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1Q20 Quarterly Letter

The four most dangerous words in investing are: ‘This time it’s different’ - Sir John Marks Templeton

Dear Friends and Clients,

I have been trying to respond to all of your concerns in ways that are helpful to understanding how we at Curran Investment Management and Curran Wealth Management view the current outlook.

In all bear markets there are a number of stages.   The first is mostly about fear of a possible bear market.  It is a fear that is common in many people.  As the market rose following the financial crisis, fear of another bear market was and has always been present. 

The next phase comes during a correction that requires a decline of at least 10% but does not exceed 20%.

When the market does decline more than 20%, the fear of a decline is substituted with the fear of how far down the decline will be and how long it will last?  Those are the questions being asked now.  The fear of a decline becoming a bear market has now been realized.  Now the fear is how low will the bear go before a recovery begins?   How long will this take?

Since 1926 there have been 16 bear markets.  They have lasted an average of 22 months and have averaged declines of 39%.  If that worries you, and it may very well be true for you, I believe a “picture is worth a 1000 words”:

Instead of worrying about the present crisis, more attention needs to be focused on how people behaved in past bear markets. What have you learned?  Have you learned that the rationale for selling because it is different this time has never proven to be true?  If you are focused on the short term you should not be invested entirely in equities.  You should have an asset allocation that allows for less volatility. 

But the best time to alter the asset allocation by reducing equities is during major upswings and not during declines.  The asset allocation we have worked together to execute for you was designed to connect your needs and objectives.  It is not uncommon to question its wisdom in a crisis.  However, it is very important to stay the course and not succumb to panic driven by fear.

If you lengthen the short term to periods that prove you can lose money, you will accomplish your goal if it is TO RATIONALIZE NOT HOLDING EQUITIES. But when you lengthen the holding period the answer is always the same.  Long term investors in equities, measured by the S&P 500, earn about 10% compounded.  10% explains the steep increase in total value demonstrated by the chart.

Long term investors realize it and are most likely to stay the course because they understand the concept called compound interest.  It is often said that people who do not understand probabilities are likely not to understand compound interest.  Some say lottery ticket sales depend on it.

Fearful investors only see the short term and deny there is a long term reward.  Those that see what history tells are much more likely to enjoy rich rewards with much less fear.

Consider the long term chart?  How many say they wish they had actually practiced long term investing earlier in their lifetimes?  Now is the time to remind ourselves that selling never makes as much sense when looking back.   Is it really different this time?   Or are we simply surrendering [again] to fear?

If permitted, fear wins. 

At Curran we look at history and abide by our proven discipline.  We buy the highest quality companies and hold them for the longest term deemed efficient.



Thomas J. Curran                      Kevin T. Curran, CFA

Chief Executive Officer &          President, CIO & Portfolio Manager Founder

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.