Hi SRP Clients,
Our team wants to make sure in this season we have pro-active communication to each of you as we steward your hard-earned resources. We (Gabe and Ryan) want to keep in front of you our thoughts and views as the news of COVID-19 continues to surround us. Many of you we have talked to on the phone, and we are amazed at the clients we get to serve and work for. Please know, we are here for each and every one of you as thoughts and concerns come up.
CLIENT EXECUTIVE SUMMARY
- The problem and the solution – While very serious, this is a solvable problem. We know this because it appears solutions are working in places like China and South Korea. We need to protect those most vulnerable in our population and be smart with social distancing. We have to do all of this, while balancing the effect on global economies.
- History does not repeat itself, but tends to rhyme – SRP has guided clients through the 2001 Tech-Wreck, 9/11, 2008 Financial Crisis, Trade Wars and Pandemics, and each time it felt hopeless and that the problem at hand had no frame-work to move forward. Yet, each time our economy, the market, and the United States found a way forward. We have every reason to believe the same here.
- Stocks are all about valuations – Stocks are valued based upon current and future earnings potential. The stock market is one of the leading indicators in our economy and right now is pricing in a major disruption to company earnings. Company earnings and stock prices historically have rebounded very strongly once the world adjusts to an event like this.
- Recessions and market traps – Recessions are not fun, but are a normal part of the business cycle. Markets price recessions in 6-9 months before data actually supports the information. The problem with getting out of the market is timing on when to get back-in. Endless research has shown that more money has been lost trying to time markets as opposed to riding through the storms and volatility of markets.
- Our approach – We have built our portfolios and plans to weather these seasons. For every single client, we stress-test our portfolios knowing that market events like this will show-up. Countless hours of research and analysis has been done on our portfolios to best diversify them. We have positions holding up very positively over the last 6-weeks. We are confident that the United States economy and spirit is resilient, and that this season will pass. In the meantime, our strategy is in place and working to get us through!
The Details
As COVID-19 continues to spread across the world and create market volatility rivaling the 1987 Black Monday season and the 2008 financial crisis, our team wants to make sure we are staying in great communication with all of our clients around our thoughts and views during these types of times. We are the first to admit we do not have the ability to predict the future, like everyone else on the planet, but we do plan for these types of events. We never know when it will happen or what the cause will be, but we do plan for major market corrections throughout the seasons for every one of our clients. They have always happened and will always happen as long as we have a free-market driven by humans and emotions.
History Does Not Repeat Itself, But Tends to Rhyme….
Since Strategic Retirement Plans has existed, we have witnessed the 2001 tech-wreck, 9/11, the 2008 financial Crisis, US-China Trade-War, as well as multiple world pandemics and recessions. We study these events to understand where mistakes were made, and where solid strategy would prevail. During each one of these events/seasons, it seemed like they would never end and that there was no frame-work to understand the long-term economic effects of the crisis. Yet, every time, markets and our economy recovered.
You have probably heard us (Gabe and Ryan) use the term that history does not repeat itself, but it does tend to rhyme. As we have looked back on past pandemics over the last 100 years and the crises mentioned, our current fight with COVID-19 mirrors many of those events. The declines we have experienced so far are much more normal than we tend to remember.
Stocks Are All About Valuations!
As a country, we have just experienced the longest bull-market (trending up) in our history. Expansions and contractions are both normal phases in the business/economic cycle of our country. Bull-Markets don’t die from old age, but because of event(s) that push us into contraction. These events can range anywhere from countries engaging in a trade war or oil war, to planes being flown into buildings, to viruses spreading across the planet. However, the one thing that remains consistent and doesn’t change is that stock prices are a reflection of the earnings a company makes.
During every one of our client events, we have discussed P/E ratios or price to earnings ratios. The stock prices of the companies we invest you in are a reflection of the earnings that company has or will have. Markets react to what they think a company’s earnings will be. Right now, the market is pricing in that companies earnings are going down significantly because of the public quarantine. The market will keep going down until valuations are more reasonable given the current landscape, but they will eventually stabilize.
The key piece we look at in market history is how the market recovers once these events become contained or become part of the new landscape. In specific events like the Spanish Flu, Black Friday, 9/11, the market recovered in a V-shape, meaning that it had a very quick recovery. Eventually, we will adjust to COVID-19 being in our daily lives, and will find our footing and confidence. At that point, the vast majority of companies in the United States and abroad will begin to have stronger earnings, which will drive stock prices higher.
Corrections and Recessions Set the Investor Traps
The market’s reaction at this point is that we are heading into a recession. Historically, these events have caused a correction and/or recession, which again, is a normal part of economic cycles. Markets are one of the leading indicators in the economy, meaning it prices events in months before the economy/businesses actually hit those benchmarks. It does this on the front-side of a recession, but also coming out of a recession. This is where investors can get in trouble. Getting out of markets is easy to do, but timing when to get back in is the hard part. Markets have historically had the strongest recovery day’s right around finding the bottom. The problem is no one rings a bell at the top or bottom. By getting out of the market, you can miss the best recovery days and lock-in long-term damage. Even if you correctly time markets once, you will be lured into thinking you can do it the next time. Countless studies have been done that show timing markets is not a responsible investment strategy.
Our Strategy
At Strategic Retirement Plans, we are believers in focusing on the goals and plans we have for each of our individual clients. We have created long-term investment strategies to reach the goals for each one of you. It is in these moments that following our plan is most important. We plan for market volatility and recessions to occur. We have fixed income positions as well as individual stocks that have held up very well in the recent weeks. By taking profits on those positions in these seasons allows us to get through these painful times and not touch our losses. Statements are not fun to look at, but if you can look at each individual holding like we do, you would see the bigger picture of how our plan is working. Our diversification is holding up as we planned for, which will allow us to get through this season.
Most of you have hired us to engineer a great plan to guide you into and through retirement. However, every one of you has hired us to guide your emotions in markets-which is what we are doing right now. This is not fun for anyone. Kids are home from school, parents are trying to keep income sources, retiree’s investment accounts are going down, social gathering can’t take place and some people are taking a pay-cut. Our plans have been built to get us through these seasons, and so we continue to stick to our long-term, conservative approach of investment management with each and everyone one of you.
In good health,
Gabe Lapito and Ryan Gomendi
Strategic Retirment Plans
