It is in times like this that we feel our strategies bear the most fruit. When a storm appears on the horizon, a good sailor trims sail and battens down the hatches. Before it ever comes to this, however, it is essential that the ship is made seaworthy prior to ever leaving port.
Clearly, the storm is upon us. We are experiencing some dramatic drops not only in equities but other assets classes as well. Starting last year, we began shifting asset allocations toward more value style equities and more inflation protected themes. These moves will help mitigate the damage caused by current market conditions. More importantly, we have long promoted the importance of maintaining an appropriate level of funds in the “capital preservation bucket” to ensure that your portfolio is sturdy enough to weather storms such as this.
These actions will help us ride out the storm, they cannot prevent it, nor will they make it pleasant. Like it or not, market turmoil is as inevitable as the occasional squall or hurricane. It is part of the price we must pay and endure to get the benefits of long-term capital appreciation.
We are not sure the worst is over yet. We still have a high bill to pay for the way the Feds pumped unprecedented amounts of cash into the financial system. If history is any guide, inflation will be tough to get under control. It may very well take a dramatic increase in rates to address the problem.
That said, we would remind you again that it is always darkest before the sun rises. The sun will rise again. It is our belief that the way to make money is to be consistent and stay the course. In times like these, that is easier said than done.
For those of you who are sitting on extra cash positions, now may be a good time to start evaluating the possibility of methodically adding to positions over time to take advantage of reduced valuations.
Conversely, if you feel uncomfortable with your current cash position or find that liquidity concerns are making it difficult for you to sleep at night, please give us a call.
Regardless of you circumstances or risk tolerance, we are, as always, here to help.