February 28th

A Message to our DHR Clients and Friends:

The markets this week have been a bone rattling, jarring experience for all of us. Both deep and sudden, the price declines have reached disturbing levels. While some of our clients have spoken of it as a “buying opportunity,” others are justifiably concerned, some even afraid. One’s inner fears being bad enough, we daily face scary language in print and video. However, we must remember that those who write and speak in the media can know only about the past; even the  present can be known only partially. No-one knows the full truth, and no-one knows the future.

I, too, feel fear. As in November 2008, when valuations of bond investments and mortgage pools – which constituted the heart of institutional holdings – were priced in the markets at zero (!), causing bankruptcies of major financial firms, I told a colleague that I felt like I was “staring into the void.”Was the undergirding of the American economy then about to give in, to collapse? It was terrifying. But “now” is not “then” – this is now – and where have we come since those days? Is the recovery not more important than the fear of a few days or months? We must manage our emotions, control our fears and keep our eyes on our goals

This brief missive includes only one example of many from research – our own and that of colleagues and institutions with which we do business – into the history of our markets when going though and coming back from challenging events, viruses included. Nonetheless, that research leads us to this conclusion: Hold on.

Despite the suddenness and severity of the declines, it is also important to remember that the prior year – and even years – have brought abnormal increases in prices. Recall the unusually high performance of our stock market over the last several years. As illustrated in our recent quarterly Perspective, P/E ratios had become extremely high. That usually means that declines in prices were to have been expected, whether described as a “correction” or even a “bear market.” Losing the growth of a recent year or two is not a bomb in the middle of one’s plans.

If one wants to “adapt,” we recommend doing so in the monthly cash flow and costs of living and deferral of near-term extraordinary expenses, rather than sacrificing long term assets by selling at depressed prices. If one wants to change allocations for the future, that is another matter. We are here to discuss any concerns you have.

We cannot buy back the past. In one form or another, we must buy into the future. Where should we place our trust? We choose to trust the discipline drawn from historical examples, long-term history and carefully reasoned theory, rather than trust our native instinct, which is capable of fear just as everyone else’s is. When humans make decisions in the face of uncertainty, risk and danger – let alone crisis – irrational bias dominates rational thinking, though we are unaware of the influence. Fear and greed destroy portfolios.

So, do we say: “Do nothing?” No, we do not say that. We do say: Avoid hasty action. Come in to talk. If allocations should change, let’s be rational about that. Calm discussion is a great palliative.

We have appended one short research piece, for some perspective on virus attacks and the like. Please review it.

In closing, this from all of us – We are in this together! Please let us know how we can help.

Davis

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