To call the market dynamics since the opening of the year jarring would be an understatement.
These past weeks have not only put us on edge, but for some have put their entire portfolio strategy into question.
What questions are investors asking—what are you asking? With some pundits forecasting 2016 to be one of the most disastrous years on record, do we bale out while the baling is good? Do we remember the maxim, “Buy into weakness?” Where do we turn to find the portfolio models that can help us fathom a path forward? It would be easy to say that we have, “been through this before.” Since entering the markets in the 1970’s I have certainly been through extreme turbulence before. The truth, though, is that no situation can be cited to be a reflection or repeat of a previous situation. Every significant shock to the market is driven by its own unique set events—the outcome, however, is always the same—prices will fall until they stop falling.
For what it is worth, here are a few things to keep in front of us.
The first is talk to clients. If they are not talking to you they are, most assuredly, talking to someone else. Changes in our perceptions of what is going on cause us all to re-evaluate and re-evaluate our strategy. The more risky, or potentially long-term wealth-destroying, that our perception becomes, the more likely our decision to make a precipitous change. Dialogue is critical, situation-specific assessment is critical, listening is critical. If a change is required, it is more likely to be appropriate when rationally considered.
The second is to remember, as is always the case, to look at the leadership of the businesses that your portfolios are comprised of. Capable hands on the tiller will usually steer the enterprise through challenging times. Market multiples will land where they will land. Experienced and capable leadership may be in shorter supply than one sometimes believes—especially in buoyant markets. Look for the evidence of leadership and make your decisions and recommendations according.
Finally think about your ‘worst case’ risk models: the ones that map probabilities of occurrence and severity of impact. This market might be reminding us that the areas that we once considered to be portfolio outliers, may actually not be.
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