The Tone Most Needed in a Pandemic World (and why we follow a disciplined investment approach)

Dana Anspach

April 6, 2020

Driving to work, back when we used to do that kind of thing, occasionally a song would come on that would set the tone for my entire day. Sometimes it was “Jack and Diane” by John Mellencamp or “Tom Sawyer” by Rush. Or sometimes something a little newer… dare I confess I’ve even jammed out to Taylor Swift.

Whatever the song, if the tone is right, one minute I’m deep in thought, the next singing out loud, and banging my hands on the steering wheel. And for a few songs, if I have the time, I find myself sitting in the car at my destination jamming out to the last few verses, wanting to prolong the carefree mood.

It’s amazing how a tone can change your mood in an instant.

And right now, there’s a tone that’s missing in the world. It’s a powerful one. One that can change the mood, change even the course of history. It’s the tone of respect.

It seems that nearly everywhere I look, someone is pointing a finger. Everything must have a reason and someone must be at fault. The news has turned into a reality TV show. Facts are skewed, twisted and mangled. Social media is filled with opinions, but little dialogue. Conspiracy theories abound and lawyers prey on every possible thing that could be even remotely considered an injustice.

There seems to be little room for… nature. Yes, nature. Things happen. Life isn’t fair. Luck and timing play a big role in a lot of things. What would happen if we simply accepted that? Stopped trying to fight about it and stopped spending exorbitant amounts of energy on who is wrong and who is right?

Suppose someone you love gets in a car accident and dies. What next? What if a safety feature could have been added to the car, but it wasn’t legally required so the manufacturer didn’t add it? Is it their fault? What if the owner of the vehicle could have paid to add the feature but didn’t? Is it their fault? What if your loved one would have lived if the ambulance had gotten there just one minute earlier? Is it their fault? How much energy do you want to spend on all of that? Could that energy be better spent if it was redirected toward rebuilding, growth, kindness, and respect?

Some things in life are random. A virus, for example. It is nature. Oh sure, some conspiracy theorists believe it’s man-made. This has been debunked but some will continue to believe it. That’s okay. It’s okay because that is what respect is about.

Respect is the due regard of the feelings, wishes, rights, beliefs or traditions of others. I don’t have to agree with them. But I also don’t have to call them names and disparage them for their views.

As a nation, could we have been better prepared for the current coronavirus pandemic? Yes, absolutely. But no one knows how much that would have changed the outcome. We’ll never know. For weeks I’ve thought we’ll have the highest cases and death count of any country simply because we’re Americans. And we value our freedoms over just about anything.

And the extreme measures it took to control COVID-19 cases in China and South Korea? It’s not going to happen here. If it would get life back to normal, I’d happily put an app on my phone and have my temperature taken before I walked into a building. But that’s me. I know many people who wouldn’t. And, I get it. I don’t like it. But that is their right. And allowing people to have those rights is foundational to our culture.

We have always died for freedom. Think of Mel Gibson in the movie Braveheart and you’ll be instantly reminded of just how powerful the concept of freedom is.


The clash happens when one person’s freedom infringes upon another person’s perceived rights. And this is where respect can change the tone.

Two people, two ideas, two concepts can simultaneously exist. One does not need to be right and one wrong.

What if you grew up on the plains of Africa. You may develop the theory that skyscrapers are a conspiracy theory and that New York City is only a movie set. Imagine you grew up in New York City. You may think zebras are imaginary. Do you completely disregard each other’s views, engage in name-calling and decide the other is ignorant? Or do you consider perspective? If you were in that person’s shoes, you may also hold the same view.

If you’re a nurse right now in a small Midwest town maybe your hours are cut and you see no onslaught of COVID-19 patients, does that mean as a society we overreacted? If you’re a nurse in Brooklyn or Long Island, I bet that’s not your perspective.

Perspective, and a willingness to take a moment and see something as if you are standing in someone else’s shoes, is critical. You don’t have to agree. Just take a moment to see.

Perspective is just as critical in investing. Variations in strategies and approaches are endless. While some insist you should be selling stocks right now, others are buying. During each bear market, some scream diversification no longer works. Some make huge bets and win (if you haven’t seen it, go watch The Big Short) and some make huge bets and lose (think Bitcoin).

During the 2008-2009 financial crisis, many voices insisted we would have outlandish inflation as a result of the stimulus. It didn’t happen. This time around, many predictions will be voiced. Not all of them will happen.

Although we all want to think someone can predict the course of events, no one can. They can only guess. And, in the rear-view mirror, we’ll point back to those who had guesses that turned out to be right and may call them brilliant. Really, it was mostly luck.

So how do you invest if you believe nature is natural, random things happen, no one can predict the future and much of success is really luck? How does that shape the way you make decisions?

So how do you invest if you believe nature is natural, random things happen, no one can predict the future and much of success is really luck? How does that shape the way you make decisions?

Well, much like the modeling you see in terms of the spread and impact of the virus, you model the potential best and worst-case outcomes of following a particular investment approach. If the worst outcome materializes, you know ahead of time what adjustments will need to be made. You have a plan.

In that modeling, you assume recessions happen. We always assume a bear market is going to come along. In September of 2019, I published a MarketWatch article titled A recession is coming: How to protect your retirement.  I was not attempting to make predictions. I was simply offering an observation on reality. Recessions happen.

And some strategies help reduce the impact of the recession on your daily life. As you get closer to retirement, that type of planning is of great value.

The way we plan for recessions at Sensible Money is to create a bond bridge. This is a set of bonds maturing that provides incoming cash flow to a household for a period of time, usually five to eight years. Our equity or stock allocation is then invested for a seven-plus year time horizon. Our process is designed around bringing consistency to the cash flows (retirement paychecks) that we deliver to a household. Our primary goal is to eliminate giant disruptions to a retiree’s standard of living.

This is a vastly different goal than a goal of reducing short-term volatility. If I wanted to make sure a portfolio would never go down by more than 10% in a single month or a single calendar quarter, it would be invested entirely differently.

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We invest in a way that matches the outcome or goal we are trying to achieve. Many investment advisors around the world take a similar approach. Some don’t because they have a different outcome they are trying to achieve. And that is okay. It makes sense.

Let’s take a look at some others who share a similar approach and are addressing some common questions right now.

In this article by portfolio manager Nir Kaissar, he addresses the question of whether investors should sell stocks and buy back later. I’ve yet to see that work in real life – and neither has he. Sure, it seems logical. But in real life, humans don’t get back in at the bottom. They are too scared. And overwhelmingly their seemingly logical strategy backfires on them. I saw it first-hand in 2008 and 2009. People who sold did not buy back in at lower prices. They waited until they felt like it was safe, and they bought back in at higher prices. You can take those kinds of bets with your own money because you can risk being wrong.  But when you are responsible for the life-long income of someone else you must use an approach that has the highest probability of working. It is our legal responsibility to do so. And market timing is not that approach.

Emotionally I understand the fear of watching your portfolio go down on paper. It’s awful. It makes you feel sick. Truthfully, I think it would be better if we couldn’t see the value each day. But we can. So we have to learn to think of it differently. Perhaps more like our homes. Very few people rushed to sell their home in 2010 when prices hit rock bottom.

Another common question right now is why the stock market isn’t down even more. Maybe it will be. We don’t know. William Bernstein, one of my all-time favorite finance writers, addresses this question in this recent video interview.  One point Bernstein brings up is that in 2009, we had runs on the bank. This time around, banks are solvent.

He also discusses the basis for stock prices, which is an expectation of future cash flows. If you remove one calendar quarter of cash flows, but expect the other future cash flows to remain similar, it doesn’t change the current expected price of stocks all that much. In other words, you can stop the economy for an entire quarter, and the impact on the long-term outcome may not be quite as severe on the markets as some people think. (The severity on an individual household, however, can be drastic – it all depends on perspective.) Of course, at this point, no one knows the long-term impact on cash flows. Perhaps the market expectations are that businesses will open back up in the next 30 to 60 days.

But what if the long-term impact is more severe? Another salient point Bernstein brings up is the resiliency of capitalism – he reminds us that post-World War II Germany was reduced to rubble. And capitalism returned it to a thriving economy within three to five years.

In every market downturn, some traders are focused on a daily or weekly outcome, while others are focused on a three to five-year view. Thus on any given day, both buying and selling can be warranted, depending on the objective.  

Our process is not based on daily, weekly or even monthly outcomes. In thirty days, I have zero confidence in where things will be. Two years out, I have a high degree of confidence things will look much better than they look today. And three to five years from now I am sure we will be thriving again. Our process is based on the resiliency of capitalism.

Instead of thinking about predictions, I try to think about what I know. I know that for portfolio management, what matters is what an asset is worth on the day we sell it. And I know that the way our bond bridge is constructed, our clients have many, many years before they need to tap their stock assets. I know we used this portfolio construction process precisely because we expect these market events to happen.

And I know that human nature will do what human nature does and some people will lose perspective. While the majority send us thank you notes and express little concern, a few will point fingers and tell us we should have done things differently. If research proved that doing things differently consistently resulted in delivering better outcomes based on the particular objectives we have stated, we certainly would do things differently. But that is not what the research shows.

And, when you are responsible for the retirement paychecks for hundreds of families, you cannot act on a whim, an emotion, or a current headline. The stakes are too high to abandon a discipline at precisely the time that discipline is most needed.

What we can do is our best to bring respect to the conversation. To empathize. To change the tone. To put the right song on. While we stay home, wash our hands, and wait this out, we empathize with those who want to turn everything back on. We get it. We also empathize with those who think you can time the stock market. And, while respecting those views, we’ll stick to the disciplines that we know to work best.

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