Letter to Our Clients - August 2011

August 2011


Dear Clients and Friends:

The circumstances that caused the recent market downturn are unique. Everything else is consistent with past market behavior. Just last year the market was down 16% May-June, and last August was the “worst August since the 1980’s.” Then the markets went up again at the end of the year.

A problem we all must cope with is that we lived through the prosperity of the 1990’s. The stock market did not have a single negative year from 1991 to 1999. Amazing! It led people to believe such predictability was the norm. Even though it had never been like that before, and certainly has not been since then, it is an expectation that is in the back of everyone’s minds.

It is difficult to understand, and tolerate, that this, 2000 to 2011, is normal. The market goes up, it goes down, it goes sideways. If it was predictable, and easy, everyone would do it, and then no one would make money. If you are in the market now, and come out, someone else will likely make money on your exchange. If you stay in the market, your account values could continue to go down, maybe a lot. We expect the markets will come back up again, and that there likely will be gains in the future, but no one can say with certainty that this will happen, and if so, when and how much.

A client recently said that, “as professional money managers, you are SUPPOSED TO KNOW when to come out of the market, and when to come back in.” Doctors can’t keep people from dying, attorneys lose cases all the time, CEO’s making tens of millions of dollars a year make very bad decisions, and investment professionals are dealing with at least as many variables as these people. I confess – I myself don’t know with any certainty the times to be “all in” or “all out.” Worse, if I thought I did, and I was wrong, even just once, I could cost my clients a lot of money needlessly. The closest I have ever come to it was November of 2007. I would have been brilliant if I had taken you and everyone else to cash. But when would I have the courage to bring you back in, and how willing would you have been in the darkest gloom of March, 2009, to follow that advice? No, it did not make sense then, and I feel it does not make sense now.

I also think there is something else in play. The failure of politicians to behave like mature adults has created anxieties of a scale we have not seen before. We can swear at and argue about politics, but we really cannot do anything about the situation in Washington, in Europe, or in China. Our anxiety/anger has few outlets. The news media feed on the discontent and turmoil, and work hard to create more fear, more anger, so they can report yet another cycle of resentment, anger, and eventually violence. One of the most healthful things people could do would be to mentally filter what they see and hear when listening to or watching news and commentary shows.

Here is The Haley Theory: much of the stock market turmoil is related to things that cannot be controlled, like stupid politicians, and less to the reasonable things, like debt levels, unemployment, potential recession, etc.


I believe our responsibility is to help you build investment strategies and portfolios consistent with your goals, needs, and concerns. Some people are getting very tired of the volatility. Exhausted, even. I call this “Investor Fatigue.” Is this where you are?

Should we develop a different strategy, not because the markets are volatile, but because your willingness to endure the fluctuation has changed?

For some people, the best thing is to “do nothing, just stand there.” For others, it is the reverse: “Don’t just stand there, do something.”

What about you? Should we quit standing there, and do something different? Or, do you believe your existing investment plan remains appropriate?

Please let us know how we can best help you at this time.

Thanks, and best wishes,

Robert K. Haley, JD, CFP®, AIF®