Our investment philosophy is and has always been to be prepared for unexpected economic and capital market events. They usually are just that, unexpected! Consequently, the core and #1 priority of our investment philosophy is always to control risk . Our belief is that if we control risk, the returns will be experienced, capital can be better preserved in market declines and/or rebound more rapidly during market accents. No guarantees, but we frequently have seen these patterns in our past 32+ years experience.
In this current scenario, we believe the United States economy remains and will remain strong. We also maintain that most other economic, corporate metrics and overarching fundamentals will remain intact. The consumer is strong, job creation is happening, wages are rising, inflation is low, interest rates are lowering. In our view, this Coronavirus event is a temporary pause on demand for some goods & services that will rebound, some sooner than others.
We continuously keep our eyes and mind on events as they transpire. Experience has taught us that global market shocks have generally created opportunities, especially for patient investors whom maintain a long-term view.
This does not mean we sit by idly by and do nothing. We are actively managing our passive investment philosophy. As an example, when the markets were hitting all-time new highs we were trimming profits. In another example, we have recently trimmed profits from bonds (which have appreciated greatly) and added to equity (which is clearly at a discount as compared to a few weeks ago). To the extent market volatility persists, tax loss harvesting and tactical allocation opportunities designed to have attractive long-term ramifications will also be something we consider.
All said, volatility provides opportunities. In today’s fast flow of information, some of it is accurate and some is not. Therefore, it is important to discern what we hear and how we react. With fundamentals solid we sense it is the market’s speculators that are getting purged on behalf of us long-term investors. History rhyming once again.
We remain calm and confident this will pass and we believe quicker than past declines because this one is based more on emotional & political incentives and media sensationalism. Our experience tells us that price declines during market shocks have tended t o be more exaggerated that any actual decline fundamentally warrants. In our opinion, while the increased volatility may be unsettling in the present, investors should avoid unfounded emotional decisions. Alternatively, investors should consider investing any cash reserves into their investment portfolio long-term.