It isn't how much you make
. . .It's how much you keep!
Archive for Blog – Page 2
Reprinted Courtesy of
Will Robbins
Equity Portfolio Manager
March 29, 2023
We have been here before.
The failure of Silicon Valley Bank on March 10 reminds me of what I experienced firsthand as a bank analyst during the global financial crisis in 2007 and 2008.
As a professional investor for 30 years, I rely on my own experiences to help guide my investment approach. When I was a bank analyst then, I captured the 10 lessons below to serve as a guide for myself and colleagues to help get us to the other side of the valley.
Every crisis is different, but they often have things in common. Today’s turmoil shares some striking similarities, though, in my view, this current episode is much smaller in scale and far less damaging.
Wisdom earned in crisis
Last summer, with rates rising, inflation high and the prospect of recession looming, I unearthed these lessons from 15 years ago and shared them again. And when Silicon Valley Bank failed a few weeks ago, I circulated them once more to offer perspective and help colleagues manage the uncertainty. Here are those lessons, which I believe bear repeating.Wisdom earned in crisis
1. When the weathermen pack umbrellas, the forecast is for rain. Bank treasurers started hoarding liquidity — assets that can easily be converted to cash — in mid-2007 when liquidity was not on anyone’s radar screen. It should have been a clear warning sign.
2. Liquidity is a coward. Regardless of balance sheet strength or franchise value, if liquidity evaporates, which it has tended to do at the first sign of trouble, perception of weakness becomes reality.
3. The long-term outlook only matters if you can make it to the long term. The 2007–2008 cycle progressed from one of concern about earnings to concern about capital to concern about liquidity. Not until we reverse the cycle and return to a focus on earnings do I expect this cycle to end, and by then many institutions may no longer be with us.
4. There is no silver bullet. Selling into every rally on government fixes would have been the right call during the early stages of the global financial crisis. Drastic events require drastic measures; anything less would be a disappointment.
5. Avoid the most aggressive companies. When you hear the words growth and innovation as they relate to lending businesses, proceed with caution. Making cross-industry comparisons can help provide guard rails for assessing where the dangers might be. Variations in outcomes between the least and most aggressive companies can be huge.
6. Bad news is bad news. If a company needs capital and/or has to cut its dividend, consider getting out of the way, even if it looks like it’s priced into the stock.
7. Don’t try to navigate uncharted waters. When circumstances change so drastically that even an experienced investment analyst has a hard time digesting events, I think it’s best to walk away. This was true in the technology boom-bust cycle in the late-1990s as well as the global financial crisis. The break with the past was so significant in both cases that history no longer served as a guide.
8. Good loans are made in bad times and bad loans are made in good times. The winners in a credit cycle will usually be those with the capital and liquidity to capitalize on the distress.
9. Trust your instincts and act. The discontinuity of a crisis can be paralyzing, but it’s important to remain flexible and continue to take action with a forward-thinking mindset.
10. Take care of yourself. Sleep, exercise and healthy diet are important to maintaining a constructive attitude. We owe it to ourselves, our families and our clients to stay healthy.
Few people enjoy thinking about their insurance needs, shopping for coverage, or
reading through a policy’s fine print. Once they do buy a policy, many people rarely think about it again, other than when they pay the premiums. But that tendency to avoid thinking about insurance can lead to insurance mistakes that can put a person’s assets at risk. Below are some of the most common
insurance mistakes:
Expecting the best — Some people may think they can skip various types of essential insurance (like auto or health insurance) because it won’t happen to them. Or they may buy a bare-bones policy thinking they won’t ever need to make a claim. But the reality is that accidents and injuries can happen to anyone. A comprehensive insurance plan protects you when they do.
Not shopping around — If you’re in the market for a new policy, shop around and compare prices to get the best deal. But make sure you’re comparing equivalent policies and coverage — an ultra-cheap policy may offer skimpy benefits.
Buying too much insurance — While insurance is a valuable part of your overall financial plan, there is such a thing as being over-insured. If you’re paying
high premiums for insurance coverage you don’t really need, you’re wasting money. What types of insurance might you skip? Extended warranties, cell phone insurance, insurance for specific diseases (like cancer), rental car insurance, and mortgage life insurance are usually not worth the premium you pay.
Not negotiating on insurance rates — Here’s a little-known tip: The premium price you’re quoted isn’t set in stone. Depending on the type of coverage you need, you may be able to get discounts based on your profession, the age of your car, installing an alarm system in your home, choosing a higher deductible, and more. Bundling — buying several policies through the same carrier — can also lead to premium price breaks.
Forgetting to pay the premium — It’s a simple but potentially devastating mistake. Missing premium payments could cause your policy to lapse, leaving you without coverage. Reduce the risk of this happening by automating your payments.
Dropping coverage to save money — When your budget is tight, dropping insurance coverage may seem like a good way to save cash. You may save money in the short term, but you could end up worse off in the long term if you need to make a claim. If premium payments are straining your budget, consider raising your deductible or asking your insurer if you’re eligible for any discounts.
Forgetting to update life insurance beneficiaries — As your life changes, so should the people named as beneficiaries on your life insurance policy. Divorce, remarriage, the death of a spouse, or the birth or death of a child are all times when you should update these designations. If you fail to take this simple step, your life insurance may not do its job when you need it most. After all, do you
want your insurance benefits to go to your ex-spouse or have one child receive a generous insurance payment while the other receives nothing? Keeping your beneficiary designations up-to-date can help you avoid those outcomes.
Having coverage gaps — Everyone faces different risks, and thus has different insurance needs. Sometimes, it’s easy to overlook a risk until it’s too late. For example, if you live in an earthquake-prone area, you likely need separate earthquake insurance. If you serve on a nonprofit board of directors, you may need personal liability coverage. If you own ATVs, snowmobiles, or other vehicles, you may need special policies to protect yourself in case of damage to the vehicle or a lawsuit. The list of possible risks goes on and on.
Not researching an insurance company before you buy — Not every insurance company is created equal, and what looks like a great deal today may be less appealing tomorrow when you are struggling to get a claim processed quickly. Before you buy, get multiple quotes, read the policy’s fine print, review the insurer’s complaint record with the state department of insurance, and check the company’s ratings with ratings agencies like Fitch, Moody’s, and A.M. Best.
Not thinking about insurance as part of your overall financial plan — Insurance isn’t something you should think about in isolation. In fact, it’s an essential part of your overall financial plan. A solid risk management strategy protects your hard-earned wealth and your family’s future.
Please call if you’d like to discuss insurance in more detail.