May 5th

Dear Clients: Please enjoy the attached. The photo would require a large library, which sent it to the good people of Swan’s Books, in Walnut Creek, who sent a copy to me. The cartoon explains itself.

Now to investing. The markets have had lots of volatility lately. In the future? Uncertain. It seems like the market acts like “A Cat on (the) Hot Tin Roof” of  news, jumping with each change of sentiment. About that, here are a few summary points from recent papers and remarks by several market “thinkers.”

First, Vanguard:

·         Growth in the United States and Europe is expected to contract in the second quarter at the steepest pace since at least the 1930s.

·         The global recession will be short, with growth turning positive in the second half.

·         Developed economies will not return to normal until later in 2021.

·         Expect the U.S. to lift shelter-in-place measures and most extreme social distancing by June 30.

Next, Robert Merton, Nobel Laureate in Economics in 1997, Consultant to Dimensional:

Investing requires trusting the process, which “trust” must be based on the competency and understanding of those involved and then in implementation. We cannot “trust” claimed knowledge of future outcomes.

Ken French, Academic Economist, Board Member of Dimensional:

Outcomes in investment market performance depend more heavily upon randomness than we like to admit. Therefore, a good decision should be based on the best data and information available at the time. Making a decision based on expected future outcomes is akin to betting on chance. One cannot make quality evaluation on expected outcomes. On a separate question: What can be inferred from the recent spread in premium between growth and value (value underperforming)? Nothing. Randomness dictates this outcome. We must use logic, supported by theory and long-term evidence.. Logic supports the value premium.

David Booth, Founder and Chairman of Dimensional: Uncertainty, now very high, makes us unsure of what to do. The biggest risk for an investor is failing to reach one’s long-term goals. But, if there were no uncertainty, there would be no premium for investing in stocks. One can neither control nor predict markets. You can control your  portfolio and its balance of fluctuation and shortfall risk. Control what you can control, make the best decision you can today and then, with patience, look long-term.

Warren Buffet: In the short term, markets are voting machines. In the long term, they are weighing machines.

When California lifts the “Shelter” mandate, economic activity can resume, albeit “a step at a time.” One hundred years ago, the initial wave of the Spanish Flu was turned back by measures like those we have undertaken. However, when people then relaxed, two more waves of the flu hit, causing wide-spread sickness and extremely high mortality rates. Let’s be careful!

Davis Riemer

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