Dear Friends,

It is hard to overstate how much our lives have been dramatically impacted over the last 4-6 six weeks by the COVID-19 virus outbreak. Although uncomfortable for all of us in the near-term, we as a people have overcome far greater challenges in the past and we are confident that we will overcome this too. It may take time to heal, but we believe we will recover and ultimately thrive.

How Much Is Your House Worth on a Rainy Day?

One of the characteristics of publicly traded markets (e.g. investment portfolios) versus privately owned assets (e.g. house, real estate, business, etc) is the doubled-edged sword of daily (if not hour by hour or minute by minute) repricing. This frequent repricing can provide perceived liquidity, which is helpful and convenient. However, it also creates more focus on near-term and current asset prices. Imagine you
decided to sell your house. After a thorough process with your real estate agent, you determine the value to be $750,000 and list it. The next day powerful storms move in and the only offer you receive is for $500,000. Is it now only worth $500,0007 Well, no, there just weren’t many buyers out looking for houses due to the weather and so likely you would wait until a better day to sell. Warren Buffet has written much about this, emphasizing his focus is on what the investments will produce over time and not on the daily price fluctuations. He says, “Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.” Similarly, we experienced major price fluctuations in March due to an extreme lack of bids (offers to buy) for many assets. There just weren’t many buyers and there was panic like we haven’t seen since the 2008 financial crises. Many analysts believe this market was even more severe, as evidenced by declines in short-term bonds. Further, even traditional havens in turbulent markets like Gold was down over 15% in a week, which has not happened in the last quarter century!

In Ql, the total US market was down over 24% with small cap, international and emerging markets down even more. Many historically stable bond funds were down 15%-20%. The winners were treasuries (up 2%), cash, and Toilet Paper (up 1000%! Maybe a rough estimate- no pun intended!). The good news is that if we can “focus on the playing field, not the scoreboard” (or current statements), there are attractive valuations in stocks (equities), bonds, and the funds that hold them. For example, Small company stocks, particularly small value have lagged for some time now, but often make significantly outsized recoveries
coming out of bear (down) markets:

Returns from the Bottom of Bear Markets Since 1926:

	Large Cap	Small Value
One Year	38.2%	70.7%
Three Years	18.6%	29.5%
Five Years	15.9%	25%

*Source Ben Carlson/Eugene Fama Data

CARES ACT updates – We have put together some material to highlight some of the opportunities for relief and how to apply. Feel free to reach out if you have questions and thank you for allowing us to serve you.

Mitch and Destin