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Saturday, May 21, 2022

We’ve Never Seen Anything Close to This

Client Reaction to Pandemic: Clients were understandably concerned, and we did have more “lifeboat drill” conversations than usual. Rather than wait to receive phone calls or emails, we proactively reached out to our clients. Client Questions/Your Reponses: Clients asked our opinion on how the markets would deal with the pandemic and whether or not we needed to change anything in their portfolios. Our responses were threefold – one, since this is uncharted territory, there is greater uncertainty and that brings volatility. There will be winners and losers, but markets generally will digest this over the next few years and therefore we shouldn’t panic. Two, we had to remind them that we design their portfolios only after doing carefully detailed planning for their long-range goals and the portfolios are built for their specific requirements, which includes risk management. And three, we will re-examine the need for additional liquidity brought on by the pandemic. Yes, the new world will require some adjustments but not wholesale changes. We endeavor to act systematically rather than emotionally when it comes to their financial security. Memorable Moments: It’s always the painful outliers that stick with you. The few people who panicked and insisted we sell missed the bounce. We tried to explain that the only way to get back the 25 percent to 30 percent (worst case) they lost on paper was to stay invested. If they went to cash, how would they ever be able to get that money back in the next decade? It’s too easy to sell out of fear and once that move is made, psychology kicks in and prevents them from acknowledging the mistake. Meaning they will be late to the party and buy at the top again. The buy-high, sell-low roller coaster is a sure loser. This argument kept many clients from panicking. 2020 Economic Disruption Compared to Others: We’ve never seen anything close to this in our 30-plus years in business, nor, for that matter, in our 60 years on this planet. The dislocation and disruption is extremely sad, and it shows how close to the edge of poverty so many Americans live. How Your Personality Helps: Our empathy and ability to be analytical when fear is the predominant emotion. Changes to Portfolios: Our portfolios have held up well as they are primarily driven by quality. With regard to portfolios positioned to deliver cash flow, we have begun to replace those securities that have been significantly affected by the forced closure of the economy and consequently have the potential to reduce dividends. Advice to Clients Now: Expect and plan for a very choppy year or two. We are making sure that all portfolios have sufficient cash or cash alternatives to both satisfy any new needs as a result of the shutdown and also take advantage of new opportunities as they arise. Biggest Trends in Financial Management: The biggest trends are in opposition to each other – the first is the commoditization of wealth management with the advent of robo-advice; the second is the growing recognition, especially under the stress of the coronavirus, that having a relationship with a human being who understands your situation, maybe better than you do yourself, is essential for good decision making. Corona-world (as we call it) has accelerated the second more than the first., and it will be fascinating to see what happens with the first trend, after the stories of the Robin Hood robo-app breaking down at the height of the panic emerges. We also see a global trend toward lower interest rates for longer. There will be a growing demand in the near future (with Baby Boomers retiring) for cash flow generation. Investors will be forced to accept greater risk in order to obtain the cash flow that they require. Favorite Stress Relief: Talk with our spouses and kids, focus on hobbies and spend time supporting charity groups that are helping those most in need as a result of this scourge. There is no better stress reliever than relieving someone else’s burden.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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