Risk Management

You will learn the benefits of a money management style that differs from the traditional “set it and forget it” approach. I believe that actively monitoring economic conditions and market risks is an important part of helping clients pursue their long-term financial goals. Having spent more than four decades in the investment industry, I have seen firsthand how periods of excessive optimism can quickly give way to financial stress when underlying risks are ignored.

For example, in the period leading up to the 2008 financial crisis, warning signs of a severe credit disruption were becoming increasingly visible. Major financial institutions were reporting significant losses tied to mortgage-backed securities, liquidity in credit markets was deteriorating, and several large institutions were either collapsing or requiring extraordinary government intervention. Firms such as Bear Stearns and Lehman Brothers failed, while others, including several major U.S. banks such as Bank of America, Citigroup, and Wells Fargo, required emergency government support to remain solvent. Our custodian bank, Bank of New York Mellon, remained on solid footing during this period and assisted the U.S. Treasury in implementing safeguards intended to stabilize the banking system.

At the time, many analysts described the situation as the most serious threat to the financial system since the Great Depression. In response to those conditions, I made the unusual decision to significantly reduce client exposure to both equity and bond markets while increasing cash allocations. This was not intended as an attempt to “time the market,” but rather a risk-management decision based on what appeared to be an extraordinary financial storm developing in the global economy.

While markets ultimately recovered over several years, our defensive positioning taken during that period helped many clients limit exposure to the severe volatility and portfolio drawdowns that occurred during the crisis. Experiences such as that reinforce my belief that disciplined risk management and ongoing monitoring of economic conditions are essential components of a long-term investment strategy. That perspective continues to guide the way I evaluate risks and opportunities on behalf of my clients today.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.