In this July 2022 Gensler Wealth podcast, President and CEO Brian Gensler reads the firm’s Q2 2022 client letter, using Wimbledon tennis as a framing device to discuss the challenging market environment. He notes that the S&P 500 experienced its worst first half in over 50 years (down >20%) and bonds suffered similar historic declines (down ~11‑12%). Gensler emphasizes a defensive, diversified approach, highlighting alternative assets the firm employs—Canadian mortgages, venture debt, music royalties, long‑short market‑neutral funds, and SPAC arbitrage—that have performed positively despite equity and bond weakness. He draws parallels between tennis strategy and investing: the importance of defensive play, selecting high‑probability “winning shots,” and avoiding low‑probability bets such as an over‑valued Netflix position, illustrated with a detailed valuation exercise. Gensler explains loss‑recovery mathematics, showing the asymmetric returns needed to break even after various drawdowns. Throughout, he intersperses quotes from tennis figures (Alan Fox, Steffi Graf, Rafael Nadal) to reinforce themes of forward‑looking focus, risk management, and resilience. The letter concludes with a call for clients to review portfolios, consider defensive alternatives, and enjoy the summer, while reminding listeners that past performance is not indicative of future results.
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Foreign. This podcast is brought to you by Ginsler 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. In this podcast there will be a lot of tennis references, analogies and lingo. Please don't fault us for this. This will be The Gensler wealth second quarter 2022 letter to clients we're going to try to avoid talking about the yucky markets and focus more on tennis, which is my favorite pastime, and maybe tie it back into how we think about investing. Let's get rolling. Welcome everyone to the Ginza Wealth Unlimited podcast in early July 2020. In this podcast, I'm going to be reading to you my 2022 second quarter letter to clients. And here we go, two Gensler Wells clients in my first ever quarterly letter, I said that I would not be providing constant updates on the price of world equity and bond indices, as that information is readily available well everywhere. But we have just witnessed a historically bad start to a calendar year. The S&P 500, the barometer of the US stock market, had its worst first half in over 50 years, being down over 20%, and bonds may have had their worst first half in history, down around 11 to 12%. The typical 60:40 portfolio in quotes of stocks and bonds was not a great performer so far this year. So with the summer here and Wimbledon in full force, rather than focus on stocks and bonds, I thought I'd focus this letter on my favorite pastime tennis game. And here's a quote from Alan Fox from the book Think to Win. Tennis matches are not one with great shots, they are one with many, many pretty good shots. In early April, I had Covid and kept away from the tennis courts for a few weeks to refrain from exerting myself. As such. I defaulted on all of my club's tennis ladder matches for that month and was demoted to a lower box on the tennis ladder. Not a horrible situation given that I hadn't played in weeks, but I figured it would be easy enough to win my way back to my higher box. My first match back was against a very athletic woman who got off to a tough start, down 0 to 3 to me or love 3 to to me, I should say. But after those first three games, something changed and I lost the next five in a row. I was attacking and hitting what should have been winners, but she was running everything down and just pushing the ball back. The shots coming back weren't difficult nor winners, but they were high lobs, consistent, exhausting and stayed in. This bought her time to recover between my shots. Her defensive play became a game of who would miss first and with a final score of 8. 5 in her favor, it was clear that the pusher or defensive player in this match was the winner set. Here's a test. Consider the situation in which your opponent hits a cross court forehand that lands deep in your forehand corner. What should you do? Should you hit the ball back crosscourt right to where your opponent is standing or down the line into the wide open side of the court? On our website you can see diagrams of these examples. In almost all cases, the best response is to hit the ball back cross court directly to your opponent. This is because tennis is a game of probabilities and percentages. The net is lower in the center, less chance of hitting the net, the court is longer when you hit diagonally, less likely to hit the ball out, and you are in a better geometric position to defend against your opponent's next shot. Less chance of losing to a winning shot. Unlike most other sports in tennis, if you make a mistake, your opponent gains a point. This does not happen when a hockey player misses a goal attempt, when a basketball player misses a shot, when a baseball player strikes out, or when a football kicker misses the uprights. Unless you are in the lead, a lost point in tennis always means a deficit that needs to get recovered and then exceeded in order to win match. Another quote by Alan Fox from Think to win the player without a strategy on the tennis court is like a ship without a rudder. The story and test above are meant to draw parallels to investing and how we approach investing your assets both speak to the importance of being defensive, carefully attempting winning shots and focusing on not losing. Being Defensive Any investing involves a level of risk, but a defensive investor will ensure their portfolio is comprised of a variety of asset classes and strategies with the goal of having those strategies act differently from each other, especially in challenging times like the ones we're experiencing now. While currently stocks and bonds are struggling, our client holdings of Canadian mortgages, venture debt, music royalties, long short market neutral funds and SPAC arbitrage strategies have held in and many have generated positive returns in 2022 so far. Of course, there's a footnote on this that says past performance is not indicative of future performance and in parentheses of course, all clients don't hold all of these strategies as each client portfolio is unique and tailored to your specific risk tolerances and goals and objectives. With the summer here, I can think of no better time to review your portfolios with Gensler wealth and with other advisors and determine if you are comfortable with how your portfolio is constructed. If you are not already getting a bit more defensive via the addition of alternative strategies may be a good ide. Carefully Selected Winning Shots Part of the game of tennis and portfolio management should entail taking a few carefully selected winning shots, ideally where the upside potential is asymmetrically higher than the downside risk. Think certain tech stocks or some digital assets. This is where outsized return opportunities generally lie. We do this selectively for clients where appropriate, but as my tennis instructor tells me, go for winners when you are comfortably in the lead. Investors need to be very careful here as you don't want to be investing where the probabilities are not in your favor. What's an example of a Low Probability shot? Back in June 2020, I wrote a LinkedIn article called what's an Investor to Do Now? A link to that article can be found on our website. In it, I use the example of Netflix and here's my language from that article. Assume the average high quality S&P 500 company ultimately trades at a multiple of 15 times earnings. Netflix currently trades at 9 times revenues and 85 times earnings. What would it take to grow into its valuation at its current market capitalization? If Netflix traded at a price to earnings ratio of 15 times, its net income would have to be 12 billion. For net income to be 12 billion at its current operating margin, revenue would need to exceed 85 billion, which is a fourfold increase from here, or greater than 30% revenue growth per year over the next five years. Recall that Netflix grew revenues to 21 billion with little competition for much of its existence. And you know what they say, the first 21 billion is always the easiest. Netflix's current valuation combines comedy, drama, suspense, thriller and horror. In other words, the probability of Netflix's share price continuing to rise of Netflix being a winner from that point forward was low. Netflix stock has fallen by 59% since the day of my article and 75% from its subsequent high reached in November 2021. This example is not to say that Netflix couldn't have been a winner or can't be a winner in the future. The point is to highlight that investors need to be careful to not load up their portfolios with too many lower probability investments. Don't lose money. Here's a quote From Stan Warinka, the Tennis Player As a tennis player, you have to get used to losing every week. Unless you win the tournament, you always go home as a loser. As mentioned above, in tennis, if you lose a point, your opponent's score increases. This often puts you in a hole you must climb out of. Similarly, in investing, most of the time your investments will not be hitting all time highs. And especially in times like these, many may be losing money. The key is to avoid or minimize those losses because to return to breakeven, you always have to earn a higher percentage return than your percentage loss. In the letter there's a chart that highlights percentage returns required to recover from certain losses. And as an example, if you're down 5%, you have to return 5.3% to break even. If you're down 10%, you have to return 11.1% to break even. If you're down 25%, you have to return 33.3% to break even. And the big whammy? If you're down 50%, that means you have to be up 100% to break even. The only way to completely avoid losses is to completely avoid striving for returns. In the absence of doing that, focusing on minimizing losses is key and this is what we are focused on for you every day. Here's a quote from Steffi Graf I never look back. I look forward. With the first half of 2022 behind us, we will continue our extensive review of all investment strategies we allocate to. And as always, we are also reviewing a number of new strategies that may benefit in both a rising inflation and interest rate environment. We hope you all have an enjoyable summer where you can enjoy the sunshine and focus on yourselves and your families. As Rafa says about tennis and perhaps applicable to investing in 2022 so far, here's a quote from Rafael Nadal is only a tennis match at the end. That's life. There's much more important things. In case you're wondering, I took my lessons learned in that first match and won all the rest of the matches in May and move back to the higher box. Phew. Now you can enjoy your summer without worrying about me and my tennis game. Thank you for your trust, support and confidence. We are available 247 should you need us. Sincerely, me, Brian Gensler, President and CEO and I end with a nice little quote that I found as well on tennis. And it's an anonymous quote that simply says tennis begins with love. And as we know, all tennis matches start love, love. So that was our 2022 second quarter client letter. An interesting and I would say difficult time in the markets, in the economy in the first half of this year, in the world for that matter. But as we always say, Stephanie Graf says, I never look back. I look forward. And we're looking forward to the second half of the year and beyond. Thanks for listening and stay tuned for more of the Unlimited Podcast by Gensler Wells. New episodes coming soon. Enjoy the summer.
This has been a Gensler Wealth Audio production. The Unlimited Podcast is hosted and produced by Brian Gensler and edited and mixed by me, Catherine Dalville. Always remember that past performance is not indicative of future returns. If you're interested in hearing more from us, please like subscribe and give us a five star rating and follow us on all social media. We can be found at getsorwealth. See you next time.
