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Coronavirus and the Market

What is the impact of Coronavirus on my investments?

The term “novel coronavirus” is so new, some people have apparently wondered whether it is related to Corona beer. (It is not; it’s named after its crown-shaped particles.) And yet, how quickly it has grabbed global headlines. As the viral news has spread, so too has financial uncertainty. What’s going to happen next? Will it further infect our domestic or global economies? In case it does, should you try to shift your investments to remain one step ahead?

Our advice is simple: Do try to avoid this or
any other health risk through good hygiene. Wash your hands. Cover your mouth
when you cough. Eat well, exercise, and get plenty of sleep.

But do not let the
breaking news directly impact your investment strategy.

The keys to following an evidence-based investment strategy
are …

  • Having a globally diversified investment
    portfolio.
  • Structuring your portfolio to capture a measure
    of the market’s expected long-term returns.
  • Tolerating a measure of this sort of risk to
    earn those expected long-term returns.
  • Identifying how much market risk you must expect
    to endure to achieve your personal financial goals and allocating your
    investments accordingly.

In other words, it may feel counterintuitive, but if you
have done the above you have planned for this type of contingency already. In
investing, there are things that you can control, and there are things that you
cannot. The impact of coronavirus to the market is something that we can’t
control; sticking to your plan is.

Admittedly, that’s often easier said than done. Here are a
few reminders on why sticking with an evidence-based investment plan remains
your best financial “treatment.”

“I’m assuming there will be no
apocalypse. And that’s almost always, if not quite always, a good assumption.” —
John
C. Bogle

If you’re not invested, your investments can’t recover. Few
of us make it through our days without enduring the occasional moderate to
severe ailment. Once we recover, it feels so good to be “normal” again, we
often experience a surge of energy. Similarly, markets are going to take a hit
now and then. But with historical evidence as our guide, they’ll also often
recover dramatically and without warning. If you exit the market to avoid the
pain, you’re also quite likely to miss out on portions of the expected gain.

Markets endure. We by no means wish to downplay the
socioeconomic suffering coronavirus has created. But even in relatively recent
memory, we’ve endured similar events – from SARS, to Zika, to Ebola. Each is
terrible, tragic, and frightening as it plays out. But each time, markets have
moved on. Whether coronavirus spreads further or we can quickly tamp it down, overwhelming
historical evidence
suggests capital markets will once again endure.

The risk is already priced in. The latest news on
coronavirus is unfolding far too fast for any one investor to react to it … but
not nearly fast enough to keep up with highly efficient markets. As each new
piece of news is released, markets nearly instantly reflect it in new prices. So,
if you decide to sell your holdings in response to bad news, you’ll do so at a
price already discounted to reflect it. In short, you’ll lock in a loss,
rather than ride out the storm.

Bottom line, market risks come in all shapes and sizes. This
includes the financial and economic repercussions of a widespread virus, be it
real or virtual. While it’s never fun to hunker down and tolerate risks as they
play out, it likely remains your best course of action. Please let us know if
we can help you maintain your investment plan at this time, or judiciously
adjust your plan if you feel it no longer reflects your greater financial
goals.




ABS – Always Be Saving

So, a buddy comes in. This buddy is an outrageously frugal 36-year-old single woman who, amazingly, Manages to Save 30% Of Her Gross Compensation! I asked her how she did this and she said she had a motto – ABS – Always Be Saving!  (Kinda reminds me of the ABC motto – Always Be Closing – from the movie Glengary Glen Ross…but…that’s a whole different story.)

We embarked on a discussion about Saving/Investing in the current market environment and discovered common ground as regards our perspective on Market Forecasters.

As a market observer for over 45 years I’ve observed that every January the same thing happens. Lots of folks – many are so-called ‘experts’– look back at last year’s performance to draw comparisons and conclusions they can use to predict what markets will do in the year to come.

At Warburton Capital we don’t make predictions, however, let’s answer this question:

  • ‘What lesson from 2019 can we apply to 2020?’

Wind back the clock to twelve months ago. The words running across CNBC’s home page were, “US stocks post worst year in a decade as the S&P 500 falls more than 6% in 2018.” The Wall Street Journal summarized the
state of market affairs with this headline: “U.S. Indexes Close with Worst Yearly Losses Since 2008.” Depression and Gloomy Predictions proliferated.

Some folks decided to ‘time the market’, sell to cash and wait for prices to go down. They thought that after 11 years, the bull market was finally on its way out.  So how did those gloomy predictions and rainy-day forecasts work out:

  • Global equity markets finished 2019 up more than 25% – MSCI World Index
  • Fixed income gained more than 8% – Bloomberg Barclays Global Agg Bond Index

Let’s now answer the question about ‘What lesson from 2019 can we apply to 2020’?

  • It’s blindingly obvious: Don’t Bet on Forecasts and Predictions.

We need to remember that missing out on growth does as much damage to a portfolio as losing that amount. How long does it take to make any loss back? How does someone who got out know when to get back in? Market
Timing is seductive, however, to be effective one is required to be right twice– at the top and at the bottom – over and over again.  In the words of Warren Buffett, “I’ve never observed a Market Timer to be right more than once in a row!”

Forget the Forecasters. Don’t time the market in 2020 or ever. Don’t gamble on getting in and getting out. Rather, figure out how much of your portfolio you need allocated to Safe Assets and allocate the remainder to Risky Assets so you can capture the ups and ride out the downs.

At Warburton Capital we work with our clients to achieve the foregoing by engaging in Top Down Planning to derive a Purposeful Strategy for current holdings, incremental saving or even withdrawals. Not enough “experts” subscribe to our point of view. They’re still trying to time the markets by predicting short-term market movements…risk on…risk off…blah blah.

You’ve heard the conventional wisdom, “The definition of insanity is doing the same thing over and over again and expecting a different result.” I see Jim Cramer and his brethren speculators demonstrating this market timing insanity daily as part of the Financial Pornography on CNBC – which I so love simply for the entertainment value!

It seems impossible to know when the best time to get into the market is because we can’t predict the future. And if you think about it, that makes sense. If the market’s doing its job, prices ought to be set at a level where you experience anxiety. It’s unrealistic to think the market would ever offer an obvious time to “get in.” If it did, there would be no risk and no reward.

So, what should you do in 2020?  Keep in mind 2019’s most important lesson (which is the same lesson from every year before): Don’t bet on Forecasts or Predictions. Be a long-term investor in a well-reasoned broadly diversified Purposeful portfolio. Reduce your anxiety by having a Purposeful amount of ‘Safe Assets,’ Make sure the people advising you align with your perspective. Never attempt to time the markets. You’ll have more time to enjoy life!

Closing by returning to the beginning of this missive – in case you worried that our ‘Always Saving’ buddy is so frugal that she is a miser, not to worry.  She travels the world routinely and recently paid cash for a brand-new Tesla. I observe and applaud substantial life/ work balance!

Trusting this will find you well, enjoying the New Year and practicing the ‘Always Be Saving’ habit of our ultra-frugal buddy, we remain

Yours Truly,

Warburton Capital Management




Warburton Capital offers trust services

Wealth Management Tulsa

Tulsa, Ok. – Jonathan Hall, Managing Principal of Warburton Capital Management, LLC, announced that Warburton Capital Management, LLC, has become a stockholder in and affiliate of National Advisors Holding, Inc. (“NAH”), the subsidiaries of which include National Advisors Trust Company (“NATC”) and National Advisors Trust of South Dakota, Inc. (“NATSD”).

NATC is a national trust company and a member of the Federal Reserve Bank. It is examined for safety and soundness by the Office of the Controller of the Currency and reports to Federal Deposit Insurance Corporation. NATSD is a trust company regulated by the South Dakota Banking Division.

With over $12 Billion in assets under administration, NATC/NATSD is one of the largest independent trust companies in the United States. Its in-house specialists include 10 JD’s, 2 LLM’s, 4 CTFA’s, 6 Trust Officers and 3 CPA’s. NATC has experience managing assets ranging from marketable securities to mineral rights, oil and gas, real estate (commercial, residential, farm and ranch), and closely held businesses. The headquarters of NATC are located in Kansas City, MO, with satellite offices in Sioux Falls, SD, and Houston, TX. NATSD provides client planning options under the progressive trust laws of South Dakota, including unique assets protection, privacy, and dynasty trust arrangements based in a tax friendly state.

Hall also announced that Warburton Capital Management has been designated as a Trust Representative Office of NATC/NATSD doing business as Warburton Trust Services. In this capacity, Warburton Capital Management collaborates with NATC and NATSD to fully support communication, execution and reporting with respect to client trust services.

“Our clients work closely with us to make decisions about their financial futures, their retirement plans, and to fulfill the needs of their families and their benevolent intentions,” said Hall. “Often, that planning includes the establishment of current and future trust services, whether to provide necessary professional management and investment services, to avoid conflicts or burdens upon family members, or to address multigenerational planning needs”, added Hall.

“With Warburton Trust Services named as current or successor trustee, assets will be managed as directed by the creator of the trust and ultimately applied and distributed in accordance with the creator’s wishes. The benefits include simplicity and peace of mind for the client”, said Hall.

For more information about Warburton Trust Services, call 918-794-3000 or email wcm@warburtoncapital.com.

About Warburton Capital Management: Warburton Capital Management, LLC is a Registered Investment Advisory firm. Its wealth management advisors are independent fee only, fiduciaries working to help clients clarify and achieve their financial and business goals. Ultimately, we strive to help clients build peace of mind and financial security.

About Warburton Trust Services: National Advisors Trust Company d/b/a Warburton Trust Services provides comprehensive trust administrative services through the Trust Representative Offices of Warburton Capital Management.




What does the Charles Schwab acquisition of TD Ameritrade mean for our clients?




Don’t Fall for Market Timing’s Siren Song

So, a buddy comes in!  Our buddy is a student of Greek Mythology and has been reading Homer, specifically, the story of Odysseus having himself lashed to the mast of his boat such that he could be seduced by the Sirens’ Song but he would not be able to leave the ship and meet his doom.

Our buddy went on to pronounce that he loved to listen to Sirens’ Songs (the talking heads on CNBC), yet, he was pleased that we were helping to guide him while lashed to the mast of financial purpose!

The statistical analysis of Market Timing is compelling – it’s seductive but rarely effective.  Even the great Oracle of Omaha has been attributed as saying that ‘he had never seen anybody succeed at Market Timing more than once in a row’!  To be successful at Market Timing one would need to accurately predict ‘when to buy’ and ‘when to sell’ over and over.  Ain’t Gonna Happen!

One must remain tied to the mast of Financial Planning with a Purposeful Plan for achieving one’s Financial Goals in a manner which permits weathering the storms of inevitable market downturns.

Inviting you to come in for a visit, share your stories and affirm that you are lashed to the mast of Purposeful Financial Planning and on track to achieve all of your Financial Goals, I remain

On Behalf of the Firm,

Tom Warburton




To Bit or Not to Bit: What Should Investors Make of Bitcoin Mania?

What Should Investors Make of Bitcoin Mania?

Bitcoin and other cryptocurrencies are receiving intense media coverage, prompting many investors to wonder whether these new types of electronic money deserve a place in their portfolios.

Cryptocurrencies such as bitcoin emerged only in the past decade. Unlike traditional money, no paper notes or metal coins are involved. No central bank issues the currency, and no regulator or nation state stands behind it.
Instead, cryptocurrencies are a form of code made by computers and stored in a digital wallet. In the case of bitcoin, there is a finite supply of 21 million,1 of which more than 18.5 million are in circulation.2 Transactions are recorded on a public ledger called blockchain.

People can earn bitcoins in several ways, including buying them using traditional fiat currencies3 or by “mining” them—receiving newly created bitcoins for the service of using powerful computers to compile recent transactions into new blocks of the transaction chain through solving a highly complex mathematical puzzle.

For much of the past decade, cryptocurrencies were the preserve of digital enthusiasts and people who believe the age of fiat currencies is coming to an end. This niche appeal is reflected in their market value. For example, at a market value of $57,000 per bitcoin,4 the total value of bitcoin in circulation is less than half of a percent of the aggregate value of global stocks and bonds. Despite this, the sharp rise in the market value of bitcoins over the past weeks and months have contributed to intense media attention.

What are investors to make of all this media attention? What place, if any, should bitcoin play in a diversified portfolio? Recently, the value of bitcoin has risen sharply, but that is the past. What about its future value?
You can approach these questions in several ways. A good place to begin is by examining the roles that stocks, bonds, and cash play in your portfolio.

EXPECTED RETURNS
Companies often seek external sources of capital to finance projects they believe will generate profits in the future. When a company issues stock, it offers investors a residual claim on its future profits. When a company issues a bond, it offers investors a promised stream of future cash flows, including the repayment of principal when the bond matures. The price of a stock or bond reflects the return investors demand to exchange their cash today for an uncertain but greater amount of expected cash in the future.

One important role these securities play in a portfolio is to provide positive expected returns by allowing investors to share in the future profits earned by corporations globally. By investing in stocks and bonds today, you expect to grow your wealth and enable greater consumption tomorrow.

Government bonds often provide a more certain repayment of promised cash flows than corporate bonds. Thus, besides the potential for providing positive expected returns, another reason to hold government bonds is to reduce the uncertainty of future wealth. And inflation-linked government bonds reduce the uncertainty of future inflation-adjusted wealth.

Holding cash does not provide an expected stream of future cash flow. One US dollar in your wallet today does not entitle you to more dollars in the future. The same logic applies to holding other fiat currencies — and holding bitcoins in a digital wallet. So we should not expect a positive return from holding cash in one or more currencies unless we can predict when one currency will appreciate or depreciate relative to others.

The academic literature overwhelmingly suggests that short-term currency movements are unpredictable, implying there is no reliable and systematic way to earn a positive return just by holding cash, regardless of its currency. So why should investors hold cash in one or more currencies? One reason is because it provides a store of value that can be used to manage near-term known expenditures in those currencies.

With this framework in mind, it might be argued that holding bitcoins is like holding cash; it can be used to pay for some goods and services. However, most goods and services are not priced in bitcoins.

A lot of volatility has occurred in the exchange rates between bitcoins and traditional currencies. That volatility implies uncertainty, even in the near term, in the amount of future goods and services your bitcoins can purchase. This uncertainty, combined with possibly high transaction costs to convert bitcoins into usable currency, suggests that the cryptocurrency currently falls short as a store of value to manage near-term known expenses. Of course, that may change in the future if it becomes common practice to pay for all goods and services using bitcoins.

If bitcoin is not currently practical as a substitute for cash, should we expect its value to appreciate?

SUPPLY AND DEMAND
The price of a bitcoin is tied to supply and demand. Although the supply of bitcoins is slowly rising, it may reach an upper limit, which might imply limited future supply. The future supply of cryptocurrencies, however, may be very flexible as new types are developed and innovation in technology makes many cryptocurrencies close substitutes for one another, implying the quantity of future supply might be unlimited.

Regarding future demand for bitcoins, there is a non-zero probability5 that nothing will come of it (no future demand) and a non-zero probability that it will be widely adopted (high future demand).

Future regulation adds to this uncertainty. While recent media attention has ensured bitcoin is more widely discussed today than in years past, it is still largely unused by most financial institutions. It has also been the subject of scrutiny by regulators. For example, in a note to investors in 2014, the US Securities and Exchange Commission warned that any new investment appearing to be exciting and cutting-edge has the potential to give rise to fraud and false “guarantees” of high investment returns.6 Other entities around the world have issued similar warnings. It is unclear what impact future laws and regulations may have on bitcoin’s future supply and demand (or even its existence). This uncertainty is common with young investments.

All of these factors suggest that future supply and demand are highly uncertain. But the probabilities of high or low future supply or demand are an input in the price of bitcoins today. That price is fair, in that investors willingly transact at that price. One investor does not have an unfair advantage over another in determining if the true probability of future demand will be different from what is reflected in bitcoin’s price today.

WHAT TO EXPECT
So, should we expect the value of bitcoins to appreciate? Maybe. But just as with traditional currencies, there is no reliable way to predict by how much and when that appreciation will occur. We know, however, that we should not expect to receive more bitcoins in the future just by holding one bitcoin today. They don’t entitle holders to an expected stream of future bitcoins, and they don’t entitle the holder to a residual claim on the future profits of global corporations.

None of this is to deny the exciting potential of the underlying blockchain technology that enables the trading of bitcoins. It is an open, distributed ledger that can record transactions efficiently and in a verifiable and permanent way, which has significant implications for banking and other industries, although these effects may take some years to emerge.

When it comes to designing a portfolio, a good place to begin is with one’s goals. This approach, combined with an understanding of the characteristics of each eligible security type, provides a good framework to decide which securities deserve a place in a portfolio. For the securities that make the cut, their weight in the total market of all investable securities provides a baseline for deciding how much of a portfolio should be allocated to that security.

Unlike stocks or corporate bonds, it is not clear that bitcoins offer investors positive expected returns. Unlike government bonds, they don’t provide clarity about future wealth. And, unlike holding cash in fiat currencies, they don’t provide the means to plan for a wide range of near-term known expenditures. Because bitcoin does not help achieve these investment goals, we believe that it does not warrant a place in a portfolio designed to meet one or more of such goals.

If, however, one has a goal not contemplated herein, and you believe bitcoin is well suited to meet that goal, keep in mind the final piece of our asset allocation framework: What percentage of all eligible investments do the value of all bitcoins represent? When compared to global stocks, bonds, and traditional currency, their market value is tiny. So, if for some reason an investor decides bitcoins are a good investment, we believe their weight in a well-diversified portfolio should generally be tiny.7

Because bitcoin is being sold in some quarters as a paradigm shift in financial markets, this does not mean investors should rush to include it in their portfolios. When digesting the latest article on bitcoin, keep in mind that a goals-based approach based on stocks, bonds, and traditional currencies, as well as sensible and robust dimensions of expected returns, has been helping investors effectively pursue their goals for decades.

  1. Source: Bitcoin.org.
  2. As of March 12, 2021. Source: Coinmarketcap.com.
  3. A currency declared by a government to be legal tender.
  4. Per Bloomberg, the end-of-day market value of bitcoin was $57,624.01 USD on March 11, 2021.
  5. Describes an outcome that is possible (or not impossible) to occur.
  6. “Investor Alert: Bitcoin and Other Virtual Currency-Related Investments,” SEC, 7 May 2014.
  7. Investors should discuss the risks and other attributes of any security or currency with their advisor prior to making any investment.

The opinions expressed are those of the author and are subject to change. The commentary above pertains to bitcoin cryptocurrency. Certain bitcoin offerings may be considered a security and may have different attributes than those described in this paper. Dimensional does not offer bitcoin.

This material is not to be construed as investment advice or a recommendation to buy or sell any security or currency. Investing involves risks including possible loss of principal. Stocks are subject to market fluctuation and other risks. Bonds are subject to increased risk of loss of principal during periods of rising interest rates and other risks. There is no assurance that any investment strategy will be successful. Diversification does not assure a profit or protect against loss.

Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Original article: Dimensional Fund Advisors, 03/31/2021
https://my.dimensional.com/to-bit-or-not-to-bit




Jonathan Hall Continues Warburton Commitment to Service

At Warburton Capital, we view ourselves as being in the service business. Our greatest aspiration is to help people, and Managing Principal Jonathan Hall exemplifies the firm’s dedication to servant leadership.

Jonathan’s community involvement efforts have expanded to include service to the youth of the entire state of Oklahoma. In late November, Governor Kevin Stitt appointed Jonathan to serve on the Oklahoma Commission on Children and Youth as the Commissioner Representing Business or Industry.

Read the full OCCY announcement here.

This prestigious appointment is a natural fit for Jonathan, who has presided over Tulsa’s Emergency Infant Services since 2014 and has served on the city’s Tax Oversight Committee since 2019. Jonathan begins his 2-year term as an OCCY Commissioner with years of experience supporting children’s services, as well as his in-depth knowledge of finance. His insight will help the commission continue to improve the lives of our children through the coordination of public and private resources and the development of strategic improvement plans at the community and state levels.

We’re proud of Jonathan’s continued service to our city and the youth of Oklahoma, and we’re not the only ones. On a recent Zoom call, a buddy called in to recognize Jonathan’s appointment and congratulate him, and I thought it would be a great idea to share the good news with those of you who weren’t on the call. Part of what we do on these calls is talk about how our colleagues live out their commitments to service, how we’re all doing personally and professionally, and how we can all continue to be a positive influence in today’s society.

Consider this your personal invitation to ‘Zoom In’ soon and often to connect with our phenomenal team and share your stories and concerns. I trust you are living your life well, maintaining social distance, and not worrying about your portfolio because you have a purposeful plan in place with a team that has your best interests at heart.

On Behalf of the Firm,

Tom Warburton

P.S. If you need more information about our Zoom check-in calls, email our team or call us at (918) 794-3000. Let’s chat!