E45: Third Quarter Letter 2024 - Do Nothing Edition

Foreign. This podcast is brought to you by Gensler Wealth. The information discussed today is meant to be general in nature and not tailored to your specific investing circumstances. This means that you should talk to your regular Gensler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation and past performance does not guarantee future returns. On this episode I spend a lot of time talking about doing nothing. But please keep in mind the hard part is actually knowing when to do something. Today on the unlimited podcast I read my 2024 third quarter client letter. We talk about the surprise alert that jolted me out of my bed in Algonquin park, what I did about it, and why. Let's go. Welcome everyone to the quarterly reading of my class Client quarterly letters that I do every quarter here. This is for the September 2024 third quarter of 2024 and I call this the Do Nothing Edition. I'm not going to read all the endnotes, footnotes, all that stuff. I will direct you, or I'm directing you now to our website gensorwealth.com you can find a letter there along with all the pictures, graphs, all that, or charts etc and you can read the endnotes and footnotes and disclaimers. So here we go to Gensler Wells clients this past August in the middle of this past calendar quarter, equity markets around the world experienced significant declines. This was particularly evident in the US driven by several of the magnificent seven. Contributing factors included a slowing economy, job creation, not meeting expectations, Warren Buffett selling half of his favorite stock, which is Apple, and companies investing billions in Nvidia processors and chips, and not seeing the anticipated returns. Coincidentally, I chose the August long weekend to visit a resort in my favorite place on earth, Algonquin park, where there is no cell reception. Or so I thought. In the very early hours of Monday, August 4 morning, a faint single bar of service must have magically appeared and a few Aaron text slipped through along with a single Wall Street Journal news alert notification. And there's a picture of that in the in the letter and it says 2:31am Breaking news. Japan's Nikkei Stock Average closed down 12.4%, its biggest single day percentage fall since 1987. Oh shoot, I said to my wife. Japan's stock index fell 12.4% last night, and for full disclosure, I didn't actually use the word shoot, but I can't use the real word or this podcast will be blocked for explicit content. Despite my excitement about being disconnected for a few days, I felt this news warranted driving out of the resort until we found reliable cell reception. We were like characters from the movie Twister, but instead of chasing tornadoes, we were chasing cellular service. When I saw two bars of reception on my screen, we pulled the car over to the side of the dirt road and I quickly caught up on what was happening in the world and markets. It wasn't pretty. Do something during those ugly days in early August, the Japanese stock market was actually down about 25% from its July high and the US stock market was down about 8.5% from its July high. In the letter there's a chart that shows exactly that for the quarter, so I'll leave you with that impression. With 2022 now far behind us, investors may have forgotten what it feels like to have a big down day or a few days. This is normal for equity markets. For investors, this is the required cost of striving for solid long term returns. But history has shown that the average investor often reacts impulsively or out of fear when markets suddenly decline with a feeling that they must do something. And then there's a chart below it shows Historically this has resulted in the average investor significantly underperforming relative to almost any relevant asset class or benchmark. While the data below is a few years old, I am confident its conclusion has not changed materially in the last few years. And by data below, what I mean is on the letter you'll see a chart that basically shows a whole variety of asset classes, REITs and small cap and emerging market equity and the S&P 500 and bonds and all this sort of stuff over the last 20 years years. And the average investor's return over the same 20 year period is pretty much near the bottom of the pack, dramatically underperforming virtually every one of those asset classes or strategies that I've just mentioned. So what happened following August? Sudden declines. As is often the case, the market's steepest declines are quickly followed by steep increases. And again, there's a chart that shows what happened exactly after those declines that I referred to earlier in the letter. By the last day of the quarter, The S&P 500 closed at an all time high and Japan's Nikkei Index has recovered much of its decline. When viewed on a longer term basis, these market blips become irrelevant. There's a chart that I'll describe in a minute, but in the moment can feel like they are the beginning of the end. Over the past 10 years we have experienced numerous events that have shaken the markets here are 10 big ones as summarized by ChatGPT. Number one I'll go through these somewhat quickly. Number one the 2014 oil price crash A sharp decline in oil prices beginning in mid-2014 impacted global markets, particularly energy stocks and economies reliant on oil experts. Number two 20152016 Chinese stock market turbulence A sell off in Chinese equities and a devaluation of China's currency led to global market volatility and declines. Number 3 Brexit referendum 2016 the United Kingdom's vote to leave the European Union on June 23, 2016, caused immediate market uncertainty and declines, particularly in European stocks and the British pound. Number four 2018 trade tensions ongoing trade disputes, especially between the United States and China, led to market volatility and corrections throughout the year. Number 5 COVID 19 pandemic in 2020 the onset of the coronavirus pandemic led to one of the most severe market crashes in history, culminating in significant declines in March 2020 as global economies went into lockdown. Number 62020 US election uncertainty the uncertainty surrounding the US presidential election results and associated political tensions contributed to market turbulence in late 2020. Number seven supply chain disruptions in 2021, global supply chain issues exacerbated by the pandemic led to inflation concerns and subsequent market volatility. Number eight the Ukraine Russia conflict in 2022. The Russian invasion of Ukraine in February 2022 resulted in geopolitical instability, rising energy prices, and global economic uncertainty affecting global markets. Number nine 2022 inflation and interest rate hikes. Rising inflation rates and subsequent aggressive interest rate hikes by central banks, particularly the US Federal Reserve, led to market corrections and increased volatility throughout the year. And number 10 banking sector concerns 2023 issues within the banking sector, including the collapse of several regional banks, triggered market declines and fears of financial instability. Interestingly, ChatGPT neglected to include the horrific events that occurred one year ago on October 7, 2023, and the subsequent unbelievable events that continue to this day. I feel it is important to acknowledge this sad anniversary. I continue to pray for the return of innocent hostages taken into Gaza, for peace in the Middle east, and for an end to the abhorrent anti Semitism we have seen all over the world. The events above that I've just run through, and that's a long list and you can see how it sort of never ends and keeps going. All the things that go up and down in the world and in the markets. The events above, along with countless others, profoundly influence global stock markets, each causing varying levels of uncertainty, fear and shifts in investor sentiment. And yet simply holding the S&P 500 index through those last 10 years of market blips would have generated an approximate annualized 11% price return or 13% total return when including dividends. And this is where I show a chart of the last 10 years. You can see all the ups and downs. You can see a tiny little circle that highlights this August 2024 decline that I mentioned. But what you really see is it's essentially, you know, if you ignore some of the ups and downs, it's basically a straight line from the bottom left to the top right with an 11% annualized price return on the topic of doing nothing, the latest episode of the Unlimited podcast featured award winning author and my first finance professor at Ivy Business School, Stephen Forster. We discussed his latest book, Trailblazers, Heroes and Crooks Stories to make you a smarter investor. Professor Forrester specifically recounts a few stories of trailblazers and heroes who are masters of the art of doing nothing or as Steve labels it, masterly inactivity. Rather than repeat those stories here, I encourage you to listen to the episode if you haven't already. And of course you can find that on our website as well. And you're listening to the podcast now, so you know where to look. So what did I do? Take a guess Back to the side of the road. With my pulse initially racing, my mind worked quickly to calculate what my next move should be. Are our client portfolios overly exposed to the Mag 7? No. Are our client portfolio sufficiently diversified to handle an equity market pullback? Yes. In our actively managed equity and hedge strategies, will the underlying managers take steps to maximize opportunity or minimize loss? Yes. With a long term lens, did that morning's market action change anything we have implemented in client portfolios? No. I very quickly concluded that the best course of action was to do nothing. Having done the necessary work in advance and knowing that we had carefully and diligently constructed our clients portfolios to handle market volatility, the only thing left for my wife and me to do was to turn around, drive back to the lake and and hit the water where things were much calmer. And if you want to see a nice picture of me in a canoe after that little ride out of the resort, you can go to the website as well. All that being said, there's actually a lot of activity, investment and other going on at Ginsler wealth and I look forward to sharing it with you in next quarter's letter. Maybe I'll call it the Do Something Edition. Thank you for your trust, support and confidence. We are available 247 should you need us. Sincerely, me, Brian Gensler, President and CEO. That's my quarterly letter for this past quarter. As always, market ups, market downs. But in this case, doing nothing we think was, and in hindsight, we believe was, the right thing to do. So thanks for listening. More podcasts coming soon. We've got a good lineup for the next couple months of some really interesting, interesting guests, so stick around and we'll see you soon. Bye Bye.

The unlimited podcast is hosted and produced by Brian Gensler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment requests. If you like what you heard, don't forget to rate the podcast and follow us on social media. Enslerwealth thanks for listening and see you next time.