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3Q20 Quarterly Letter

"Attitude is a choice. Happiness is a choice. Optimism is a choice. Kindness is a choice. Giving is a choice. Respect is a choice. Whatever choice you make makes you. Choose wisely.” ― Roy T. Bennett, The Light in the Heart

I have been pondering over the content for my 3rd quarter letter for the past few weeks. While I ponder, I am being asked about investing during the period immediately before and following the Presidential election.  

As you know I prefer not to rehash the previous quarter and, of course, I never make predictions.

However, in this letter I will address the previous quarter and I will discuss the election. I will not make predictions regarding the winner nor will I make a prediction about what course the market will follow after the election.

First let’s address the state of the economy. Not surprisingly the economy has declined. Unemployment has dramatically increased, gross domestic product is down significantly while the economy languishes in its first recession since the Great Recession in 2007 - 2009. The Coronavirus has negatively impacted GDP faster than any previous decline in our history.

In the 1st quarter the shortest bear market on record began February 19 and ended March 23. From the bottom of the Coronavirus Bear Market the S&P 500 has risen 57% as of October 20. Some would say it is remarkable but we say it really is not.   

We have been consistent in educating our clients about how being out of the market can reduce long term returns. To demonstrate how much “damage” can be done to a financial plan when an impulsive fear driven decision is made, the Coronavirus Bear Market is a very good example. Those people who sold lost as much a 57% of their capital when they exited.  Subsequently the increase in value through October 20 equals almost six years of average returns based on the S&P 500 recovery of 57%.  Astonishingly the rebound is the equivalent of almost six years of average returns based on S&P 500 historical results.

It is very difficult to make up a few points of underperformance over a few years. How can 57 points be regained over a lifetime?  It is not likely.

When we project your retirement income it assumes you earn actual returns and does not allow for being out of the market. Myopically focusing on the near term is a trap easily entered because faith in the long term requires believing in historical facts that have always resulted in temporary declines followed by sustained recoveries. A myopic short-term strategy tends to make us behave as if a current problem is so different that this time there will be no solution.

Even when there seem to be good reasons for timing the market, it usually results in a pattern of actions that make achieving long term results, based on actual market returns, nearly impossible to achieve.

Consider the following graph:

The Coronavirus Bear Market and its sharp recovery lends additional evidence for the chart above. It should be clear to all that timing or guessing market behavior is a very costly mistake. Delays in adding to investments can also reduce long term results. Uncertainty is a human emotion that allows for procrastination in spite of historical evidence that supports rewards over the long term.   

It is now time to talk about the election and its outcome.

While I, like most of you, have either a strong preference or a simple preference for one of the candidates, our investment strategy will remain unchanged. It remained the same when Bill Clinton was elected in 1993, when Barack Obama won 12 years ago and when Donald trump won 4 years ago.

We consistently discuss why it is important to remain invested and we have consistently communicated why it is important to remain fully invested allowing for personal circumstances. Fear may be personal but it is not a good reason not to be invested.

We talk about why high-quality companies can be expected to do well over long periods. We invest in companies that demonstrate high quality because they have less debt, earn wider profit margins and are not subject to economic cycles to grow earnings. They prosper and are not as dependent on an election’s outcome.

When I graduated from University of Pennsylvania’s Wharton School in 1968, my fellowship required I work in state or local government for a period not less than six months. I accepted my first real job as the assistant town manager of East Windsor, Connecticut.  Before I arrived, there was an election that changed things dramatically. The town manager called and explained the outcome. The important message was there was no certainty I had a job. I made an instant decision: I was not about to live my life when, no matter how well I performed, I would be subject to dismissal based on an election.

Instead I accepted a position in New York State. Nelson Rockefeller was Governor. He had committed to recruiting MBA’s from across the United States. I was impressed and changed plans. My wife and I moved to Albany where we live today. But I found life with job security to be almost as difficult for me to accept as I found no job security.

I suspect my career challenges helped form an investment philosophy that was not dependent on an election nor was it so “safe” that there could only be limited opportunities for success.

After the election, if there is a change in administration, the economy and the markets will adjust. So will Curran.  

Yes, these are turbulent times. But for those of us who have lived long lives, we know and understand, times have often been tough. We also know times get better. We know things change. We know sometimes change does not come fast enough and sometimes it comes too fast.

Most of all we know we adjust. The markets do it routinely and have always rewarded those who understand AND stay the course.


Thomas J. Curran    Kevin T. Curran, CFA
  CEO & Founder       President & CIO

Curran Investment Management® is Defining Quality®

The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness.  This article is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.  Information on taxes is based on the tax laws existing at the time of publication.  Tax laws are subject to continual change.  In addition, tax laws vary by state.  This article is not, and should not be regarded as tax or legal advice.  We cannot ensure tax consequences of any transaction.  If you would like a detailed analysis of your tax situation, with specific tax recommendations, you can discuss the possibility of pursuing a formal relationship with Hippo Tax Services, LLC.