“Strategy is a pattern in a stream of decisions” – Henry Mintzberg

Dear Clients and Friends,

What does the investor make of things like Trade Wars, inverted yield curves and a potential recession?  There are multiple sources to pull if we want a quick answer, just Google query, “How to invest in a recession” and you will find hundreds of different answers.  What investors need to keep in mind when thinking about these potential threats to their money is this, “what is my overall strategy”.  Warren Buffett has said many times that he does not fear recessions, and is not concerned about short term performance.  Why would one of the greatest investors of all time say such things, if the financial media constantly tells us otherwise?  Maybe it is because Buffett doesn’t have to sell his articles, or his trading program?  No, Buffett has a strategy, and in his mind the strategy is all that matters.

The investment world is currently dealing with a cacophony of strangeness, events that have little to no precedent in modern economics.  Negative yielding bonds, as strange as that sounds, now comprise over 17 Trillion in total market value, and there is no real economic precedent for this.  Who would buy something that traditionally pays interest, but now costs interest?  The strangeness is not just in the bond market, but also in the stock market as well.  There are many segments of the stock market that have gone through a bear market in the last year, but yet the market averages are at all-time highs.  So how does one deal with these seemingly strange anomalies that even puzzle the experts.  One word – “Strategy”.

Strategy clarifies risk, and informs decisions making when times get challenging.  Many times, people will look at the market as either good or bad- In reality, the market is just the market, neither good or bad.  The opportunities that present are based upon the strategy we employ, and when new information comes to light the investor fits that new information into their strategy.  If you are worried about a short-term crash in prices, having appropriate amounts of cash on the sideline is very reasonable, but it is only reasonable within the construct of a strategy.  The idea that poor short-term performance is preferable to poor long-term performance should always be considered when markets are roaring and making money looks easy.

McDonalds had a simple strategy, own the real estate and franchise the brand to an owner operator for the franchise.  The large fixed cost was on the McDonalds company, not the franchisee.  The franchisee was the partner, but when profits boomed McDonalds would take a healthy dose of the profits.  Many argued that this wouldn’t work, because McDonalds retained the control of the real estate and the franchisee just ran the shop without any equity.  Ray Croc thought otherwise.  The key was his strategy in finding hard working, honest and capable people who had drive and motivation.  He wasn’t after wealthy senior citizens as investors, he was after young hard-working couples who would take pride in their work and do what it took to run a successful shop.  The strategy worked because Ray Croc stuck to strategy, and ultimately proved that there is no more powerful strategy than sticking to a successful strategy.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All investing involves risks including loss of principal. No strategy assures success or protects against losses.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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