The following is an email letter sent out to clients on March 22, 2020. We are documenting this here for the benefit of those who are not (yet) clients as an example of how we believe an advisor should communicate with the people they serve.

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Hello –

I hope you are well, keeping your physical distance (I refuse to use the publicly accepted media term for it anymore – more below) and maintaining good health habits (wash hands regularly, get plenty of rest and make extra effort to manage stressors).

We are living through a significant event right now – one that will define us much as World War II did the “Great” generation. If policy makers don’t get this right, a disaster awaits us all. Even if they do, Coronavirus may leave an indelible mark much as the Great Depression scarred the country in the 30’s. We’ll cover it all in this email.

FIRST, YOUR PLAN

Much of the work we’ve done has been to help your personal financial situation be more resilient when bad things happen. A plan won’t eliminate the negatives, but it does make tough circumstances more manageable. You have options where those who haven’t planned are finding their choices limited.

This is a good chance to explore those options and understand the opportunities provided by the resources you have at your disposal but you must also be aware of their limits. This is a good time to review beneficiaries in retirement accounts and your estate plan to be sure they’re up to date. Please share any specifics or changes with me so I can keep my records up to date.

THEN, YOUR PORTFOLIO

We have always been planning centric and believe your portfolio should align with the plan … not the other way around. As of Friday’s close, client portfolio losses year-to-date were right around 15%. Compare this with the stock market which is off by 30-35% depending on the index you’re tracking. Our tactical approach has done the job of limiting down side.

While a 15% loss is more than anyone would want (especially me), recovering from this only requires an 18% gain. Meanwhile, those who are engaged in a buy and hope strategy now need a 50% gain to get back to even.

We have closed almost all positions except Treasuries, Mortgage Bonds, a Gold ETF and in some cases a Utilities ETF. The Utilities triggered a SELL order Friday which will be executed on Monday. I am looking for opportunities to reinvest the cash in other asset classes but right now there is nothing that meets investment policy criteria.

The analysis continues to be done regularly, at least once per day and more often as needed. It is possible that the remaining assets we have could also be sold. We really don’t know and, as we have so far, we’ll let the policy and regular analysis dictate if/when those sales might happen.

HOW’S THE INVESTMENT STRATEGY WORKING?

I was asked several times this week how I felt the strategy has performed in light of mid-teen losses. In general, I’d say that it has worked very well. Losses have been limited and we’re in a good position to make back that wealth over time.

The one major challenge has been the speed with which this particular downslide has hit. There are 26 bear market corrections in the last 100 years informing the design of this strategy. Most corrections take several months to get to the point we’re at today. The correction of 1987 took from late-August until mid-October to lose 35%. That’s just 38 trading days and was the most sudden reversal in modern times.

Today’s market correction has happened in half that time. The only other correction in our database that came this fast was when Germany invaded France to kick of World War 2 (-24.5% from 5/10/1940 to 6/10/1940).

Our strategy requires the confirmation of lower lows and lower highs before closing a position. To avoid false negatives, we look at a 21-day resolution for those triggers. We sold a bunch of positions this past week which could have been sold sooner, limiting losses even more … but they didn’t meet the resolution dictated by policy so we delayed the sell decision.

We are principled in our execution of the strategy, preferring to avoid ad hoc decisions. Doing so may have cost us additional down side this time. Still, it’s hard to argue with the 20% of Alpha (gains above and beyond the market) that we’ve been able to produce so far.

PHYSICAL DISTANCING

I am electing to use different language from the media and policy makers. “Social Distancing” to me is inaccurate and invites an eventual outcome that is wholly undesirable – the isolation of individuals.

I prefer the term, “Physical Distancing.” It is more accurate to where we need to focus our energy – keeping 6 feet between individuals to avoid contact with droplets that might carry the virus. You can maintain physical distance while still being socially engaged. Social isolation will result in serious consequences that will undermine our effort in our war against the disease … and it is a WAR we are starting to fight.

I don’t know if the people who crafted the term were just sloppy or if something more sinister was involved. But promoting a phrase like “social distancing” will have seriously negative side effects in time. I refuse to encourage bad policy and hope you’ll join me in choosing your words carefully.

INFORMED READING

I would also suggest that you inform yourself with all the facts about COVID-19 and it’s spread. The thing is, we can’t see this enemy and our minds aren’t built to fathom what the data today are saying about the near future. That near future could involve millions of deaths if we don’t put down the hammer NOW. Here are two article links:

Medium Article 3/19/2020 – Coronavirus: The Hammer and the Dance
WSJ Op Ed from 1/28/2020 – Act Now to Prevent an Epidemic (which was mostly ignored)

Don’t want to read it all? Here is the key: Testing everyone and tracing the contact history of those who are infected are the keys to bringing down the hammer. Physical Distancing buys valuable time but with test and trace, the Shelter at Home stuff can go away in a matter of a several weeks. Without testing and tracing, we’re in for a painful slog (many thousands / millions of deaths) for a really long time (months)

WEALTH HEALTH SUGGESTIONS

Here are the most important things you can do right now to improve your Wealth Health

— Make the time for sleep, healthy eating, proper hygiene
— Manage Stress – Take time for each other. Limit “news” intake to 5-10 minutes a day.
— Practice Physical Distancing, not social isolation.

My hope is that policy makers put their financial stimulus package primarily into testing and tracing. That will save lives. Supporting small businesses to keep their employees paid is also important. Other moves can help but if we don’t meet the testing and tracing challenge, this is going to get far worse before it gets better.

Meanwhile, as I write this, stock futures hit a stop limit down and markets are expected to open lower tomorrow. The volatility continues. If this were a heavyweight fight, we’re probably in round 2 or 3 of 15.

Call, email or set up a meeting at any time. I’m here for you. Share this with friends if you’d like. It’s never too soon to start planning and/or limiting your losses.

Yours in Wealth Health,

John

Wealth Health – Wellness For Your Wallet

John D. Buerger, CFP® MSFS
Wealth Coach / Financial Planner