The Legacy Perspective – June 2022

by Steve Wachs, CFP®

“Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics, or a familiarity with Wall Street jargon such as alpha and beta. What investors need instead is an ability to both disregard mob fears or enthusiasms, and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.”

Warren Buffett

From those who have been with us for a while, you know when you see a Warren Buffett quote there must be bad things happening in the financial markets and fear and anxiety has surfaced. This is the time to reflect on what we know, what we don’t know, what we are doing, and what we are not doing.

What We Know

  • The S&P 500 index has officially entered into bear market territory, which is defined as a decline of over 20%.
  • Inflation hit a 40-year high last week.
  • The Federal Reserve has increased interest rates in an attempt to address the inflation issue.
  • Increased interest rates have resulted in the returns on bonds to be down over 10% which makes this year the worst so far in bond market history.
  • Most any investment we choose to buy now is discounted to the price that we would have paid 6 months ago.

What We Don’t Know

  • When the equities markets will rebound to new highs. They will – we just don’t know when.
  • When the Russia/Ukraine war will end which will help stabilize the international landscape.
  • If we will see a recession or just a slow-down in the economy.

Given all that we don’t know, what do we do? One of my favorite movies is Apollo 13. Many of you may remember the true story of an explosion and the efforts of both the crew on board and on the ground to get Apollo 13 safely back to earth. At the Houston control center, panic ensues, everyone is talking, and guesses are being made on what actions to take. Gene Kranz, the experienced flight director, said the following – click on the link below and then click the quote

That’s what we have been doing – working the problem. You do not want our “guesses” to dictate whether you maintain your financial independence.

  • Given what has happened in the bond/fixed income markets, we have taken the following actions. We reduced our exposure to credit risk by selling out of the high yield bond area that we bought in 2020. When the economy slows, that sector of the fixed income market could be negatively impacted the most. For tax management purposes, we sold and replaced a few other bond positions. Those tax losses will be able to offset future capital gains.
  • Within the US equity markets, we have maintained our equity allocation but have emphasized more traditionally defensive oriented companies. We reduced our exposure to retail companies that have been impacted by a consumer shift from goods to services. We have purchased companies that benefit from this shift as people go back to traveling. We also have bought companies that benefit from rising interest rates.
  • The international equity markets are challenged with the direct impact of the Russia/Ukraine war. Exiting that asset class would be easy. The issue is that there are a number of good companies that are based overseas that have good businesses and are attractively priced. We completed our due diligence and added two different active managers that have shown the ability to control downside risk by the nature of the companies they purchase and the use of assets that hedge risk.
  • For the alternative portion of the portfolio, we identified an investment holding that pays a quarterly distribution, is diversified by both industry and geography in multiple real estate sectors and has very little correlation to the stock or bond market. This strategy may be appropriate for some clients.

What we don’t do is panic. The following information and graph are from the article The Price of Panic.

“Making a portfolio safer seems perfectly rational during a crisis. Nobody likes losing money, especially when the market plunges. The pain of losing is psychologically about twice as intense as the pleasure of gaining it. When the market drops 20% or more, that pain and temptation to make a portfolio safer can intensify. Since 1960, the market dropped more than 30% seven times. The graph below illustrates how a hypothetical “reactionary” investor, who made their portfolio safe when the market dropped 30%, missed gains time and time again during market recoveries. The reactionary investor traded long-term results for short-term comfort.”

As one client I visited with recently said, “We have been through this before.” He is right, and it’s not fun. However, I believe this is when we do our best work. Please reach out to us if you want to talk about your specific situation. As always, thank you for your sacred trust.


  • Legacy Consulting Group is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.
  • Information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed.
  • All investments and strategies have the potential for profit or loss. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. There are no assurances that an investor’s portfolio will match or exceed any particular benchmark.
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