The Legacy Perspective – April 2020

by Steven G. Wachs, CFP®

You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be. – James Bond Stockdale

Jim Collins termed the above quote the “Stockdale Paradox.” Admiral Stockdale was the highest-ranking officer in the “Hanoi Hilton” prisoner-of-war camp during the Vietnam War. In his 8 years in the camp, he was tortured over 20 times and had no idea when he or his fellow prisoners would be released. When asked how he survived, he stated “I never lost faith in the end of the story. I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which in retrospect, I would not trade.” When Collins inquired about who didn’t survive, Stockdale shared “The optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart. This is a very important lesson.”

We think there is wisdom from what Admiral Stockdale shared that is apropos for what we are current experiencing. Here are some of the “brutal” economic facts of 2020. This past quarter was the worst first quarter in stock market history. The S&P 500 Index declined 34% in 23 days, the fastest decline since 1928. The past 4 weeks have shown a historical increase in unemployment – this graph shows the magnitude

Oil prices have dropped to new lows with a large decline in global demand combined with increased supply. The Federal Reserve reduced the Fed Funds rate to 0% and announced numerous quantitative easing plans to backstop the financial markets. Congress has passed several plans to provide funds for both individuals and businesses impacted by this economic slowdown.

How can we help you have faith you will “prevail” when this is over? We have been through equity market declines before and know what works and what doesn’t. No doubt, what Covid-19 has done to our day-to-day lives and the global economy is unprecedented. However, during 9/11 and the Great Recession of 2008-09, the equity markets declined over 50% from peak to trough. Financial fears were front and center. We know that having a logical investment process is crucial. Using medical terms, the first step of the process is to check the vital signs and stabilize the portfolio. That includes making sure that any planned distributions from the portfolio are protected and investment managers we have hired are performing as we would expect. You may have noticed some investment activity as we did make a few changes to add portfolio stability. The second step is evaluating any near-term opportunities that surface when emotions are dictating actions by unwise investors. In both the equity and fixed income markets, we have taken advantage of opportunities that include the health care sector and the high yield bond area. We anticipate being in this second step for a period of time given the extreme uncertainty that still exists. The final step is to consider long-term opportunities that will be made available. Structural changes of how individuals live, learn and work will come from this time. Certain industries and companies will benefit from these changes; others will be negatively impacted. We will have to discern what that might look like and how you could benefit.

Are we the “optimists” mentioned by Admiral Stockdale? We are not. We don’t know when businesses will reopen, when the volatility of the equity markets will subside, or even when we will be able to get together at restaurants or churches. However, we have faith in the future. All virus outbreaks have a beginning, a middle and an end. We will return to a new normal way of living. Our investment and financial life planning process which has been tested through both good and bad times will help you prevail on your path to financial independence.

On a closing note, Roger and I want to give a special “shout out” to our Legacy team members, Jennifer, Jen, Matt and Kim. As they have transitioned to working remotely, they have done a fantastic job handling the transition and keeping their focus on serving our clients. Finally, some of you may be already be aware that Michael Babcock, one of the members of our planning team, is no longer with the firm. We wish Michael the best and will keep you up to date on our search for a new team member.

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