Dear Friends,

Where Are We Now?

“Wall Street has a few prudent principles; the trouble is that they are always forgotten when they are most needed.” – Benjamin Graham (widely known as the father of value investing and mentor to Warren Buffett)

Greetings and we hope this letter finds you well. One of those prudent principles is that investors are more likely to reach their goals if they avoid short-term emotional decisions that take them off course. This seems simple, but it sure wasn’t easy in March in the midst of the sell off from COVID-19 fears. While the impact from this pandemic is unique, every past crisis was also driven by something “unprecedented”.  However, they all have the same thing in common: markets recovered and economies healed.

As we look back at Q2, we’re thankful to have benefited as financial markets rebounded from the significant March sell off. The siren song of “market timing” or relief from the volatility is often strong, but staying invested paid off even though there may be more volatility ahead in the near term.

Thankfully Climbing the Wall of Worry Again

Congratulations to all persevering investors as it paid off in Q2 with the stock market bouncing back up over 20% from Q1. Certain large tech company stocks did particularly well (can we really order more from Amazon without adding front porch space?)  Companies less affected or benefiting from COVID-19 shutdowns have outperformed, while other areas of the market such as Value, Small, and International stocks are still well off their pre-COVID levels as markets reflect the uncertainty of the recovery timing.

While these asset classes have underperformed recently, they could offer significant upside over the next few years as the economy recovers. In recovery scenarios, the research shows the outperformance of previously “out of favor” sectors are often rapid and unexpected. Although there will likely be volatility in the short-term over ongoing COVID concerns and 2020 election uncertainty, we believe this makes a strong case for more exposure (not less) and maintaining a diversified portfolio. Markets do climb a wall of worry, and thus we want to follow these prudent investing principles “when we need them the most”.

A Couple of Thoughts on Being Less Worried During Uncertain Times:

Reduce anxiety and fear by limiting “the news” to 15 min per day.  A recent study of 2,500 Americans showed that those who watched the major networks had serious negative impacts to their feeling of well-being. In all, 66% are consuming more news than ever before, and 68% admitted that COVID-19 coverage gives them considerable anxiety. In addition, 65% said they feel overwhelmed by coronavirus news, and 56% just get plain angry.  The networks try to stir negative emotions to drive viewership and advertising revenue.   Reducing Fear and Anxiety are shown to improve effective financial decision-making and strategic thinking.

Try to control only what you can control and surrender the outcomes.  Lower your taxes through financial planning strategies and stay on track with your spending habits are things that we can control.  Planning for potential tax rate increases are things that can and should be done.

Mitch and Destin