the presidency, Eisenhower served as the President of Columbia University.

But, other than when I drive on an interstate (the highway system that Eisenhower signed into law), those things don’t bring him to my mind.

More often, and unprovoked, I think about the Eisenhower Decision Matrix.

The Eisenhower Decision Matrix…

The simple diagram has four boxes combining the words Urgent and Not Urgent with Important and Unimportant.

Eisenhower famously used this tool to determine how he would spend his time, which kept him focused on important items that could help him achieve his long-term goals.

The matrix shows up in Stephen Covey’s “7 Habits of Highly Effective People,” and I first saw it in class while pursuing my MBA. In the years since, I’ve often divided my tasks accordingly.

The same approach helps me filter information as it rushes at me through the internet and across the airwaves. And right now, some warning bells are going off.

The Not Urgent, Important information is showing weakness, even as the Urgent, Important data moves the markets higher.

It’s all about growth and earnings, and it’s what Harry has been calling the Dark Window.

Urgent AND Important

During the fourth quarter of 2018, we were cautious. We pointed out the threats to the market that included the Fed, weakening earnings, and fading effects from the tax reform. The trade war was an unexpected headwind that made matters worse.

As investors began figuring out how bad things might get, they sold off equities, hard. But the damage came too quickly, as if signaling that the U.S. had suddenly lurched toward recession, which isn’t the case. Consumers were still spending. Companies were still raking in profits.

The problem wasn’t, and isn’t, a short-term imbalance. It’s a long-term gap between the economy and the markets.

Since the financial crisis, the U.S. economy has grown at roughly 2% while the equity markets have tripled. Granted, the markets were wildly oversold at the bottom in 2009, but still, up 200% based on 2% growth? That’s a bit excessive.

It looked like the markets were long in the tooth at the end of 2017, but then the president and Congress passed tax reform, handing Corporate America a profit windfall. Many speculated it would fuel massive investment and companies would bring home trillions of dollars in offshore profits.

We were skeptical.

Why bring back money when borrowing was cheap?

With interest rates near zero for a decade, companies could borrow to fund most anything. Giving them more profits didn’t change the number of viable investments on the table. And as for overseas profits, well, companies don’t just sit on those funds. They use them to invest in foreign opportunities, or even pledge them against activities back home, such as borrowing to pay dividends or buy back stock.

Tax reform did boost economic activity in 2018, but the run up, and the hype, began to die off by the fourth quarter, which is why GDP slumped from 4% back to 2.5%. With the Fed raising rates and shrinking its balance sheet, the economic picture clouded over.

But now we know that companies posted double-digit earnings for the fourth quarter, and that annual earnings expanded by more than 20%. The numbers have given investors something to cheer about as they’ve driven stocks out of correction territory and up 10% so far this year.

All of this is urgent because it is near-term information, AND it’s important.

This is the exact thing Harry has identified as he’s called for short-term opportunities before things take a turn.

Which is where Eisenhower’s Decision Matrix, and the Not Urgent but Important information comes into play.

Not Urgent but Important

The Fed expects the U.S. economy to grow by just 2.3% this year, a definite slowdown from last year’s 3% average pace. This is part of the reason that the central bankers decided to hold off on raising rates and suggested they were flexible in how quickly they shrink their balance sheet.

On the corporate front, the companies in the S&P 500 index are expected to grow earnings by 1% in the first quarter, and by a paltry 5% for the year. And that’s if all goes well.

Looking outside of the U.S…

The ECB expects the economies in the economic bloc to grow by just 1.5%, held down by falling exports from Germany and slow growth in France. With both the U.S. and the EU in the slow lane, that just leaves China among the big three economies. And the Middle Kingdom has already signaled slower growth this year.

Just as Harry has suggested, this points to the current window of opportunity closing as the year goes on.

Which brings me back to the decision matrix…

It’s not urgent that I update my stop-loss levels. Or that I plan how to allocate cash when and if my stop-losses get hit. But it’s very important.

The time to plan for a storm isn’t when the wind is blowing 40 miles per hour and the rain is lashing sideways. It’s when the weather is pleasant but the forecast shows trouble on the way.

Think about your activities today, from research, to work, to hobbies and leisure. Where do they fit into Eisenhower’s matrix? If you have items that fall into the Not Urgent, Not Important category, consider using some of that time to make sure you’re well positioned for when the current window of investment opportunity closes.