Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Among my articles that draw the most interest from advisors are the draft templates for a quarterly letter to send clients.
This quarter’s letter is designed to balance some of the extreme pessimism among many investors. Negative sentiment is understandable given the real challenges facing the U.S. and European economies, but is also a function of the overwhelmingly negative media coverage to which clients are exposed. (This is the exact opposite of the blindly positive media in early 2000.)
To balance today’s disproportionately negative views, you need hard facts.
That’s why this letter is based on a September 13 conference in Montana, at which Warren Buffett, GE’s Jeff Immelt and Microsoft’s Steve Ballmer all expressed very positive views about what’s happening at their companies. It also features a recent survey of global executives, showing generally positive sentiment.
Given the attendees and their comments, the most striking thing about the Montana conference was the lack of media coverage, aside from a brief comment by Warren Buffett that we won’t have a double-dip recession.
Perhaps that was because of its relatively isolated location in Montana, but I also suspect that right now members of the media are so pessimistic personally that they tune out good news. (It’s not just the media, by the way. We all fall into the trap of ignoring information that isn’t consistent with our mindset.)
That creates both the need and the opportunity for advisors to provide offsetting perspective to today’s pervasive gloom and doom, not by suggesting that everything is wonderful, of course, but by pointing out real and concrete positives that are generally overlooked … in other words, to provide balance.
For a client letter to work, it has to be short, written in client-friendly language and must tap into credible third-party support for your opinions.
It also has to reflect your own writing style and views – be sure to customize this letter, replacing language that you wouldn’t normally use with your own words.
And be sure to take the time to tailor the wrap up at the end of the letter, summarizing what this all means to clients, to reflect your personal point of view.
October, 2010
Why Warren Buffett is optimistic
“I’m a huge bull on this country … we won’t have a double dip recession. I see our businesses coming back almost across the board” ….
Warren Buffett, September 13, 2010
I’m writing to share some thoughts on today’s economic outlook, looking beyond the headlines and to bring you up to speed on stock markets.
Let’s begin with a short summary of stock market performance in 2010 to date.
Markets in the last three months saw a continuation of the roller-coaster like turbulence of the past couple of years.
After a strong first quarter and a big pullback in the second quarter, July saw a strong recovery in global markets.
This was followed by weak performance in August. … and September (historically a troublesome month for markets) saw a big bounce back. The U.S. market experienced its best September since 1939. As a whole, global markets were up 9% for the third quarter and are up 2% in 2010 to date.
Here’s how markets have performed in the last quarter and so far this year.
|
U.S. |
Europe |
Emerging
markets |
World
stock
market |
July |
+7.0% |
+5.9% |
+6.2% |
+5.8% |
Aug |
(- 4.4%) |
(-2.1%) |
(-1.4%) |
(-3.3%) |
Sept |
+ 9.1% |
+5.3% |
+7.7% |
+7.0% |
July to Sept |
+11.5% |
+9.1% |
+12.9% |
+9.4% |
2010 to date |
+4.0% |
+2.3% |
+8.2% |
+2.0% |
Source: MSCI index. All returns are in local currency
The importance of a balanced perspective
One of the keys to success for investors is maintaining emotional equilibrium - preventing the highs from being too high and the lows from being too low.
Today, many Americans are pessimistic about the United States and global economies … driven by daunting headlines heralding slow economic growth, depressed housing prices, high unemployment and deficit problems in the U.S. and Europe, not to mention political discord in Washington.
This pessimism is amplified by the media coverage given to voices of gloom such as Nouriel Roubini.
As a result, it’s easy to miss some of the good news beyond the headlines.
The Big Sky Conference: Looking past short-term issues
That’s why a conference that took place in mid September is important, as it provided some offsetting perspective on the mid- and long-term positives for the United States and globally.
Speaking to 2,000 business and political leaders at “The Big Sky Conference” in Montana, here are comments from Warren Buffett, Steve Balmer of Microsoft and GE’s Jeff Immelt.
Warren Buffett:
“I’m a huge bull on this country … we won’t have a double dip recession. I see our businesses coming back almost across the board … … it’s night and day from a year ago.”
“I’ve seen sentiment turn sour in the last three months or so, generally in the media. I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago.”
“The things that worked for the country through a century of two world wars, a depression and more — all while increasing the standard of living — will work again.”
Steve Ballmer, Microsoft:
“There soon will be more technological advancement and invention than there was during the Internet era and that will help drive business growth.”
"I am very enthusiastic what the future holds for our industry and what our industry will mean for growth in other industries.”
“We will see new technologies that move beyond the Internet to tie together computers, phones, televisions and data centers to create amazing new products. And the pace of innovation will increase as technology makes workers more productive.”
Jeff Immelt, GE:
“Angry political rhetoric is not helpful and headlines are too focused on finding negative indicators.”
“Business at GE is improving. Signs across the world show growth improving as evidenced by a rise in GE’s orders.”
“GE is now finding it profitable to build manufacturing and service centers in the United States rather than overseas, because it is more competitive to do so.”
The path ahead
These positive views are supported by recent research from McKinsey & Company, today’s leading strategy consulting firm and the first place many Fortune 500 CEOs look for advice.
McKinsey surveyed 2,000 executives around the world in early September.
- Almost 60% said their country’s economy is in recovery.
- Most expect profits to rise from last year.
- And nearly 40% expect to hire employees by the end of 2010.
Note: Tailor the next section to your own views and approach
It’s not realistic to suggest there won’t be challenges ahead, both for global economies and for stock markets.
And given the fragile market psychology, it’s entirely possible that we’ll see a market correction in the next 12 months.
At the same time, it’s my job to look at a broad range of credible points of view, not just those who shout the loudest or take the most extreme positions … and in doing that, I believe it’s important to pay attention to the encouraging perspectives from business leaders on the front lines.
Given the likely rise in profits reflected in the comments from Warren Buffett, Steve Ballmer and Jeff Immelt and by the McKinsey research, I believe today’s pessimism is overdone and remain positive on the long-term outlook for the global economy.
That is why I am recommending that all my clients have their full target allocation to equities, reflecting their own personal situations and strategies.
Many of my clients are already well positioned to benefit from rising profits. In other cases, however, concerns about the economy have caused investors to make large allocations to cash and bonds. If you’re in that category, I believe it’s time to reexamine this … and in the next week will be in touch to set up a time to talk.
My thanks for the opportunity to work with you. As always, should you have any questions on this note or any other matter, my team and I are always happy to take your calls.
Name of Advisor
P.S. Should you be interested, here are two articles on the Montana conference:
Buffett Rules Out Double-Dip Recession Amid Growth
Buffett, Ballmer predict bright economic future
Dan Richards conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written and video commentaries and to reach him, go to www.strategicimperatives.ca.
Read more articles by Dan Richards
