Dear Friends and Family,

Safety, Risk and Volatility. These are all words that are interchangeably used in security analysis.

We and most clients believe that Safety should measure the risk of losing capital permanently. The risk of being paid 50 cents on the dollar for bonds in a reorganization. Or, losing everything in a stock bankruptcy.

In security analysis the volatility of the price of a security is what is measured. The major concern is a bear market not a bankruptcy. Even though a client intellectually understands that portfolios recover after a bear market behavioral economics make waiting very uncomfortable so there is a strong temptation to sell.

“Volatility is the price you pay for above average returns”. Think of how much poorer Warren Buffett or Bill Gates would be if they sold during bear markets. In order to help fight the temptation to sell we include high Quality and high Safety criteria as two of our four investment criteria.

Yes, you have probably outperformed the market. (Please ask us for a performance chart for the last one or three years to check if that is the case). That has not helped you as much as your patience in waiting out bear markets. Our preaching of recovery and patience due to the Safety and Quality of your holdings did not fall on deaf ears.

As a current example of the benefit of patience, here are figures for equity fund owners in 2018. The average investor registered a loss of 9.42%, more than double the loss in the S&P 500 index. Dalbar, an independent expert for evaluating, auditing and rating business practices, customer performance, product quality and service, stated in his 25th annual edition of this report that “poor timing” (investors putting money in and out of funds) was behind the dismal showing. It noted that that the average equity fund investor underperformed the S&P in both the good times and bad in 2018.

We would like to thank you, our clients, for giving us one of the highest retention rates for clients in the industry.

Katz Family Financial