The five year anniversary of the “Great Recession” stock market bottom was this past Sunday. Reflecting on that day, and all the chaos and fear that surrounded it, actually reminds me of a story from a few years earlier.
In 2006, my wife and I took a trip to New York with some friends. We did all the tourist stuff, making it our personal challenge to have a slice from every Ray’s pizza in the city (we didn’t succeed, but not for lack of effort). The highlight of the trip was a private tour of the New York Stock Exchange. We knew someone who knew someone, who was kind enough to let us tag along and experience a day in the life on the floor. One of the traders that we met that day remarked about the crazy days he had seen over the years. “Were you here on Black Monday in 1987?” I asked. He pointed to his badge number, which read “1987”.
He was a young, first year trader on the day the market dropped more than 22%. He remembered the fear and desperation that permeated throughout the floor. He recalled the aftermath of shock, tears and anger. He also understood that out of this despair he played an important role in helping his clients navigate the volatile markets. This was his career defining moment. The moment that he knew he was doing exactly what he was supposed to be doing.
Fast forward to March 9, 2009. Markets were in free-fall. Following a loss of 37% in 2008, the S&P 500 was already down 25% in 2009, and we were barely two months into the new year. Scott and I were fielding and making calls to clients left and right. It was a period of tremendous anxiety. More than ever, clients needed us to provide perspective, help them stay on course and ultimately tell them if they would still be okay. Two calls, in particular, I remember.
The first was a client like many others. Scared because global equity markets had declined roughly 50% from the peak in 2007. Most of all, he was fearful that there appeared to be no end in sight. The news was bleak and the pundits were pessimistic. He wanted to sell everything. “I know I’m locking in the losses, but I want to get out while I still have something left.” He was convinced that the market was a rigged game and the “little guy” did not stand a chance.
In the end, we managed to “talk him off the ledge”. He didn’t sell. To this day, he thanks us for being a voice of reason in a very emotional time.
Our very next call was another client reacting to the market crash. His reaction, however, was entirely different. He wanted to know if it would be a good idea to take out a home equity loan and send us a check to invest in the market. Again, we talked this client “off the ledge.” Of course, the reality – as know five years later – is that the funds from a home equity loan would have more than doubled. Maybe tripled. However, this is a client who had amassed a significant portfolio, not by taking excessive risks, but by saving diligently and investing prudently. The added boost to his portfolio would not have changed his life. However, losing money borrowed against his home could have had a serious negative effect. He was nearing retirement, and this wasn’t a prudent risk. To this day, he agrees and thanks us for keeping him on track.
I didn’t know it at the time, but this was my career defining moment.
Prior to joining Navigoe, I had spent the majority of my career with firms that sought to outguess and outperform the market through active trading and market timing. Sometimes they succeeded, other times they fell short. When falling short, there was always a reason that a particular fund fell out of favor or the market defied fundamentals. The most challenging part of my career was managing client behavior through periods when the strategies gained or lost, outperformed or underperformed. Following a run of excellent performance, clients wanted to invest more money. Of course, they were quick to pull out after disappointing results.
I enjoyed working with clients, but I struggled to define the value that I added. Was I improving their financial lives?
I joined Navigoe in 2007 out of a desire to do more for my clients. I learned the strategies and plans that Scott had developed for clients since he started this firm in 1996. The majority of our clients are retired, and the most common goal among our clients is to be able to maintain their lifestyle and enjoy their retirement years uninterrupted by financial concerns. Or more simply, they want peace of mind around their money. The plan is never to promise that we would nimbly side-step a market crash. Instead, we design a plan to help clients achieve their most important financial goals despite the inevitable market crash.
Sure, we did other things between the phone calls and meetings like rebalancing portfolios when appropriate, harvesting losses for tax purposes, completing Roth conversions at low valuations and reviewing clients’ broader financial lives beyond the investments. But the most important thing we did during this time was make ourselves available to review their plan and restore peace of mind.
I realized that we were doing important work for our clients who, in turn, place a great deal of trust in our firm. Our clients enter into a relationship with us seeking an advisor for the long term. On a year over year basis, our client retention rate is greater than 98%. During the trying depths of the Great Recession, not only did our retention rate go up, but our client referrals increased. It was an eye opening testament to effectiveness of the plans that we put into place before the storm hit.
Like the NYSE trader I met that day in 2006, my career defining moment came amidst a time of tremendous public fear. I don’t have a badge number, but if I did it would read “2009”.