Turning lemons into lemonade. How Prospero Wealth is operating during the coronavirus.

Eric Franklin

Mar 14, 2020

One of my investing heroes, David Gardner, co-founder of the Motley Fool, has a quote I think is worth remembering:

Stocks always go down faster than they go up, but they always go up more than they go down.

We are long-term buy-and-hold investors at Prospero Wealth. We rely on asset allocation and a long-term approach to managing risk for our clients.

But managing risk doesn’t necessarily mean we get to sidestep what happens to the markets. To get market returns, you have to be exposed to the market, in all its rash vicissitudes. Sorry. When markets panic and investors start to flee, even our clients (as handsome and well-prepared as they are) are going to look at their statements and start to extrapolate forward short-term events. It’s human nature.

I find that the best cure for this is perspective and a proactive attitude.

Here is a table produced by Ritholtz Wealth that might help with the perspective bit.

When you look at this table, what pops out to you? For me, when I add the current swoon as the bottom row of this table, I see that there are 25 times in the last 90 years that the stock market has fallen 20% or more—an average of almost 3x per decade. Pullbacks are a fact of life. They show that markets are functioning and present opportunities to people that are disciplined and positioned to make the most of them. While I am always anxious about how new clients will emotionally respond to trying times, I get super excited for what this means to my family accounts (and for the clients that can stick with their plans), and I’ll tell you why: these are the times that can create outperformance. Why do people get excited for a sale at a retailer, but fearful when markets are 25% cheaper than a few weeks back? If you have a long-term view of markets, you should be more excited to invest now.

Marcus and I have both been investing since the late 90s. We started just in time to catch the dot-com collapse (lucky us) and had a front-row seat for watching our AMZN incentive options—basically 100% of our paper net worth—get torched. We also invested through the housing collapse in ’07-’08, when nobody had an idea if global financial institutions would hold.

In ’07, I began managing a family trust, with the largest pile of money I had ever seen. It was excruciating to watch that initial pile of money get cut by more than a third in short order (and I was investing fairly conservatively). When the market bounced back, however, it bounced back hard and fast, way before most people knew how the crisis was going to be resolved (and way before I thought it would work itself out). Had I tried to cut my losses, “go to cash”, and wait for sentiment to turn, there’s no way I would have timed that correctly. I could have inadvertently added years to the time it took to recover that portfolio value.

So that’s some perspective, what about being proactive and turning the situation to the advantage of our clients at Prospero Wealth?

1) For our indexing clients at Betterment, we will stay the course. Betterment automatically takes care of the rebalancing and tax-loss harvesting that will enable us to traverse this volatility in style.

2) For clients invested in our active (Long-Short and Growth) and custom strategies, Marcus and I take a more hands-on approach. We actively look for opportunities to trade up to companies we think will come out of this stronger—relative to competitors—than they went in. Going into next week, I intend to be making more trades of this type in our active strategies than normal. It’s time we turn some lemons into lemonade, right?

We understand that for many of you, this is a time where you feel like you just want the pain to stop, and you want to avoid feeling like you’re losing money. You’re tempted to pull money out or wait to go in until the “all clear” signal is given. From a financial perspective, we believe that you should shut out the noise and go about your business, executing or (sticking to) your plan. Market volatility is not a bug; it’s a feature. We see opportunities when everyone else is panicking and losing their heads. I’m way more excited to put new money to work now, than I was at market peak on February 12, 2020; you should be too. I don’t know where the bottom of this will be, but I know we’re already significantly off the top, and that’s enough.

As always, for our clients, we want to remind you that Marcus and I are invested right alongside you. Neither of us are “going to cash” or trying to time things any differently than we are doing in your individual accounts. In fact, my family has been a net buyer the last few weeks, spending down any cash positions we have and allocating as much of our incoming salaries as we can to the inevitable recovery. As far as we’re concerned, this is full throttle time, and a huge opportunity to slingshot out of these doldrums better than we went in. If you have any questions or concerns, we welcome you reaching out to us via phone or email.

One of my investing heroes, David Gardner, co-founder of the Motley Fool, has a quote I think is worth remembering:

Stocks always go down faster than they go up, but they always go up more than they go down.

We are long-term buy-and-hold investors at Prospero Wealth. We rely on asset allocation and a long-term approach to managing risk for our clients.

But managing risk doesn’t necessarily mean we get to sidestep what happens to the markets. To get market returns, you have to be exposed to the market, in all its rash vicissitudes. Sorry. When markets panic and investors start to flee, even our clients (as handsome and well-prepared as they are) are going to look at their statements and start to extrapolate forward short-term events. It’s human nature.

I find that the best cure for this is perspective and a proactive attitude.

Here is a table produced by Ritholtz Wealth that might help with the perspective bit.

When you look at this table, what pops out to you? For me, when I add the current swoon as the bottom row of this table, I see that there are 25 times in the last 90 years that the stock market has fallen 20% or more—an average of almost 3x per decade. Pullbacks are a fact of life. They show that markets are functioning and present opportunities to people that are disciplined and positioned to make the most of them. While I am always anxious about how new clients will emotionally respond to trying times, I get super excited for what this means to my family accounts (and for the clients that can stick with their plans), and I’ll tell you why: these are the times that can create outperformance. Why do people get excited for a sale at a retailer, but fearful when markets are 25% cheaper than a few weeks back? If you have a long-term view of markets, you should be more excited to invest now.

Marcus and I have both been investing since the late 90s. We started just in time to catch the dot-com collapse (lucky us) and had a front-row seat for watching our AMZN incentive options—basically 100% of our paper net worth—get torched. We also invested through the housing collapse in ’07-’08, when nobody had an idea if global financial institutions would hold.

In ’07, I began managing a family trust, with the largest pile of money I had ever seen. It was excruciating to watch that initial pile of money get cut by more than a third in short order (and I was investing fairly conservatively). When the market bounced back, however, it bounced back hard and fast, way before most people knew how the crisis was going to be resolved (and way before I thought it would work itself out). Had I tried to cut my losses, “go to cash”, and wait for sentiment to turn, there’s no way I would have timed that correctly. I could have inadvertently added years to the time it took to recover that portfolio value.

So that’s some perspective, what about being proactive and turning the situation to the advantage of our clients at Prospero Wealth?

1) For our indexing clients at Betterment, we will stay the course. Betterment automatically takes care of the rebalancing and tax-loss harvesting that will enable us to traverse this volatility in style.

2) For clients invested in our active (Long-Short and Growth) and custom strategies, Marcus and I take a more hands-on approach. We actively look for opportunities to trade up to companies we think will come out of this stronger—relative to competitors—than they went in. Going into next week, I intend to be making more trades of this type in our active strategies than normal. It’s time we turn some lemons into lemonade, right?

We understand that for many of you, this is a time where you feel like you just want the pain to stop, and you want to avoid feeling like you’re losing money. You’re tempted to pull money out or wait to go in until the “all clear” signal is given. From a financial perspective, we believe that you should shut out the noise and go about your business, executing or (sticking to) your plan. Market volatility is not a bug; it’s a feature. We see opportunities when everyone else is panicking and losing their heads. I’m way more excited to put new money to work now, than I was at market peak on February 12, 2020; you should be too. I don’t know where the bottom of this will be, but I know we’re already significantly off the top, and that’s enough.

As always, for our clients, we want to remind you that Marcus and I are invested right alongside you. Neither of us are “going to cash” or trying to time things any differently than we are doing in your individual accounts. In fact, my family has been a net buyer the last few weeks, spending down any cash positions we have and allocating as much of our incoming salaries as we can to the inevitable recovery. As far as we’re concerned, this is full throttle time, and a huge opportunity to slingshot out of these doldrums better than we went in. If you have any questions or concerns, we welcome you reaching out to us via phone or email.

One of my investing heroes, David Gardner, co-founder of the Motley Fool, has a quote I think is worth remembering:

Stocks always go down faster than they go up, but they always go up more than they go down.

We are long-term buy-and-hold investors at Prospero Wealth. We rely on asset allocation and a long-term approach to managing risk for our clients.

But managing risk doesn’t necessarily mean we get to sidestep what happens to the markets. To get market returns, you have to be exposed to the market, in all its rash vicissitudes. Sorry. When markets panic and investors start to flee, even our clients (as handsome and well-prepared as they are) are going to look at their statements and start to extrapolate forward short-term events. It’s human nature.

I find that the best cure for this is perspective and a proactive attitude.

Here is a table produced by Ritholtz Wealth that might help with the perspective bit.

When you look at this table, what pops out to you? For me, when I add the current swoon as the bottom row of this table, I see that there are 25 times in the last 90 years that the stock market has fallen 20% or more—an average of almost 3x per decade. Pullbacks are a fact of life. They show that markets are functioning and present opportunities to people that are disciplined and positioned to make the most of them. While I am always anxious about how new clients will emotionally respond to trying times, I get super excited for what this means to my family accounts (and for the clients that can stick with their plans), and I’ll tell you why: these are the times that can create outperformance. Why do people get excited for a sale at a retailer, but fearful when markets are 25% cheaper than a few weeks back? If you have a long-term view of markets, you should be more excited to invest now.

Marcus and I have both been investing since the late 90s. We started just in time to catch the dot-com collapse (lucky us) and had a front-row seat for watching our AMZN incentive options—basically 100% of our paper net worth—get torched. We also invested through the housing collapse in ’07-’08, when nobody had an idea if global financial institutions would hold.

In ’07, I began managing a family trust, with the largest pile of money I had ever seen. It was excruciating to watch that initial pile of money get cut by more than a third in short order (and I was investing fairly conservatively). When the market bounced back, however, it bounced back hard and fast, way before most people knew how the crisis was going to be resolved (and way before I thought it would work itself out). Had I tried to cut my losses, “go to cash”, and wait for sentiment to turn, there’s no way I would have timed that correctly. I could have inadvertently added years to the time it took to recover that portfolio value.

So that’s some perspective, what about being proactive and turning the situation to the advantage of our clients at Prospero Wealth?

1) For our indexing clients at Betterment, we will stay the course. Betterment automatically takes care of the rebalancing and tax-loss harvesting that will enable us to traverse this volatility in style.

2) For clients invested in our active (Long-Short and Growth) and custom strategies, Marcus and I take a more hands-on approach. We actively look for opportunities to trade up to companies we think will come out of this stronger—relative to competitors—than they went in. Going into next week, I intend to be making more trades of this type in our active strategies than normal. It’s time we turn some lemons into lemonade, right?

We understand that for many of you, this is a time where you feel like you just want the pain to stop, and you want to avoid feeling like you’re losing money. You’re tempted to pull money out or wait to go in until the “all clear” signal is given. From a financial perspective, we believe that you should shut out the noise and go about your business, executing or (sticking to) your plan. Market volatility is not a bug; it’s a feature. We see opportunities when everyone else is panicking and losing their heads. I’m way more excited to put new money to work now, than I was at market peak on February 12, 2020; you should be too. I don’t know where the bottom of this will be, but I know we’re already significantly off the top, and that’s enough.

As always, for our clients, we want to remind you that Marcus and I are invested right alongside you. Neither of us are “going to cash” or trying to time things any differently than we are doing in your individual accounts. In fact, my family has been a net buyer the last few weeks, spending down any cash positions we have and allocating as much of our incoming salaries as we can to the inevitable recovery. As far as we’re concerned, this is full throttle time, and a huge opportunity to slingshot out of these doldrums better than we went in. If you have any questions or concerns, we welcome you reaching out to us via phone or email.

7724 35th Ave NE #15170

Seattle, WA 98115-9955

(971) 716-1991

hello@prosperowealth.com

Prospero Wealth, LLC (“PW”) is a registered investment advisor offering advisory services in the States of Washington, Oregon, and California and in other jurisdictions where exempted. We are conditionally registered in Texas.

© Prospero Wealth 2024. All rights reserved.

7724 35th Ave NE #15170

Seattle, WA 98115-9955

(971) 716-1991

hello@prosperowealth.com

Prospero Wealth, LLC (“PW”) is a registered investment advisor offering advisory services in the States of Washington, Oregon, and California and in other jurisdictions where exempted. We are conditionally registered in Texas.

© Prospero Wealth 2024. All rights reserved.

7724 35th Ave NE #15170

Seattle, WA 98115-9955

(971) 716-1991

hello@prosperowealth.com

Prospero Wealth, LLC (“PW”) is a registered investment advisor offering advisory services in the states of Washington, Oregon, California, and in other jurisdictions where exempted.

© Prospero Wealth 2024. All rights reserved.