(*A quick note* Ever since Michael Douglas won 1987’s “Best Actor” Oscar for playing Gordon Gecko in Wall Street, quoting The Art of War has become a bit of a cliche in the world of finance.  So at the risk of contributing to such banality, as well as with a bit of hesitation, I offer the following wisdom - MM.)

“The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy.”
~ Sun Tzu

There is a concept that is foundational to our approach to financial planning and investment management, and it is summed up quite nicely in the words above.  This concept is that of first putting oneself beyond the possibility of defeat.  Portfolio failure, or “defeat,” will have a different definition for each investor.  For many retirees, the ultimate failure of their investments is running out of money at any point in their life.  In some cases, a comprehensive financial plan reveals that an individual or family is already “financially bulletproof.”  This means that they have the assets, strategies, and behaviors to be extraordinarily confident that they can survive anything that may come their way.  They are essentially “beyond the possibility of defeat.”  Those who are not there yet should make a priority of getting there as soon as they can.

As I write this, several major market indices (S&P 500, Nasdaq, Russell 2000) are showing year-to-date losses of more than 10%.  Volatility is high, as intraday swings of over one or two percent have become a common occurrence in recent weeks and months.  The world is paying very close attention to issues like the invasion of Ukraine, rising fuel prices, inflation, and yes… still Covid-19.  With this environment in mind, I am pleased to report that our office phones have been very quiet through it all.  The reason for this is simple.  It is our discipline to prioritize the concept of putting investors beyond the possibility of defeat.  Only once they are there, do we look for opportunities to make outsized gains.

In recent years, many participants entered the investment markets for the first time.  Many of them were not yet adults during the “Great Recession” of over a decade ago.  More yet, can not remember an interest rate environment when a bank savings account could yield over 5%. Last summer, an inexperienced investor explained his experience to me in a rather succinct way.  He said that he, “was a genius…until I wasn’t.”

"If you have the idea of superiority and are proud of your ability," this is disaster”
~ Zen Master Yuanwu

I consistently stop short of making short-term market predictions, but I will always take what lessons I can from history.  A century of various market results and an even longer record of global economic shifts have taught us that trying times are inevitable.  The day that one becomes an investor, they must understand this to be true.  They must act appropriately and do what they can to define their own concept of “defeat” and place themselves beyond that possibility.  This can provide a sense of contentment in any market condition. Failure to embrace the inevitability of tricky markets is to place oneself in danger.  Simultaneously, one must never forget that in the long run, the major markets have consistently produced positive results, so there is also a risk associated with a failure to ever place oneself in a position to make gains.  Simply put, it is dangerous to assume that today's conditions will last, whether they be difficult or easy.  To sum this up, I return to centuries-old Eastern wisdom.

“One must be deeply aware of the impermanence of the world.”  
~ Dōgen