The Compound and Friends - Making Investment Decisions in a Crisis

Episode Date: April 1, 2020

Josh here - I asked my colleague Blair duQuesnay about what's happening on our investment committee these days and what the decision making process is like given recent circumstances. We also talk about what it's like to live and work in New Orleans these days, a city that has joined New York on the list of US epicenters for COVID-19 cases. Blair is a Certified Financial Planner (CFP) working with clients of the firm and a Chartered Financial Analyst (CFA) who serves with four other members of Ritholtz Wealth on the Investment Committee. You can check out Blair's blog at https://blairbellecurve.com/ and reach out to her here: https://ritholtzwealth.com/contact/request-more-info/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, I'm Josh Brown. I'm here with Blair Duganay, who is a financial advisor at Ritholtz Wealth Management and also sits on our investment committee. I'm going to talk with Blair about her hometown of New Orleans, Louisiana, what it's like making investment decisions during times like these, and what she's hearing and talking to clients about. Let's see what's happened. Stick around. Welcome to the Compound Show podcast. Each week, we let you in on some of the best conversations we're having about markets, investing, and life. Just a quick reminder, the hosts of the show are employees of Ritholtz Wealth Management. All opinions expressed are solely their own opinions and do not reflect the opinion of Ritholtz Wealth. This podcast is for informational purposes only and should not be relied upon

for investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Okay, here we go. All right. So first of all, Blair, thanks for joining me. You have the babies out of the house. So I have you all to myself for a few minutes. Yes, they are driving around in the car. Okay. Hopefully they'll take a nap. So first things first, you are in a hotspot and so am I. So New Orleans, Louisiana is one of, I guess, multi epicenters. Is that the right way to phrase it in America? Yes. We knew as soon as we had our first three cases here in early March that were unrelated, no travel, that there was an issue.

And the mayor immediately started closing things down, the St. Patrick's Day celebrations. And quite quickly, it escalated to's Day celebrations, and quite quickly it escalated to the governor taking action and closing our schools. The announcement came, I believe, on March 13th. And then over a week ago, we went to a statewide stay-at-home mandate. The bars and the restaurants obviously closed down. So I got to give credit to our leaders. They took action early. Hopefully, we're going to start seeing some of the numbers come down here. But on a per capita basis, Louisiana is one of the worst places in the country. Was having Mardi Gras a mistake or it was too early to know at that point?

Too early to know. We had zero confirmed cases. When was that? Second week of February? The Mardi Gras day was February 25th. So the celebrations really lead up in the weeks to that day. Okay. All right. So they kind of knew there was something going on overseas, but it wasn't a big enough thing in the United States yet to have said we're canceling Mardi Gras. Correct. We didn't have our first confirmed case in New Orleans until March 9th. Correct. We didn't have our first confirmed case in New Orleans until March 9th. So one of the things that I tell people about you is that you're a triple threat.

You're in a good way. You're a certified financial planner. So you're client facing, been working with clients for a long time on their individual financial plans. But then you're also a chartered financial analyst or CFA, and you've got a lot of experience in portfolio management. And then on top of all that, you're an amazing writer. So that's the triple threat part. But sitting on the investment committee right now, and I'm not on that committee. A lot of people don't know that about Ritholtz Wealth, but I keep myself far away from the day-to-day investment discussions because I prefer the committee to be staffed with chartered financial analysts and people that are almost

solely focused on investment decisions. So what is that like day to day in our decision making process? What are some of the things that you guys have been discussing recently since this all started? One of the most, I guess, calming things about this investment committee is that we plan for this. We designed our portfolios to sustain bear markets, you know, 30, 40, 50 percent drops, even more we've considered recently, like what if the market goes down even more than 50%. But we already had a plan for it. And so really, what we're doing is, you know, executing on it for clients. And I had a blog a week or so ago, that feels like a year now, bird in the hand talking about what can you do

when the markets are down. And it's really just taking the moment, the bird in the hand. There's always an option, whether that's rebalancing or encouraging clients to put money that's in cash on the sidelines to work. So, you know, tax loss harvesting. These are the kinds of things we're talking about. We're not coming up with a new strategy all of a sudden because the world has changed and everything is scary and the market's tanking. And so that's reassuring. But I will tell you that when we met week before last officially, although we're talking daily, obviously, I went to file, I'm the secretary. So I went to file the minutes and I found that our last meeting in February was on February 19th. And that was the actual high of the market. And that I kind of, you know, got a little sad when I saw that. But we meet monthly. Nothing has changed other than the fact

that we're talking about how to execute on the plans that we already had in place. So I have this opinion on rebalancing. Like not right now, because I know there have been huge swings between stocks and bonds. And there is a very, very big difference in rebalancing versus not. But in normal times, my view on rebalancing into a down market is that it probably is more significant psychologically than it is in terms of what it will do for returns. And again, this time is different. But just in general, I think people like the idea that they're going to play offense into a bear market. And that's what that rebalance feels like taking money from defensive areas like treasuries, and adding to equities

adding to REITs, even maybe sometimes adding to corporate bonds, it feels like you're playing a little bit of offense. And I think that that right now, it's absolutely going to have an impact on returns. But it's also just as important for the mindset that, hey, we're actually taking advantage. We're not just sitting back and having everything happen to us. What do you think about that? I think that that is true of our clients, but that's a testament to the financial planning that we do as advisors and preparing them for the next downturn. And possibly the fact that they weathered the storm. A lot of our clients in 08-09 as well, which was a 50% decline from peak to trough.

And we have not reached that yet in this market. You know, when I was I was working with clients back then as well, and it was very scary to rebalance when the market was down 50%. And few people really wanted to do it. And so maybe it's a combination of having experienced one or two bad markets as investors before, knowing that they saw it come back. The financial planning that we do, letting them know right off the bat, look, if there's a 2008, 2009 type market decline, here's the percentage that this portfolio might be down. Here's the dollar amounts that this portfolio might be down and talking to them about the reason for rebalancing. On the way up, nobody likes to be selling the stocks that are the winners. But we did that all along the way as well. So I do think

that it's a testament to our advisors and our investment committee and our whole process that clients are taking that advice and, you know, feel confident to go ahead and buy more stocks in a moment like this. It feels like for somebody for when you work with a client that like very closely watches the markets, which is not most clients, but you know, we definitely have people who are market savvy, and they pay attention. It almost feels, it definitely feels like in most cases, throwing good money after bad when you're doing a rebalance into a down 20% market. Because certain clients have like this trader's instinct where they want to stay with what's working and avoid what's not. But, you know, long term portfolio management requires you to literally

do the opposite. Yeah. And it's, you know, letting them know, setting the expectation. Look, we're not trying to call the bottom here. It's perfectly reasonable to expect that you could immediately be down another 10 percent. I mean, we had several down 10 percent, if not more days in the last few weeks. So go ahead and expect that knowing that a year, two year, five years from now, we're going to be very happy with this decision, assuming the system continues. And that's another conversation we've been having both on the investment committee and with clients. At this point, you have to just believe that we had a great economy. There was nothing going on, you know, in January. This came completely. It's an exogenous risk.

It came completely out of left field and it was on top of a healthy economy. If you believe that that we're going to go back to that once this storm passes, then, you know, you've got to believe that stocks are on sale here, even if you're not going to call the exact bottom. not going to call the exact bottom. So I think it's reasonable to feel like it's going to go back to that, but with like some really severe caveats by industry, like for hotels, it's not going to go back to that. And hotels were doing great and, you know, restaurants and airlines. But then in some areas, like it will feel like we just missed the beat and then came right back. So that's going to be tough because it'll be sort of a staggered recovery. But I think clients by now understand that. What kinds of conversations are you having with clients who are local, who are in one of these hotspots like you and I are? What are their feelings about the length of time for getting

back to normal? Yeah, all of us are really drinking through a fire hose. And this is an experience that nobody who's alive today has any precedent for. Nobody can understand how serious a disease like this can upend our whole society. And clients who live in the area really are talking about their families and their health more than anything, whether it's the daughter-in-law who's a nurse at the hospital and helping them out with child care or, you know, talking about how they're getting fresh produce and groceries and the things that they're doing to make sure that, you know, they're keeping themselves safe and the hygiene practices and sharing tips like that. So that's really what the conversation has turned to in this emergency moment with the disease

and less so about the markets as much. But without a doubt- That's a good thing though, that like people are more focused on the thing that's most important. Like it doesn't matter what your portfolio returns are if you have COVID-19, like it's definitely the priority, you know, obviously.

Yeah. And half of our revenues, you know, in the city of New Orleans come from tourism. So we're going to take a hit. We already had the city administrative official on two weeks ago talking about making cuts to non-essential services because we're already seeing those hotel taxes drop off. So it's not going to be as simple as just going back to where we were, but we still have the same consumers with essentially the same dollars. Hopefully a lot of the people who have been laid off will be helped out and made whole. But yeah, it's going to be a rough ride from here on out. But I'm just, you know, we got to get through this. We got to stay positive.

And that's kind of the message that I have to clients and they have back to me. Yeah, I was saying before, it's one day at a time. I'm just having trouble remembering what day it is. I know. Is it still March? Today is March 87th. Yeah. So we're almost halfway through the month.

Listen, you're doing a great job. Really great to check in with you. I know you're doing a great job for your clients. That's like our most important function right now. The investment committee staff really appreciate you guys being in constant touch with each other. And we will see the other side of this. And it'll, I think, help us not take the little things for granted anymore. So at least that's the way I'm thinking about it. Blair, thank you so much. Guys, if you're not reading Blair's blog, it's called

The Bell Curve. It's BlairBellCurve.com. And the blog is called The Bell Curve. And it's awesome. And he's doing great work there. We'll link to that below. Let us know what you think, what's going on in your neck of the woods. Are you in a hotspot? How are you coping? We love your feedback. Go ahead and give us a like, subscribe to the channel

if you haven't already and we will be back. Thanks for listening. Check us out at thecompoundnews.com for daily investing and market insights. You can watch all of our videos at youtube.com slash thecompoundrwm. Talk to you next week.