Letter to Our Clients – March 2018

March 29, 2018


Dear Clients and Friends:

It has now been a little over 9 years since the last Bear Market ended – although no one knew it was ending at the time.  It was on March 9, 2009, that the Dow Jones Average Industrial* ended the day below 6,600, having fallen over 50% from its high of 14,164 on October 9, 2007.  It recently reached its all-time high of 26,600+ on January 26, 2018.  Wow!

All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.


Looking backward, many experts said the market collapse should have been expected. That was not the general guidance given during late 2007 and into 2008, but, as we know, experts are never wrong.


What have the financial markets done to prevent a repeat collapse?  In our opinion – really, nothing meaningful.  The signs of excess that existed in 2007 appear to be mirrored in 2018.  Things such as margin debt, share buybacks, loosened bank regulations and the use of derivatives all indicate vulnerability. 


In the past we have said that you, as an investor, must be prepared for a decline in the value of your portfolios, because it is bound to happen sooner or later.  We have also been saying for some time that the stock market appears to us to be overvalued, but by itself that does not predict a drop in prices.  In fact, corporate earnings have increased enough to encourage investors to continue adding to stocks, which has resulted in the market averages continuing to climb.


At this point we are suggesting that there is an increased potential for a 20% or more decline in the global stock markets.  NOTE – this is not a prediction!  It is simply a statement that the likelihood of a bear market is now higher than it has been in a while. 


What should an investor do with this perspective, especially since we do not know for certain that values will drop, and even if they do, we would not know the right time to buy back into the stock markets?  So, again, what should one do?  Here are our suggestions.


1.  Do nothing.  (Think of the expression – “Don’t just do something, stand there!”)

If your need or desire for growth has not changed, and if your ability to tolerate uncertainty and fluctuation has not changed, then the best thing to do is – nothing.


2.  If you think your exposure to stocks is at a level not consistent with your risk tolerance, or if you feel your life circumstances have changed so that you are not certain what your ratios should be, then please call us.


3.  Remember to be an investor, and not a speculator. 


As always, we thank you for the opportunity to work with you.  Please contact us any time you have questions or topics you would like to discuss. 


Best wishes, Bob and Ted & Team