Good morning! Last week, dinner tables—this week, metabolism. The broad scientific definition of metabolism is a set of processes within a living organism that occurs in order to sustain life. For us, we usually refer to the word as how our bodies turn food into useful energy and we’ve been stuck on this idea as a helpful analogy to describe what we’ve been experiencing in recent weeks. All of us have been ingesting an enormous amount of new information and doing our best to process all that’s happened in a short period of time. We’re working to turn it into useful energy that moves us forward as individuals, families, and communities. We said last week and believe it wholeheartedly, never have we seen day-to-day life change so quickly on a global scale.
Rightly so, our first energies are directed at the health and well-being of loved ones. Many of us have been thinking about questions like: What can we do to stay safe and healthy? How do we navigate the madness at the grocery stores and make sure we get the food we need? Are our jobs and businesses secure? And, for those of us with kids, how do we stay sane with this new lack of structure in our days and keep education moving forward? These are examples of what psychologist Abraham Maslow referred to as basic needs and he suggests they must be met first before we move on to consider anything else. All this to say we’d be wise to give ourselves and others grace as we’ve had an abrupt and significant disruption in some very essential aspects of life. And please know that we are hugely encouraged as we talk with many of you and hear how you’re metabolizing this incredible crush of new information. We see you pressing into current challenges with a strength and ingenuity (useful energy!) that is moving your families and our community forward. The indomitable human spirit shining through!
Regardless of how much focus you’ve been able to give it, we know you’ve been thinking about how the spread of COVID-19 is impacting financial markets broadly and specifically your investment portfolio and financial plan. Rest assured that this is the sole focus of our work as advisors right now. We are here to give our clients optimism about life and money and that doesn’t change when the economic and market skies turn dark and scary from time to time. In fact, it’s in these times that it’s more important than ever.
So to metabolize this together, let’s consider three questions: What’s happened? What does it mean? What should we do? Our goal with the first is simply to distill a staggering amount of recent news into a digestible summary. We have no interest in reporting the news and you likely get more than your fill of that already. Answering the second and third is really more at the heart of our commitment as a lifelong advisor and financial partner. We’re staying focused on these and turning this blitz of new information (and plenty of useless noise too) into the useful energy that will help clients move their financial life forward.
Just shy of eleven years into an economic expansion and bull market, COVID-19 appeared as the precipitating event for a bear market and likely a recession. Necessary efforts to stop the spread of the virus through social distancing measures has severely impacted a wide range of businesses and some industries have been especially hard hit; airlines, cruise operators, hotels, and restaurants to name a few. At least in the short run, business revenue and profits are expected to fall, in some cases threatening the financial stability of companies if they weren’t on solid footing to begin with.
Governments and central banks around the world have responded with efforts to lessen the economic impact through increased spending and lending. Today, the U.S. Congress is set to pass a bill aiming to provide $2 trillion in financial support to individuals and businesses. The Federal Reserve has also taken dramatic action to support market liquidity and make loans cheaper and easier to obtain. In fact, many of the actions taken by the Federal Reserve during the 2008-2009 global financial crisis over the course of many months or even years have been swiftly re-introduced in just a few short weeks. We certainly hope this can help turn the economic and market tide, though only time will tell. There is still much uncertainty regarding the depth and breadth of the impact from the virus and unfortunately there is much we can’t predict on that front.
What Does It Mean?
In short, this means there is a high degree of uncertainty with regard to the near-term direction of financial markets and economic fundamentals and we believe it best to be prepared for continued volatility. It certainly doesn’t have to be so, but it is wise to be prepared in case things get worse before they get better. Please don’t misunderstand this as a negative prediction, we’re simply acknowledging that there are a wide range of possible outcomes to consider. We also welcome the possibility that we can get this pandemic under control and see an improvement in economic and financial market conditions sooner rather than later. Of course, this is our hope.
However, a high degree of near-term certainty needn’t cripple us with fear and indeed we believe the future looks brighter and brighter as we broaden our time perspective. It’s how we can hold in tension the current reality of short-term pain while maintaining a high degree of confidence in the potential for long-term gain. We never know when exactly bear markets and recessions will arrive, we just know that they do. It’s why we plan for it. Specifically, it’s why we work with clients through ongoing planning conversations to maintain an appropriate amount of liquidity so long-term investments need not be disturbed during periodic bouts of intense market turbulence. And it’s why we do our best to make our long-term investments in a diversified portfolio of companies that have strong defensible businesses and a solid financial footing. We refer to “our” investments very purposely as we are personally invested in the same strategies as clients. That doesn’t mean we get the recipe just right, but it’s important to us that you know we’re eating our own cooking.
What Should We Do?
First, let’s do our best not to get whipsawed by the emotions of this market but instead to hold to a sound and disciplined investment strategy. The good news is that the majority of our client portfolios are already invested in rock solid companies. Even so, and as we mentioned in last week’s update, we’re proactively looking for ways to protect and enhance portfolios in the midst of this. We see many solid and financially sound companies trading at bargain prices and experience tells us that markets where fear abounds produce some of the best long-term opportunities for investment returns.
Now is also an important time to stay on top of any changes in your financial situation. If a temporary loss or reduction in income calls for a review of cash and liquidity reserves, we’re asking clients to let us know. Or on the other hand there are some who have the good fortune of sitting on more reserves than needed. In those cases, we are encouraging them to consider that this may be a good time to add more money to their investment portfolios. We believe we can capitalize on some great long-term buying opportunities that are emerging in the market.
We’ll stay in good touch and hope to hear from you if our approach and perspective might benefit you or someone you know. In the meantime—stay well, stay connected to loved ones (even if physically apart), and stay optimistic. We will indeed get through this together.