Our Blog

DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

Here’s our latest blog:

 

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Is Our World Really A Bad Place?

Written by Les Detterbeck.

Earth-DayAren’t you glad the contentious presidential debates are now over? Do you feel like the only things reported are politicians bashing each other and other terrible and depressing events? Wondering what this world is coming to? Sick of the negativity? Yes, we are too.

The problem is that “big data,” the media and politicians all know the “secret.” Our brains are hard-wired to react strongly to negative impulses. Not surprising, from the dawn of human history, survival depended on our skill at staying away from danger. To ignore bad news could be dangerous and/or fatal.

That’s why political smear campaigns work better than positive ones. Nastiness just makes a bigger impact on our brains. Hence important political issues take a back seat to allegations of candidates being “crooked” or “womanizers.”
Researchers Marc Trussler and Stuart Soroka ran an experiment at McGill University in Canada focused on the kind of political news people really prefer to read. Even though, when asked, participants said they wanted good news stories, in a controlled experiment they generally chose stories with a negative tone- corruptions, set-backs, and hypocrisy rather than neutral or positive stories. We are all unfortunately naturally attracted to negative content.

This phenomenon is more solid evidence of our “negativity bias”, which is the psychologists’ term for our desire to hear and remember bad news. Is it any surprise that the media and politicians know this and focus their content accordingly?

So, think of a typical evening newscast. Out of 30 minutes, there are 28 minutes filled with stories of political accusations, tragic events around the world, reports of threatening diseases and commercials designed to suggest we can’t live without their product or service. And, at the end, two minutes of a heart-warming, human interest story. So, basically 90% disturbing stories and 10% of what most of the world is really like. Is it any surprise that we start to think the world is a bad place?

But, let’s look at the facts. There are 7 billion people on earth. How many do you think are threats to the rest of us? Let’s include the world’s worst politicians, terrorists, violent criminals, corrupt corporate officers and downright evil people. Let’s say there are 7 million of these threats to society. That’s less than 1/10 of one percent. In other words, 99.9% of the people in the world are likely decent human beings or at least not a threat to others.

Mahatma Gandhi summed it up this way: “You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty.”

In addition, the negativity bias impacts more than just our reactions to politicians and the media. It impacts our relationships with friends and loved ones as well. Because negative interactions take on a greater weight in our brains than positive interactions, we must have more positive stimuli than negative just to “stay even.” Researchers suggest a ratio of five to one. For example, studies show that marriages where there was five times the positive interaction as compared to negative interaction were likely to be stable over time. Couples heading for a divorce generally had a ratio of less than 5 to 1 and sometimes below 1 to 1. Our other relationships need the similar 5 to 1 ratio for success. Great relationships in life may be built over time on many small positive interactions.

I am sure we all cannot wait to have November 8th and our presidential election behind us. Regardless of your political feelings, we must all agree that this “dirt” that both parties have been throwing into our “ocean” is sickening. Let’s hope both parties give us better choices in the future. For now, we might all benefit by just turning off the news sometimes and instead identifying and celebrating positive, even if small, observations in our daily lives. And, then taking the time to provide positive communication, smiles and interaction with our loved ones, friends, associates and even those we pass on the street. The world is not a bad place. Our ocean of humanity is not dirty. Let’s all just do our part to keep it clean.


 

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Hurricane Matthew

Written by Nick Schiavi.

hurricane-facts 0Hurricane Matthew was a scary time for DWM as it approached the US. For one, we know how devastating natural disasters can be to people’s lives, businesses, homes, and general well-being. Secondly, Matthew could potentially have directly affected our DWM family as it was expected to first touch the US in South Carolina, where half of our team and many DWM clients are located. It was an unsettling experience as our Charleston team/clients, along with much of the southeast coast, were instructed to evacuate to safety.

As Hurricane Matthew first formed as a category 5 hurricane and started its approach toward the US, analysts from JP Morgan projected it to be the second most costly US hurricane on record for insurers, behind Hurricane Katrina in 2005. To earn this devastating title, Matthew would need to reach a total of $25 billion in insured losses. While still devastating, the most recent projections from CoreLogic (a real estate data provider) estimated around $10 billion in total losses, making insured losses between $4-6 billion. If these totals are confirmed, it would make Hurricane Matthew the 22nd most devastating storm since WWII, according to a recent estimate by Goldman Sachs. By the time Matthew made landfall in the US near McClellanville, South Carolina, it was reduced to a category 1 hurricane.

Even with Hurricane Matthew having inflicted significantly less damage than originally projected, Goldman Sachs still estimates it may cost about 5,000 US jobs in October. When storms like Matthew hit, jobs in the restaurant, hotel, and education sectors normally suffer the most. For example, 30,000 jobs were lost in those sectors when Hurricane Sandy struck, however, 40,000 jobs rebounded (mainly in construction) during the rebuild of the 2012 catastrophe.

While businesses almost always suffer and sometimes risk closing their doors when catastrophes like Matthew strike, homeowners can typically expect a higher burden. “These days homeowners who live close to the coast tend to opt for a 5% deductible on the hurricane wind damage portion of their policy,” said Bob Hunter, Director of Insurance for the Consumer Federation of America. Meaning: a homeowner, whose $500,000 house was fully destroyed, would have the obligation to pay $25,000 of repair costs before the insurance company covers the remaining $475,000.

While it is good news Matthew did not strike the East Coast with the force we originally expected, that reinsurers will likely be able to cover all insured losses, and that only .003% of all jobs in the US will be affected; it all pales in comparison to the 34 lives that were lost in the US and over 1,000 lost in Haiti. DWM’s thoughts and prayers go out to all families affected during this awful natural disaster.

P.S. Our new Charleston office at Church and Broad streets came through unscathed with no damage.  And, Les, Ginny Wilson, and our newest team member, Grant Maddox, and their families evacuated and all were safe and dry.  Grant, by the way, is a recent College of Charleston graduate in finance who has had some very interesting internships.  These included a stint as deputy finance chairman for the successful campaign of Charleston’s current mayor, John Tecklenberg.  Please join us in welcoming Grant to the DWM team.

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Brexit- A Surprise?

Written by Les Detterbeck.

brexit-first-starThe Brexit vote Thursday was a big surprise to some. As voting closed, some London bookies were putting the odds of a vote to leave at less than 10%.   Pollsters and “experts” had shown a 10 point margin 24 hours earlier for “Remain” yet “Leave” prevailed 52%-48%.   Stock markets don’t like surprises and responded with declines of 3% to 9% worldwide before markets closed for the weekend. With the flight to safety, as expected, most fixed income and some alternatives, especially gold and some managed futures, were up.

The result shouldn’t have been a surprise. We said the referendum was “too close to call” a month ago in our blog.  http://www.dwmgmt.com/brexit/.  In large numbers, the “Leave” supporters were expressing their anger with the status quo and a desire to return to the “good old days.”  They haven’t benefited personally from globalization and now their homeland is being “taken over by immigrants.”

The issue isn’t just Britain leaving; it’s really about the future of the EU.  EU institutions have failed in a number of key areas; including lack of planning and administration relative to the integration of the various member nations and migration of people among the countries.   Now, Britain and the EU have two years to work out what could be a highly acrimonious divorce.  And, while this is happening, all across Europe countries, including Germany, France and Spain, will be holding national elections debating the question of whether sovereignty and nationalism outweighs economics.  These same issues frame the U.S. Presidential election and others around the world.

Despite Friday’s selloff, Brexit is no Lehman.  Back in 2008 after the collapse of Lehman Brothers, investors indiscriminately fled all assets connected to the American housing bubble.  Subprime mortgages had been sold to investors worldwide and panic spread like a virus.  This time, the trouble is more identifiable.  London’s ambition to be the world’s most important city is over.  The pound has lost some luster.  The EU will likely continue to splinter and perhaps disband.  If nations reject globalism and free trade, world economic growth will likely be reduced.  In 2008, central banks did not recognize nor prepare for the mounting disaster.  Today, the financial systems in the U.S. and Europe are less leveraged and better capitalized than eight years ago. Just last week, all major American banks passed the new stress test requirements.  The CBOE, Market Volatility Index, or VIX, remains far below the level of past panics.

The U.S. economy should weather the Brexit storm. American companies remain more insulated from global developments than any other country.  U.S. companies generate 70% of revenues domestically.  U.S. corporate balance sheets are strong, interest rates are low and the U.S. economy is on a pace for a 2.5% growth in the second quarter.  Consumer sentiment remains strong in the U.S., coming in at 93.5.

However, expect more volatility. Britain’s decision to leave the EU could cause more fault lines in Europe.  Elections across the globe could reverse globalization’s trend.  Chinese growth could continue to decline. There is always a list of potential fears, many of which never materialize (e.g. the “hyperinflation” predictions of 2010 due to Quantitative Easing).

Some investors have not recovered financially and/or cognitively from their losses of 2008.  They are dedicated to making sure that never happens again.  No drawdowns for them-every market blip is cause for concern. “Another collapse is coming.” This risk aversion has led them to miss a huge run-up in U.S. equities (200% since 2009) , as well as decent returns for fixed income and alternatives in the last seven years.

Certainly, one day the expansion will end and investors will feel some temporary pain.  But, trying to determine when and how that will happen is a money-losing proposition.  Maintaining a well-diversified portfolio is a better approach than having a fearful, concentrated one.  Equities, in the long run, will outperform fixed income and alternatives.  And, as we discussed in our seminar last October, the equity “premium,” obtained for taking on risk, will continue- impacted greatly by inflation and economic growth.  Lower inflation and/or lower growth, means lower equity returns.  Your risk profile determines your appropriate asset allocation and the volatility of your portfolio.

Hold on tight, the road ahead may be bumpy, but, since no one knows the future (not even the “experts” as demonstrated above), it’s the best route we have to accomplish our goals for the long term.

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