One of our primary roles at Carlson Capital Management is to integrate a solid investment strategy into the financial lives of our clients. This requires us to be students of history, rigorous in the study and application of empirical facts, to understand what can be controlled and what cannot be controlled and to be forward-looking into life’s changing circumstances.
The combination of ingredients that make us most successful is experience, science-based rigor and expertise, a plan, and a caring team to execute on what needs to be done.
At the risk of being too metaphoric, I want to share with you our experience of last month. As many of you are aware, the Twin Cities received significant amounts of rainfall in the month of June (more than 11″)–making it the wettest month om modern record.* Between our Northfield office and another historic building 157 feet away, the Cannon River flows over a dam—it is mostly a pleasant and meandering water flow that usually delights us. During heavy rainfall, tens of thousands of acres of farmland absorb much of the water, but if it comes too fast or for too long, it finds its way to the Cannon River and the choke point between these two buildings in Northfield. Historically, this is a moderate problem about once a generation, and a big problem every one hundred years.
You may recall we had “a hundred year flood” in 2010. Three weeks ago we had flooding again–but it was different this time. What was different is that we had experience–and this totally changed our response and the outcomes. Let me share five observations with you about how the experience and outcomes were different and how we apply this same understanding to your portfolio and financial plan.
We have a deeper understanding of what we can control and what we cannot control. We cannot control the weather or the amount of rainfall, just like we cannot control the global economies and stock markets. However, we do understand the difference between weather and climate–weather is temporary and changes, whereas climate (even with recognition of climate change) is more predictable and stable. Short-term market fluctuations are similar to weather whereas economic fundamentals like the relationship between risk and return, are similar to climate. It is important to pay attention to weather, but to make long-term decisions based on climate.
The truth prevails (this applies to all dimensions of life). One characteristic of water is that it always tells the truth–that is, it will always flow to the lowest spot. Investments are like that–there ultimately has to be an economic basis and intrinsic value (truth) behind the price of a security. That does not imply that investments won’t go down, but that when they do there is a rationale for it. For us, and how we manage your portfolio, this is the difference between speculating and investing for the long-term. Speculating is trying to guess at what is the truth, investing is applying fundamental economic truths.
We have a pretty good idea of what to expect. The unknown is often anxiety producing and can create a stressful time. In 2010, since it was our first significant flood experience, we did not know what the outcome would be–how it might damage our building, or how it would impact our ability to be responsive to our clients and fulfill our commitments. This time, we knew it would be an inconvenience, but other than rescheduling a few appointments and Northfield advisors postponing several emails or phone calls for a day, our clients did not experience any decline in service. Despite our bodies being a little more fatigued and some sore muscles, it was business as usual. The global financial crisis of 2008-09 was a little like that–it was anxiety producing as we didn’t fully know what to expect, and the severity of it was not something that anyone had experienced for more than 80 years. It was a first for most people. While we hope that type of experience is a once-in-a-lifetime event, we are now the wiser for it. Not knowing what is going to happen is different than not knowing what to do. We know what to do.
We were prepared and had a plan. As we watched the river rise, and monitored rainfall to the south (yes, the Cannon River flows north) we implemented protocols and prepared for a number of contingencies. From our 2010 experience we had a colleague, Judd Lohmann, affectionately designated as “the dam man.” He coordinated efforts as sandbags, pumps, plastic, extension cords, etc., were ready to go. We had the equipment, the people, and the plan for when to remove furniture from the lower level and where to put it. Your financial plan is the road map to the investment strategy. It incorporates your advisor, the total CCM team, and the tools of the trade—like diversification, asset allocation and location, cash flow needs, and rebalancing strategies, all designed to meet your goals and objectives as stated and evolving.
We had care. It is striking, and heartwarming, to experience the coming together of colleagues, friends and community in the pursuit of a shared purpose. Our colleagues put in long hours—some rose before dawn, others spent much of the night during the weekend following the high water levels. Our colleagues cared about the outcome. This is how our team feels about every single client. We design and manage the investment portfolio to perform, and we clearly care a great deal about the financial well-being of our clients, but most importantly we care about our clients’ lives and helping them achieve the outcomes they desire.
We learned a few new things we will do differently next time (and whether it is water or another event, there will be a next time) and we will be even better with experience as our teacher. Through more than 25 years of providing investment and financial planning advice, thousands of financial plans, updates, tax law changes, market fluctuations and the real life experiences of our clients and colleagues, we are poised to help our clients weather any storm and prosper in the inevitable march of progress.
*Minnesota Department of Natural Resources