March Investment Memo

On Banks, When to Send Clients an Email, and an Alphabet Soup of Wall Street Crap

Bank failures are top of mind for investors right now. I won’t jump into the details, as I’m sure you’ve already perused your favorite sources. Suffice it to say, this is a story still being written.

What stuns me is how obvious Silicon Valley Bank’s failure appears in hindsight, even as executives, investors, and clients were unconcerned, if not optimistic, the week prior.

What does that say about our ability to make accurate predictions?

What does that say about the constant uncertainty we always live with?

Here’s another thought: The bank failures of last week are a cause of unrecency bias. Banks and regulators have clearly been concerned with protecting against the previous crisis, 2008.

As you may recall, the financial crisis was about asset quality. Silicon Valley Bank failed due to an asset/liability mismatch. The assets were of the highest quality - US Treasuries. But when interest rates rise, Treasuries go down, quality be damned. In fact, due to the nuances of duration, higher-quality assets have a higher duration than lower-quality assets. They are more interest rate sensitive.

Bond investors learned about duration the hard way last year. Bonds decline in price when interest rates increase.

It has happened before. It has happened often.

But it has not happened recently.

When planning for clients, are you planning to protect against recent risks that are relatively available in your mind, or are you assessing a more comprehensive set of outcomes?

How do you assess that?

This gets to the crux of financial planning: the art of navigating present wants, future needs, and unavoidable uncertainty.

Financial Planning is assessing, organizing, and optimizing your present financial resources to positively shape your future outcomes in the face of uncertainty.

Should We Communicate With Our Clients Right Now?