Letter to Our Clients - October 1, 2008

October 1, 2008


Dear Clients and Friends:

This week and last month have been harrowing. Not since the 1930’s has the financial and regulatory environment changed so dramatically.

But, we need to be careful about our reaction. Newspapers, television, radio and the internet are screaming headlines which elicit fear. It is normal to feel threatened, even frightened. But it is not rational.

Ask yourself, how is your day different because of what is happening on Wall Street and in Washington, D.C.? In almost all respects, your daily routine of waking, working, eating and recreating has not changed. Most likely it will not change in the coming weeks and months. Looking forward, the stock and bond markets will continue to rise or fall depending upon a) how the economy as a whole does, and b) how that investor group known as “the market” reacts to fear and greed.

What has been happening over the last month affects the financial and political systems at the very highest levels. These end up affecting us, but not as dramatically as it might seem, definitely not as dramatically as the headlines would lead us to fear.

A client told me “this clearly is a good time...to NOT panic!” Thanks, Dwight. I agree.

Another client, after listening to me say much of what I am writing below, said: “Bob, I know your job is to calm us down, but...” I said that I do not see my job as to calm you down. I believe my job is to give you the information and perspective you need to make well-informed decisions, to help you act on those decisions, and then to help you monitor them as time goes by. I believe I can be more successful at helping you make good, well-informed decisions, if I can present my opinions in a calm and rational manner. But that is HOW I do my job, not WHAT I do.

Many commentators are saying that you should reassess your risk tolerances and, if you find you are unhappy/uncomfortable with your accounts, you should make the adjustments necessary to bring you in line with your new/correct/current risk tolerance.

I will help you make these kinds of adjustments if that is what makes you most comfortable. However, I do not think it is likely to be your best option at this particular time.

I mentioned in my letters and in our conversations over the last year that we were past due for a market drop of 20% or more. I remember identifying 1250 as a potential target for the S&P 500. It broke through that level briefly in July and then again in early September. It is at 1166 as I write this.

I was trying to persuade people that, if you would be uncomfortable to miserable if the markets and your accounts dropped 20% or more, that we should make the changes necessary while the market was high so that you could be comfortable when (if?) the market dropped. For some of you we made changes, for some we did not, but generally we felt then that we could tolerate a significant drop in our account values. Or, perhaps we believed it never would fall that much.

Now that our accounts have dropped (mine along with yours), there might be the sense that we should get more conservative, move more to “cash,” to guaranteed or insured deposits.

I suggest considering that, for most of us, this is not the time to change our basic strategy. The markets will recover. I do not know when or how much, but there will be a time again where the economy is healthy and the markets strong. THAT would be the time to remember what it felt like in September and October of 2008. That will be the time to make the portfolio more conservative, if we remember that in 2008 we struggled to accept what was happening to our accounts.

Generally we should become more aggressive when the markets have fallen, and more conservative when the markets are prospering. But, how hard is that to do?!

In conclusion, this e-mail is not intended to contain recommendations for anyone. It is an invitation to call me if there is anything going on in the news, the markets, your accounts or life that we should be discussing.

Good luck and best wishes,

Robert K. Haley, JD, CFP®, AIF®