The time to repair the roof is when the sun is shining.
– President John F. Kennedy
Recently we have fielded phone calls from clients expressing conflicting emotions: delight in rising account values and concern about a sell-off. The latter has been punctuated by the release of “1929” (non-fiction), the best-selling book by market commentator, Andrew Ross Sorkin, chronicling the market crash of that year.
Throughout his book tour, Sorkin has noted the similarities between today and the 1929 Crash. He points to the implementation of tariffs, burgeoning speculation in areas like AI and crypto, and the loosening of regulations as signs that history may be repeating itself.
Fortunately, that is where the similarities end. The 1929 Crash was triggered by a variety of factors that don’t exist today. Among the glaring differences was the scant margin requirement – in the late 1920s an investor could buy a $100 stock with just $10 down and borrow the rest. With this type of leverage even a modest drop could wipe out an investor. That’s exactly what happened.
In the years that followed, Congress implemented several acts to protect the investing public. Margin requirements were increased to 50% and the SEC was formed to stave off fraud and manipulation. Additionally, the banking system was strengthened with the introduction of FDIC insurance. Today, the likelihood of a systemic collapse like we saw in ’29 is remote.
However, none of those post-Depression shock absorbers can eliminate the curse of reverse wiring: investors like to buy when skies are blue and sell when inclement conditions set in. Our team is not immune, so we stick with a system that inures us from such emotions. We appraise company values, buy when share prices are at a discount and sell or lighten up when they trade at a premium. We view market predictions as distractions and treat them accordingly.
By limiting our universe to financially sound, best-in-breed companies, we can endure difficult market environments without losing sleep. At the same time, we do more selling than buying when company shares prices begin to exceed their underlying appraisals. Accordingly, a lower equity allocation is not a market call, rather a natural residual of our investment philosophy. Further, our stated policy is to always keep a minimum of three years of anticipated withdrawal needs in cash or near cash to ride out any market storm. For most clients their cash residual is well in excess of that amount.
In closing, come rain or shine we believe your portfolio is well postured.
BWP Outlook – Repairing the Roof
The time to repair the roof is when the sun is shining.
– President John F. Kennedy
Recently we have fielded phone calls from clients expressing conflicting emotions: delight in rising account values and concern about a sell-off. The latter has been punctuated by the release of “1929” (non-fiction), the best-selling book by market commentator, Andrew Ross Sorkin, chronicling the market crash of that year.
Throughout his book tour, Sorkin has noted the similarities between today and the 1929 Crash. He points to the implementation of tariffs, burgeoning speculation in areas like AI and crypto, and the loosening of regulations as signs that history may be repeating itself.
Fortunately, that is where the similarities end. The 1929 Crash was triggered by a variety of factors that don’t exist today. Among the glaring differences was the scant margin requirement – in the late 1920s an investor could buy a $100 stock with just $10 down and borrow the rest. With this type of leverage even a modest drop could wipe out an investor. That’s exactly what happened.
In the years that followed, Congress implemented several acts to protect the investing public. Margin requirements were increased to 50% and the SEC was formed to stave off fraud and manipulation. Additionally, the banking system was strengthened with the introduction of FDIC insurance. Today, the likelihood of a systemic collapse like we saw in ’29 is remote.
However, none of those post-Depression shock absorbers can eliminate the curse of reverse wiring: investors like to buy when skies are blue and sell when inclement conditions set in. Our team is not immune, so we stick with a system that inures us from such emotions. We appraise company values, buy when share prices are at a discount and sell or lighten up when they trade at a premium. We view market predictions as distractions and treat them accordingly.
By limiting our universe to financially sound, best-in-breed companies, we can endure difficult market environments without losing sleep. At the same time, we do more selling than buying when company shares prices begin to exceed their underlying appraisals. Accordingly, a lower equity allocation is not a market call, rather a natural residual of our investment philosophy. Further, our stated policy is to always keep a minimum of three years of anticipated withdrawal needs in cash or near cash to ride out any market storm. For most clients their cash residual is well in excess of that amount.
In closing, come rain or shine we believe your portfolio is well postured.