Thoughts on Current Market Volatility

This has clearly been a difficult start to the year, as volatility has picked up meaningfully from an extended period of relatively calm markets. For many of us, the equity market meltdowns of 2000-2002 and 2008-2009 are fresh in our memories, and it is natural to be frightened and emotional about the possibility of another similar circumstance unfolding now. Count us among those who are not anxious to go through those markets again.

At the same time, we have been here before. We don’t have a crystal ball about short term market moves, but we do have a sound and e ective long term portfolio management decision making process. at process centers on identifying securities that are selling at a signi cant discount to their long term fundamental value, and building out all three of our diversi able equity strategies with these securities.

We also know that during high volatility periods, the market horizon becomes very short term. Long term fundamentals are o en ignored in these sell-o s, and stock prices may have outsized daily moves (both up and down) based on slight changes in the short term picture. For an active manager like Meritage, this cuts two ways. On the one hand, in this emotionally driven environment, many securities reprice to become much more attractive to own. On the other hand, for the same reason, if the market persists in irrational selling of a security in a high volatility downswing, we sometimes have to employ stop-loss techniques to protect the portfolio, and we wind up selling a security we recently bought. Fortunately that doesn’t happen too o en, and is usually a sign that the market may be close to bottoming.

We believe the single most important factor enabling investors to deal with the anxiety and emotion that comes from increased volatility is to have the correct asset mix policy for their speci c circumstance. e appropriate mix between stocks and bonds, risk and safety, is what enables all of us to ride through, and indeed, take advantage of troubled market times.

We can’t emphasize this enough, and we work hard to see to it that each of our clients is in the right overall risk position for them. With that said, if anyone would like to discuss their own policy issues further, please contact Mark, Jim, Len, Sharon, or Lisa and Kim, our Portfolio Administration team, and they will set up a meeting with any of us as soon as possible.

The Meritage Investment Team