A Letter to My Clients

Dear Clients,

Let me start out by saying this is a difficult time for everyone. Although there is so much uncertainty each day, one thing is certain – I will be working day and night on your financial interests. I have looked at each client’s portfolio on a daily basis. I have spent 12+ hours each day making market assessments, sitting on Federal Reserve and company conference calls, doing market research, and rebalancing accounts where appropriate.

Based on the average age and risk tolerance of my clientele, I have always believed that in the good times, it’s good enough to be average. In good times, the average investor makes money. In good times, the greatest rewards are likely to go to higher-risk investments rather than lower-risk investments. Thus, in order to beat the averages in good times, I’d probably need to accept above-average risk. This additional risk could turn around and bite us any minute. There is a time when it is essential that we beat the market, and that’s in bad times. If I do this job well, it hopefully helps combat people’s natural tendency to “throw in the towel” at the bottom. Market timing has proven to be impossible for even the best investors on a consistent basis, but making decisions based upon each client’s individual asset allocation is extremely important right now

What comes next…

The markets could go lower; the market is trading on emotion right now with little information. This is a difficult time for any portfolio manager, as the market can have 10% up days and 10% down days as we have seen. This is very abnormal. At no point in history have we seen this much volatility.

I have a rules-based plan and have not made decisions without consulting the plan. We do not know the data on the short-term economic impact of the virus and the lockdown. In the next few weeks, we will begin to get data on:

·        The amount of people that are infected, as we consistently get more testing,

·        Projections on length of business closure, and,

·        Which businesses will be most affected and what the true impact on their forward earnings will be.

Based on this information, I can begin to model out 12-24 months to figure out what forward earnings should look like and back that into current price. This will provide buying opportunities. Due to the impossible nature of market timing (as mentioned above), I cannot be on the absolute front end of the recovery. However, I will be selective and make sound decisions based on the rules-based approach I have laid out. In these difficult times, one thing we know is that historically markets come back. For a visual representation of this, please read my blog article from 3-16-20. (click link below).

3/16/20 BLOG POST

Opportunity: One area of opportunity I see happening in these current conditions is to make immediate Roth Conversions/Contributions. As I have conversations with each of you over the next two weeks, I will be discussing making some Roth conversions with the cash portion of your account, if appropriate. The idea of the Roth conversion is to take some of your qualified money (401k, Traditional IRA, etc.) and move it to a Roth IRA. One benefit of a Roth IRA is that any growth will be tax-deferred and withdrawals will be tax-free. A move like this makes a lot of sense if you believe the market will begin to recover prior to the time you need to make the withdrawals.

(Does not apply to mutual fund accounts) The other area where I see opportunity area is in your taxable brokerage accounts. We can sell our losses in these accounts so that you can maintain that loss for tax purposes. At the point of selling those losses, we can then reposition that cash in other quality companies. This will lock in the loss for tax purposes, but it will also afford us the opportunity to redeploy that cash in another equity position. This is called Tax-Loss Harvesting. I normally do this at year-end, but we are in unusual times. I believe this strategy would provide a significant benefit for some of my brokerage account clients. I tell you this not only to show you a possible opportunity, but to also explain in advance why you may see further selling in your brokerage account.

Fixed-income commentary – One interesting thing about this market has been the flight to cash-out of assets that have previously been considered a refuge from risk. We have seen a run from bonds (municipal and shorter term corporate), gold, silver, and preferred stocks. Two of those asset classes — bonds and preferred stocks — have had abnormally large bid-to-ask spreads. As more people are moving their money to cash, they are requesting bond funds to return to them a portion of their cash. The bond fund then has to go in and create a cash position by selling some of their bond holdings. The only issue is their “bid” to purchase their bond holdings is significantly lower than normal. So for them to exit a position and get their client cash, they are being forced to liquidate the bonds at a significant discount. This is mainly due to the lack of buyers.

A majority of the bond holdings are investment-grade bonds in companies with good balance sheets. These are companies that are in position to sustain a short-term economic downturn as a result of this virus. I am telling all of my clients to retain their positions, as we do not want to sell them at a loss when they are the fixed-income portion of our business. The Federal Reserve is stepping in to stabilize the market by providing additional cash and may continue to step in as a bond buyer if things go that direction.

I have been working through multiple market corrections. This has continued to build the importance of a rules-based philosophy with each of your portfolios. There is no emotion in my decision making. In times like these, I would be ignorant to say it is the same as a previous large event. Events/disruptions are always unknown, and they never look like the ones that came before them. I do know that this is a singular, black swan type of event that will have a massive impact on the short-term economic viability of many businesses. At the end of the day, I have faith in people. Historically, people have always adapted, solved the problems, and come out on top.

“History never repeats itself – Man always does.” – Voltaire


Philip Lockwood

Lockwood Financial Strategies

Cell Phone: 515-867-4342

Securities offered through Parkland Securities, LLC, member FINRA (FINRA.org) and SIPC (SIPC.org). Investment Advisory services offered through SPC, a Registered Investment Advisor. Lockwood Financial Strategies, LLC is independent of Parkland Securities, LLC and SPC

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PHONE| 515-274-8006



Securities offered through Parkland Securities, LLC, member FINRA (FINRA.org) and SIPC (SIPC.org). Investment Advisory services offered through SPC, a Registered Investment Advisor. Lockwood Financial Strategies, LLC is independent of Parkland Securities, LLC and SPC

Securities offered through Parkland Securities, LLC, member FINRA/SIPC.