Munger and Bernstein

First, we hope that you and your family have managed to get through the recent storm as well as possible. It was neat to see neighbors helping neighbors. There is something good that comes out of times like this. But there was a lot of tragedy as well. And we keep our neighbors just north of us and in Florida in our thoughts and prayers.

Regarding the investment and planning world, as the election gets closer, more and more discussion on news networks will spend time forecasting the financial consequences of one candidate versus the other. Their hope of correctly forecasting the winner and how the market will behave if a particular candidate wins fills many hours of the news channels. It looks like the two candidates are about deadlocked in the polls.

Charlie Munger, Warren Buffet’s long-time partner at Berkshire Hathaway, gifted us with many wise quotes during his life. In his book Poor Charlie’s Almanac, he shares his thoughts of forecasts- “People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts. There’s always been a market for people who pretend to know the future. Listening to today’s forecasters is just as crazy as when the king hired the guy to look at the sheep guts. It happens over and over and over.”

That quote was the first one I saw when I pulled his book out again last week. I thought it was a perfectly timed reminder that, fortunately or unfortunately, the future is unknowable. But the talking heads of our world, who are very persuasive as they articulate their forecast, would sadly be out of work if they ever had to answer a question with “I don’t know.” When was the last time any of us heard an “expert” say “I don’t know”?

The investor and market historian Peter Bernstein spoke about how important humility is for investors. “Humility is an enormously important quality. You can’t win without it. Survival in the end is where the winners are by definition, and survival begins with humility.”

Our investment philosophy is rooted in the humility that 40 plus years as an investment advisor teaches you. We know the long-term history of how various assets have behaved and that is information that is available to everyone. But exactly how will they behave this year, next year, or even the next five years is information which none of us possess.

We don’t build your retirement strategy using the markets’ average returns. We can’t say we are happy to see your plan work out “on average”. A six-foot man crossing a river that averages 2 feet deep may not be safe. While it may average two feet, if the deepest part is 10 feet deep, the consequences are tragic.

We need your strategy to survive during the bad times. We owe it to you to understand the consequences of bad markets on your aspirations. That is why we test your goals and resources against good, average, and bad times. We want to make sure you are ok if the river gets 10 feet deep.

If nothing else, the recent weather reminds us how fragile life can be and how things that haven’t happened can happen. We just saw rivers get to levels that were higher than any in recorded history. We need to understand what the consequences are to your plan should that happen in the financial markets, and what reasonable modifications may be necessary should that occur.

Thank you again for your trust and confidence in us. We will be in touch, but please don’t hesitate to reach out to us in the interim with any thoughts, questions, or concerns.