RAMCO Client Letter - Market Turmoil

Christopher D. Flis |

To the Clients of Resilient Asset Management:

There is nothing like a Friday Stock Market Swoon followed by a Monday sell-off to rattle the cages of investors of even the highest mettle. Thus, I think it’s necessary to send a note with a few thoughts about your investments….I will never hide during a market downturn, of that you can be sure.

Before going any further, let’s look at a few objective data points about some representative investments located in many of your portfolios:

I typically stress long-term performance, so please forgive me for showing a chart covering such a short period.  The point of this chart is to illustrate the impact of the last two days of trading.  As you can see, basically, we are just about back to where we started two months ago. Message: please don’t read too much into what has happened over the past two days.

When we completed each of your Investment Policy Statements, we included an Asset Allocation specific to your unique situation.  For anyone needing money in the near-term, those funds were invested in short-term instruments that will produce the required funds when needed.  Recent market activity has not impacted those commitments whatsoever.

Market Forces.  The stock market is a wild and crazy place.  For most of the last decade, it has been a very fun party for all.  Nearly every asset class has experienced significant, if not unprecedented, valuation increases.  We must keep in mind; however, this recent phenomenon is not a one-way street.  Market setbacks are a normal part of the investing dynamic.

Remember, the markets exist not to educate us on asset valuations. Rather, the markets are there as a mechanism to invest or divest funds when opportunities arise.  This task, investing, is made ever more difficult because markets are guided by both valuation and emotion. When emotion wins the day, you get the recent wild fluctuations. Over time, emotion tends to average out and valuation has the over-riding impact over the long term.

To provide a real example of emotion in the markets, think back to President Trump’s Election Night. Dow Futures (a rough proxy for market activity) were down around 900 points. The next day the market ended up higher. It is simply irrational to think the fortunes of all the stocks in the investing universe could swing so wildly in a matter of hours.

I believe the answer to all this madness is to ignore, as much as possible, the market noise and let your asset allocation work in your favor by shifting assets via rebalancing. This will put your money in those assets temporarily out-of-favor though with higher future expected values. Markets will squiggle all over the map in the short-term. Conversely, over the long-term, which is the best time horizon for stock market commitments, the historical trend is “up and to the right”. To experience this market activity requires enduring some trying days like the past two. There will be more days like this ahead – I promise.

As a simple example of how to look at investments, think about having a pet. For those who are old enough to remember the beloved pet rock – it would be the investing equivalent of a Certificate of Deposit…safe, infinitely controllable, can be left alone for days or years at a time, you get the idea. Contrast that with owning a dog, which in this illustration is equivalent to the stock market. Some days he brings you the greatest of joys, while other days he is a true labor of love. In between each of those extremes are many forgettable “ho hum” days. Over the long-term though, most (not all) dog owners look back on their mutt as having had a life well-lived.

If anyone would like to talk to me personally about the recent market gyrations, I will avail myself for as long as needed for you. You know how to reach me to schedule a time.


Best Regards,

Christopher Flis