Market Volatility and our clients

Dear valued client,

 

News about Wall Street and the markets is everywhere. How much of that media noise is relevant or actionable? The important thing is to put these events into the proper perspective – how these events affect you and their potential to derail the important promises you make in life. We are here to help you every step of the way through our technical expertise and professional experience.

 

Here is what we know

 

The credit markets have seized up

This is real, and it is temporary. Almost all large public and private companies issue commercial paper – short-term debt instruments that mature in less than 270 days to help meet their short-term liabilities. This debt in the past has been very liquid and quite secure. It is what has been owned by most money market funds to help them provide investors better returns than they would get from owning Treasuries. Since concern has dramatically increased about corporate balance sheets and their ability to meet even the shortest of obligations, two things have happened. People have fled money market funds, which means that those funds must sell their paper and there is no market for the new paper that is being issued. When you hear about the "need" for a rescue package, this is the main reason why. The Federal Reserve and U.S. Treasury are trying to create an avenue of liquidity for these instruments. This part of the plan is what will eventually hit Main Street. The reason that this is temporary is because it is too significant to not be worked out. Everything from hospital payrolls to inventory purchases are dependent upon this mechanism, so it will be fixed.

 

Wall Street is broken

This is real and the effects will be long-term. Some of the largest investment banks were using a tremendous amount of leverage on opaque instruments that created even more leverage. This industry will continue to change and change dramatically. Access to money will not be as easy, which means profits for these companies will be compromised. Eventually they will come up with new and different ways to make money, but regulation will inevitably make it harder to make as much as they did for contributing as little as they had.

 

Diversification doesn’t work (for now)

This is real and it is temporary. When we have a global meltdown, all investments, other than the very safest, fall. This means that asset classes initially fall together. This is typically the case for around three- to six-months. Afterwards, the most mispriced asset classes come back more strongly than others.

Rebalancing is critical during these periods. By systematically rebalancing, you are forcing yourself to buy low. It has worked for time and time again.

 

Fear and greed own the day

This is real and it is permanent. Every day, stock prices are determined by sellers, who either need to raise money or are convinced their stocks are going down, and buyers, who believe that they are getting bargains on investments that will go up. In periods of turmoil, there are far more sellers than buyers. People get scared that their investments are going to fall forever and sell (often at the worst possible times). When markets are going up, people think that they have all the answers and end up buying at the worst possible times. No one is ever completely rational, but successful investors tend to be less scared and less greedy than unsuccessful ones.

 

Valuation is never completely clear

This is real and it is permanent. You can pay 30 times annual earnings for a stock that is growing at 30 percent a year. You cannot pay 30 times earnings for a stock that is growing at 10 percent a year. All future growth rates are guesses. This means that on a daily basis, you are never paying the exact right amount for what it is that you are buying. However, in markets like this, you are generally paying less for future earnings than you did in 1999. These low prices are ultimately the key to having success in investing over the next few years.

 

People are hurting

This is real and it is temporary. Jobs have been lost and more jobs will be lost. People who piled on debt will have tremendous problems working their way out of the hole that they dug for themselves. The stress of seeing investments drop can add to the stress that each of us feel in raising a family, business, or tending to our aging parents.

 

Nothing Lasts Forever

This too, shall pass. In a way, we won’t foresee, predict or even recognize when it begins.

 

What We Can’t Do

We cannot offer absolute certainty about any economic outlook or financial solution. What we can offer is understanding about how financial solutions work, what you can expect and how they benefit you. It is through understanding that, together, we can begin to approach certainty.

 

We cannot change the past or delude ourselves into thinking we saw it all coming. Life is not about absolutes.

 

We cannot provide all the answers to the economic and financial questions that are at the core of our collective experience right now.

 

We cannot turn off the media for you. Nor can we change their perspective and expect a positive spin on events. Their message is to fuel flames of fear, increase viewers and drive advertising revenues.

 

What We Can (And Will) Do For You

 

Be available

We are here to serve you. However busy we may appear or sound, our number one priority is to take care of you.

 

Meet

We promise to meet with you. In evaluating decisions that affect your entire life, we need to sit down face-to-face and flesh out how our technical skills can benefit you. By having a personal and professional relationship, we are better able to identify your current needs and anticipate future ones.

 

Review

By meeting with you periodically, we review each of your wealth management solutions. We can reassure you which investments are effective and solidly address your changing needs. We’ll also be able to advise you when your life needs expand beyond your existing solutions. Then we will work with you to implement solutions that keep pace with your current needs.

 

Listen

We promise to listen to you. There are no cookie cutter solutions in wealth management. We are charged with customizing wealth management services and solutions to your unique needs.

 

Organize your analysis

We use the Method 10™ as a framework for categorizing the financial issues you fact and will face in the future. Each Method 10 element reflects a solution set to help you honor promises you make to others. Through active dialogue, we can uncover all the specific issues that you face.

 

Prioritize

We can start to prioritize your Method 10 issues by asking a basic question: Which important promises have you made that you are currently concerned about because of the market downturn?

 

Recommend

When appropriate, we can recommend upgrades, modifications, or enhancements to your existing wealth management solutions. Similarly, we can recommend strategies for adding "certainty," or at the least, assuage your doubts and fears about being unable to deliver on the important promises you make.

 

Implement

Once we identify a way to deliver an important benefit to you, we’ll make sure we implement the wealth management solution correctly, thoroughly and in the comprehensive perspective of your total wealth management package.

 

Let us help you during these difficult times. Call us at 858.752.1726 today to set up your personalized review.

 

Sincerely,

Dion Gouws, CPA