LETTER FROM OUR MANAGING PARTNER

Philosophy.  You have probably noticed the word “philosophy” throughout our written materials and heard it repeatedly when speaking with us about managing family wealth.  Just as you and your family have values that serve as your moral foundation, an investment philosophy should serve as the foundation for your wealth building and wealth protection plan.

Early October marks the 10th anniversary of the highest point that the S&P 500 index reached before losing half of its value in 18 months during the global financial crisis of 2008-2009.    You can expect a steady stream of headlines and retrospectives postulating that we should have seen the storm coming and what we could have done to protect ourselves better.  There will be endless comparisons to today’s long-running bull market to the market conditions of October 2007.  Headlines can be entertaining (sometimes frightening) reading, but they are not a reliable tool for making sound investment decisions.

The capital markets offer both opportunity and risk.  You need to be prescriptive, deliberate and objective to navigate them well.  Our 104 year history provides great perspective about investors’ successes and failures over time.  A century of real-world client experiences shapes how we and our clients view the investment landscape.  That in turn impacts our core beliefs and our investment philosophy.

Unlike institutional assets, private wealth has far fewer decision-makers at the controls and it can be eroded by high taxes, fees and transaction costs.  However, by integrating investment management with sensible tax and estate planning, you may mitigate your tax burden.   By screening the universe of investment platforms and products – then aligning them with your philosophy – you may be able to substantially reduce fees and transaction costs.  And, by using a rigorous rules-based approach to constructing and managing portfolios, you can minimize the likelihood of human emotion swaying your decisions.

Our Investment Committee meets weekly and reviews objective data and empirical evidence based on the latest macroeconomic research, security and asset class analysis, and portfolio construction.  We adhere to a strict process that prevents knee-jerk reactions and cognitive biases from clouding our decision-making.  The result is a unique combination of philosophy, process and execution.

The S&P 500 index has not seen a 10% decline from its peak since January of 2016 and it has not seen a 2% daily move in 2017.  This absence of volatility may be comforting to some but investors are always tested when sudden drops in the markets occur – and many are out of practice today.  Remember, a market decline does not necessarily indicate a recession.  We have five recession indicators that we monitor.  None point toward a recession, so we see little evidence of a 2008 scenario being repeated.  That said, U.S. equity markets are on the high end of their historical valuations and rock-bottom interest rates seemingly have nowhere to go but up.

That is why a globally diversified portfolio can be an initial risk mitigation strategy, given the rich value of certain U.S. asset classes.  Today’s environment of high valuations and headline drama challenges investors and advisors alike.  That is why it is so important to have a time-tested investment philosophy to serve as your compass.  As a participant in the capital markets your investment philosophy and personal resolve will be tested again.  Are you prepared for the challenge?

Fortis Perspectives                                                                                October 2017

Derek B. Boles
Managing Partner