Joe Ramos, CEO & Sr. Wealth Advisor
Joe Ramos, CEO

Letter from the CEO


Market Update: The world is a mess, what do we do now?

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10/19/2008

The past few volatile weeks in the market have tested investors' resilience and have had a meaningful impact on their perception and willingness to take risk. The week before last was "the worst week ever for stocks"; equity investors saw their portfolios decline by roughly 20%. Last Monday, the S&P 500 Index was up 11.58%; greater than the 10% annualized return since 1926, and the best single day since March 15, 1933.

In times of severe market volatility, up or down, it is incredibly difficult for investors to dissociate their emotional response to the economy or the stock market from their investment behavior. Investors are heavily influenced by the news media and the current state of the economy (good or bad). Thus, investors tend to buy in good times and sell in bad times, and systematically fail to capture basic market rates of return (by a wide margin — during the 20 years ended 2003, investors in equity mutual funds under performed the underlying equity market by a full 5% per year on average! Primarily due to poor market timing.). It has been a challenging and especially important time to be an advisor, and we've been very proud of the service, education, and perspective that we continually provide to our clients.

In reaching out to all of you, I would like to provide some additional education and third party perspective. Below are a few resources that I've recently come across that provide some of that perspective:

  1. A few days ago in the Wall Street Journal, Burton Malkiel (Professor of Economics at Princeton University and author of A Random Walk Down Wall Street) wrote an article "Keep Your Money in the Market." In this article, he warns against trying to time the market and encourages investors to stay disciplined, diversify, and focus on the long term. http://online.wsj.com/article/SB122385741803727333.html#printMode
  2. Last week, the NY Times had a good article by Rob Lieber titled "Switching to Cash May Feel Safe, but Risks Remain". Article The article discusses the danger/risk to long-term investment success of cashing out (market timing) after a decline has already occurred.
  3. Joni Clark, Chief Investment Strategist from Loring Ward Advisor Services, recently wrote a great article, "Breaking News: It's Not Different This Time" that is consistent with Weston's latest presentation.
  4. Our investment research is provided by our expert team at DFA, and one of the key research team members, Weston Wellington, created the following presentation, "Is It Different This Time?", wherein Weston gives a historical perspective about what is or is not different about our current crisis and the last 10 bear markets over the past 50 plus years.
  5. Saving the best for last, on Thursday, Warren Buffett wrote an article in the N.Y. Times that I link to here. Warren Buffett, considered by most the greatest investor of our time, says it best "...be greedy when others are fearful" and a dozen or so other pearls of wisdom.

I wish I could be so elegant in explaining my thoughts, instead I found them best expressed in the words of Warren Buffett, Wesley Wellington, Joni Clark, Rob Lieber, and Burton Malkiel. So I will ask you to read their words as a proxy for mine. Plus, right now I feel it is best to spend my time focusing on you rather than publishing long articles.

As always, please feel free to get in touch with me if anything comes up that you would like to discuss. Many of you are feeling financial stress in your business and elsewhere. I have personally spoken with most of you, but don't be afraid to call and discuss what is concerning you, as busy as it is we will make time for you.

Best regards,

C. Joseph Ramos