“Fear On” & “Fear Off” Markets and the Value of Market Punditry
Last quarter I wrote of the distorting effect fear has upon price in financial markets during panics and suggested that the long-term investor was better off focusing upon portfolio cash flow until calmer spirits returned.
Fortunately, during the first and second quarters (and also during the “Great Recession of 2008-2009), income has proven to be a better day-to-day measure of portfolio value than price. As of the close of the second quarter, most of our investors will see modest year-to-date declines in the value of their accounts… declines mirrored with modest decreases in portfolio income.
This is not to imply that investors, along with our economy, have not suffered great changes this year. A six-month period of time encompassing Presidential impeachment, international pandemic and racial/social tensions has proven taxing to all of us whether during the “fear on” period of March and April or the “fear off” period of the last few months.
Our approach at Iowa Wealth Management has been to stay the course prescribed by Prudent Man Theory and focus upon higher quality companies with durable sources of income. What we haven’t done, despite great civil and economic upheaval, is change our methodology. Our efforts, decades in the making, have been to build portfolios for our clients to see them through the storms, which still strikes us as a better approach than to try and build our clients a new methodology during every new storm that comes our way.
This brings me to the behavior of market pundits seen daily on television and read within local and national papers. While I understand the need to reach and hold an audience (as was my responsibility for years providing daily commentary on WHO Radio) the level of foolishness displayed the last few months is truly disappointing. Financial markets exist primarily for the stable transfer of ownership of securities, and the ownership of those securities is primarily vested in the long-term ownership of family wealth.
Too much media chatter this year has been focused upon what is mistakenly viewed as unique about this correction. Catastrophic events have triggered downturns in financial markets before… and will again. Communicating ideas that are destructive to hard-earned wealth, during panic or euphoria, have once again proven wrong-headed when a simple message to “remain calm and carry on” would have better served the investing public.
So you may reply, “If people are willing to fall for this investor entertainment, let them.” However, the bigger question to be asked of our media outlets and their pundits remains: “Is this the best you can do?”