THE GREENWOOD REPORT

Transcription

1 THE GREENWOOD REPORT

2 A DECADE ON BY G. BROCK GEARHART, CFA - PRESIDENT September marks the ten-year anniversary of what is now commonly referred to as the Great Recession. Coincidentally it also marks my ten-year anniversary with Greenwood Gearhart. For years, Mary Ann was convinced her decision to hire me precipitated the financial crisis! Maybe? I like to think it started the longest bull market in the history of the financial markets! It is truly hard to believe ten years have passed since the failure of Lehman Brothers and the onset of a fall in the financial markets that saw the Dow Jones reach 6,547 a 54% drop from the previous all-time high. At that time of maximum investor pessimism, no one could ve foreseen Dow 26,000; yet, here we are. Oh, what a difference a decade makes! 6,547 THE CRISIS MARKET LOW MAR 2009 Reflecting on the last ten years, I decided to ponder the past by reading through a decade s worth of Greenwood Reports. I wanted to reflect on what we were telling clients during those trying times. The following excerpts from 2009, 2010 & 2013 were worth sharing as they provide perspective on the power of long-term investing. APRIL 13, WHAT HAS CHANGED? During market declines it is very common for money managers to be asked have we reached a bottom? It is, after all, the question on everyone s mind. The truth is, no one knows for sure when a bottom is reached in equity markets. Those that say they do usually have ulterior motives or stand to benefit from a correct prediction. Our job as your investment advisor is to review all available data, translate the data into information, and utilize the information to make sound investment decisions This rally doesn t mean that we have put the problems behind us, but it does remind us that recovery will happen. It will be a recovery you won t want to miss. 8,058 ONE MONTH REMOVED FROM THE CRISIS BOTTOM APR Dalbar. Quantitative Analysis of Investor Behavior. Page 5. Boston, MA

3 FEBRUARY 16, CERTAINTY IN AN UNCERTAIN WORLD The magnitude of the unexpected credit crisis caused heavy selling of equities globally. To date however, a chart plotting the recovery resembles a V rather than the W or even L that some predicted, representative of the 63% rally in the Dow through the end of Long-term investors, including clients of Greenwood & Associates, have benefited from the resurgence a function of resiliency in the face of panic and decisiveness when the market presented opportunity. 10,269 ONE YEAR REMOVED FROM THE CRISIS FEB 2010 OCTOBER 22, FIVE YEARS LATER While a lot has changed, much stays the same: uncertainty still exists in the financial markets, the word crisis remains on the tip of our tongues, and the nation is polarized some say paralyzed as the result of political theater. Further, Greenwood Gearhart s investment strategy has stayed as consistent over the last five years as it did the previous twenty-five. Our competitive advantage of a long-term time horizon coupled with the perspective and experience that comes with navigating thirty years of markets, proves once again to be effective in times of crisis. By consistently implementing our process, we exploit temporary asset mispricings and profit generously as the economy improves. The returns we ve achieved for our clients portfolios are gratifying. 15,468 FIVE YEARS REMOVED FROM THE CRISIS OCT 2013 Greenwood Gearhart s investment strategy has stayed as consistent over the last five years as it did the previous twenty-five. 1 Dalbar. Quantitative Analysis of Investor Behavior. Page 5. Boston, MA

4 REFLECTIONS There are common themes in our writings that expound on the power of long-term investing, simplifying what others overcomplicate, the benefits of staying the course in times of uncertainty, and trusting a proven process. Still, we understand that just staying the course isn t always an acceptable response when the logic seems counterintuitive. In fact, we empathize that it can sometimes be a frustrating response to clients. The reality is, a slow and steady approach is proven to work. A few other observations from the last decade: Panic is not an investment strategy. History shows that times of maximum pessimism have proven to be the best time to invest long-term. A benefit to having a professional at the helm of your investment affairs is the elimination of the Investor Behavior Penalty the tendency of non-professional investors to make market timing decisions that are counterproductive to building wealth studies show this can be up to a 6%+ headwind per year to returns based on a 30-year time horizon. 1 Traditional asset allocation strategies (the 60% equity 40% fixed income portfolio approach) are not infallible. In a rising interest rate environment, bonds can and do carry risks that have not been present over the last 35 years. A sound and thorough financial plan is your best line of defense against market disruptions. Stress testing your plan under adverse economic and life events ensures long-term peace of mind. If your situation warrants a review, we stand ready to help. We believe there is a right way to provide financial advice; The Greenwood Gearhart Way: we act as a fiduciary and put the client s best interest before our own, we align our personal investments and compensation alongside our clients, and we provide comprehensive advice across all of their affairs. A sound and thorough financial plan is your best line of defense against market interruptions. There will be another financial crisis. Trying to predict the timing and severity is best reserved for the talking heads and wild prognosticators who are paid to sell advertising on the major news networks. Prudence in the face of panic breeds success. 1 Dalbar. Quantitative Analysis of Investor Behavior. Page 5. Boston, MA

5 WHERE WE GO FROM HERE We have enjoyed a long, steady recovery from the doldrums of a decade ago. Today s economic environment resembles a Goldilocks economy where our porridge is neither too hot nor too cold. Unfortunately, this will not last forever. The economy moves in cycles and today s data better resembles the later, rather than earlier, stages of expansion. This later stage characterized by rising short-term interest rates, a resulting flattening yield curve, and generally positive economic data across the board could go on for months or even years. How long is anyone s guess. The Federal Reserve has made clear that monetary tightening will continue even as economic growth is progressing smoothly and expanding at a solid rate. We agree the economy is strong. We also share the Fed s concern that a prolonged period of the economy operating beyond its potential could spark inflation. Gradual interest rate hikes will help to cool this prospect. Additionally, the abundant global resources in labor (see China and India) and capital should help keep inflation in check....we remain focused on prudence and care in the management of client capital. Greenwood Gearhart spends little time trying to predict the timing of business cycles. Rather, we evaluate the impact that shifting economic conditions have on the companies you (and we) own. This is more predictable, after all. In this context, we are highly attuned to the impact of the White House s evolving trade policy, the flattening yield curve, ongoing geopolitical tensions, and changing consumer spending habits as a result of technological disruption. The decisions we make in your investment portfolio are a reflection of our analysis and conclusions on each of these matters. What we do spend time on is following our process. In the tale of the Tortoise and the Hare, we are the Tortoise every time through market cycles, political headwinds, and geopolitical tensions; we remain focused on prudence and care in the management of client capital. 1 Dalbar. Quantitative Analysis of Investor Behavior. Page 5. Boston, MA

6 FINAL REFLECTIONS In the decade since I joined the firm I ve been incredibly blessed in many ways. Mary Ann Greenwood gave me a wonderful opportunity ten years ago that has allowed me to grow personally and allowed our firm to carry on to the next generation and beyond. Every day I get to work with an incredibly talented group of individuals who are fully committed to providing the best possible advice to our clients. In the last decade, my wife Lindsey and I have built a family of three kids who keep me focused on what matters most in life. We get to live in a thriving community in our beloved home state of Arkansas. Above all, I recognize that it is you, our clients, that allow us to enjoy these incredible blessings. It is because of you that I wake up each day more and more energized to go to work and help you accomplish your goals. 26,000 TEN YEARS REMOVED FROM THE CRISIS SEPT 2018 I can t wait to see what the next decade brings for us all. G. BROCK GEARHART, CFA PRESIDENT SEPTEMBER 14, Dalbar. Quantitative Analysis of Investor Behavior. Page 5. Boston, MA

7 JONES INDUSTRIAL AVERAGE ,114 OCTOBER ,468 FEBRUARY 2009 CREDIT CRISIS FEBRUARY 16, ,269 APRIL 13, ,058 1 Dalbar. Quantitative Analysis of Investor Behavior. Page 5. Boston, MA

8 26 EAST CENTER STREET FAYETTEVILLE, AR 72701