{"id":9210,"date":"2020-03-26T13:15:03","date_gmt":"2020-03-26T18:15:03","guid":{"rendered":"https:\/\/www.cainwatters.com\/digitalblogs\/?p=9210"},"modified":"2020-11-16T14:22:13","modified_gmt":"2020-11-16T20:22:13","slug":"letter-from-darrell-cain","status":"publish","type":"post","link":"https:\/\/www.cainwatters.com\/digitalblogs\/letter-from-darrell-cain\/","title":{"rendered":"Perspective & Lessons Learned Over 35 Years"},"content":{"rendered":"\t\t
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A Letter from CWA Founder Darrell Cain <\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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As we all navigate through these turbulent times, I\u2019d like to take a step back and examine this moment with a wider lens. It\u2019s my own, one that is based on the 35 years spent walking alongside my clients through several market cycles. This experience has gifted me perspective and taught me important lessons that I hope to share with all of you, many of which may be going through this for the first time. Above all, I want to convey my confidence that as bad as this moment seems, better times lay ahead.<\/em><\/p>

The Lesson of the 1987 Crash:\u00a0 Don\u2019t Miss the Recovery<\/strong>\u00a0<\/p>

Let me start with the Crash of 1987. I was 31 years old. There was no internet or online tools. CWA clients had their own brokerage accounts with stockbrokers (remember those?) all over the country in which we bought and sold stocks.<\/p>

I educated my clients how to do fundamental stock analysis with paper insert books called Value Line. Many clients held a significant cash position as yields were much higher than they are today. \u00a0\u00a0<\/p>

On the evening of the Black Monday crash, my only memories are returning home to my wife and two little boys and then at some point, curled on the bathroom floor, physically ill. Advising my clients on how to manage their hard-earned money was, and still is, very personal to me.<\/p>

Lifting myself up from the bottom, I felt a call to action and started reaching out to brokers with whom I had built respect, and began asking their opinions.\u00a0 The older and wiser of them said, \u201cDarrell go put the cash back into the market, everything is on sale!\u201d<\/p>

The next morning, I arrived at DFW Airport at 5 a.m. to buy a Wall Street Journal<\/em> to see all the stock prices. I kept a book on all my clients\u2019 brokerage statements and went through their positions. Starting on the East Coast, I made phone calls working my way through the time zones, giving my advice on what to buy and we put money to work.\u00a0<\/p>

Eventually, the market recovered, and stock prices rose again.\u00a0 After the market bottomed in December of 1987, the market recovered 23% in the next year and over 120% over the 3-year period.\u00a0<\/p>

This brought my first lesson.\u00a0 After every deep correction, the market finds a bottom and historically has recovered nicely<\/strong>, as evidenced by the following chart:\u00a0<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Source: A Wealth of Common Sense<\/em><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Liquidating Stocks and Missing the Upside<\/strong>\u00a0<\/p>

My second lesson was that you need to stay invested to participate in the recovery.\u00a0<\/p>

I learned this lesson the hard way, as I saw clients sell stocks during the crash then stay in cash too long and miss the recovery when the market came back.<\/p>

Managing the behavioral impulses of the emotional buying and selling that can come from following the market’s ups and downs can feel impossible, which is why we trust our advisors to manage our portfolios during times of stress.<\/p>

Fear of uncertainty taught us all an important lesson that year.\u00a0 Selling your investments and missing even a few days can be devastating<\/strong>, as the following chart illustrates:<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Note:\u00a0 Returns are gross of taxes and fees.\u00a0
Source:\u00a0 The Simple Dollar<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Buying Low & Selling High Using Asset Allocation and Re-Balancing<\/strong>\u00a0<\/p>

Today of course, we are much more sophisticated from an asset allocation perspective.\u00a0<\/p>

We do not carry as much cash.\u00a0 Instead, we have fixed income in most of our portfolios.\u00a0<\/p>

The CWA philosophy is to re-balance after a big decline in equities, by selling fixed income and buying equities to maintain our desired balance.\u00a0 This is the same philosophy, which is selling high (fixed income typically does reasonably well during big stock market declines)<\/em> and buy equities (at a low valuation).<\/em>\u00a0<\/p>

As the chart illustrates below, maintaining a balanced portfolio even during the Great Depression provided a durable<\/u> portfolio\u2014even for a retiree drawing on it for income!\u00a0<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Source:\u00a0 CWA\/Tectonic Advisors<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Applying the Lessons of 1987 to Today<\/strong>\u00a0<\/p>

The lessons learned in 1987 still apply to today\u2019s circumstance:<\/p>