Turbulent Times

By Thomas Twombly

For several weeks now we have been experiencing a turbulent period in global financial markets. As is their habit, many in the financial media have seized on this opportunity to forecast yet another crisis scenario, so I’m reaching out with a few thoughts that I hope will assist you in addressing some of the concerns you might have.

First of all, don’t fault yourself if you’re feeling nervous, and please don’t avoid reaching out to us if you or someone you know would like to have a conversation. In the 31 years (September 10th was my anniversary) that I have been in this profession, I have come to understand that even the most rational and sanguine of investors can experience a heightened sense of anxiety in periods of volatility. It’s a completely natural for human beings to be on the alert when conditions in our environment undergo rapid change.

Having said that, rare is the day that you will find a media message that is sufficiently farsighted, circumspect and tailor-made for your particular circumstances as to qualify as sound long-term investment counsel – so try not to fixate on the news. I recognize that this is a challenge in this day and age, but it’s solid advice nevertheless. By its very nature, modern media is designed to focus on the urgent, the negative, and the shocking – that’s what keeps our eyes glued to the screen.

We are monitoring conditions carefully, as we always do, and we will continue to be on top of events as we go forward. Importantly, we do not believe there is cause for making notable changes to any of the investment plans we oversee at this point in time. We are confident that we have entrusted our client’s (and our own) assets to money management firms with experienced professionals and sound investment processes. Most have been hired not just for their historical ability to identify good investment opportunities, but also for their demonstrated expertise in managing risks in challenging environments. Conditions like these are where good managers prove their mettle.

Most importantly, try to keep these events in proper perspective. As I write this today, despite plenty of gyrations over the last couple of weeks, the S&P 500 is now down by approximately -8% from its all-time high of 2130 set on May 21st of this year. It has not yet re-tested the low of 1868 for this year (-12%) set a little over two weeks ago.

Prior to the turbulence of the last couple of weeks, we had gone for over 1400 trading days without a 10% decline in this broadly-followed index, so it’s completely understandable why recent events might feel unusual. However, looking at the broader arc of history one realizes that, measured from 1980 through the present day, the average intra-year decline of this index is -14.2%. So this correction so far still hasn’t reached the normally expected intra-year decline of the last 35 years. In other words, air pockets like this have happened all the time. This is not an extraordinary occurrence.

For properly allocated long-term investors, the most important thing to keep in mind is that using the timeframe above, a hypothetical investment of $100,000 in the S&P 500 made in 1980, left alone and allowed to compound through all the turbulence, financial crises, and corrections of the last 35 years, would have grown to over $4.5 million today. Therefore, the biggest risk during this period would have been to have mistaken a completely temporary setback for a permanent loss, and bailed out.

We’re pleased that not a single one of our clients has demonstrated anything even approaching undue concern during this period. In fact, many have made a special point to express their continued confidence in our patient and disciplined approach, and to thank us for our care. We really appreciate that.

Nevertheless, we’re mindful of the many reports we’ve read about others making radical changes to their investment portfolios in reaction to recent events, and we’d like to do what we can to address any outstanding worries. If you know of someone who would like a second opinion, please feel free to have them give us a call – or just invite them to come to come with you to our next Fireside Chat this coming Thursday evening. We’d love the opportunity to meet them.

Thank you for your confidence and trust.

Thomas G. Twombly
President