Today many global equity markets suffered their worst one-day loss in several years. The U.S. House of Representatives disappointed the markets by voting down an extremely important bill that was designed to alleviate the strain on the credit markets. The failure of this bill caused investors to sell stocks across the board, pushing indices to new lows for the year.
While the press has focused on the sell-off in stocks, the real problem lies in the credit markets. The high level of uncertainty surrounding mortgage-related assets has had spillover effects into the more conventional credit markets. This has made lenders unwilling to loan money, and if left unresolved, it will further slow the growth of an economy that was already weakening.
At this time, we would like to reiterate a few crucial points. First, we remain confident in the solvency of our custodians. The custodians that Heritage uses (Charles Schwab Institutional, Fidelity, TD Ameritrade and Pershing) are not involved in the riskier activities that have damaged the large investment banks. Our custodians are primarily transactional (as opposed to proprietary traders like Lehman and Bear Stearns), and they all continue to have strong balance sheets as a result. We therefore remain highly confident in both the stability of our custodians and the access that our clients have to their assets.
Second, we continue to emphasize that our philosophy of diversification, index investing and the implementation of an unemotional, disciplined process is the best approach to investing in any market. We intend to maintain the target allocations of all of our client accounts. Despite the panic in the capital markets, we will adhere to our rebalancing discipline. Over the next several months, we expect trading activity will be somewhat higher than usual as we rebalance positions and implement tax-management strategies in taxable accounts.
This is an extremely difficult time to be an investor in the capital markets, but it is a critical time to be disciplined and to maintain the long-term strategy. The severity of the current economic situation should not be underestimated – this is the worst crisis for a generation and the unwinding of easy credit has had negative implications on the global economy. However, the global economy has had shocks of this magnitude before, and capitalism will eventually lead the economy to recovery as it has in the past.
We have been asked if we intend to stay the course with our investment process and the answer is an unqualified, “Yes.” We will not abandon our buy low philosophy and replace it with buy low only if the credit markets are good. The downturn has been caused by the credit market deterioration and will be resolved with the rebuilding of those credit markets.
We realize there are many uncertainties in the current market. Please contact us to answer your questions during this difficult period. |
