The last 15 months have been extraordinary. We have managed your assets through one of the most tumultuous times in market history. The Covid pandemic has physically disrupted many peoples’ lives as well as taken many lives. The United States economy along with many global economies have simultaneously been shut down and flooded with fiscal and monetary stimulus. Through it all we have counseled a number of you on various personal cash flow decisions as well as asset deployment and usage. Several of you we kept in the market when we saw a number of opportunities during March and April 2020. Many of those opportunities came to fruition in the form of financial returns. We have also listened and counseled a number of you on non-market specific issues like financial planning and goal setting. One of the real fears of several clients was retiring into a “Covid market” or planning for retirement in the near-term, when asset values were low a year ago. We want you to know that we appreciate all of these opportunities to hear from you and the opportunity to revisit or visit personal plans for the future and your future cash flows. We also appreciate the continued trust in us to protect and grow your assets. Thank you! In this letter we hope to continue to distinguish our investment process compared to some of the frothiness we see in the market today.

With the stock market moving off of a significant bottom due to the fear of Covid in late March and early April 2021, a number of asset classes have appreciated significantly in price and it would appear the emotion of greed has set in. Several of these asset classes are being constantly discussed and analyzed on TV and in the press because the associated narratives excite viewers and readers. Some of these buzzy assets classes include Bitcoin, Non-Fungible Tokens (NFTs), Meme Stocks, Reddit, clean energy, Robinhood, and Special Purpose Acquisition Companies (SPACs). At the time of the Covid market crash, we experienced something that had not been seen before. Investors on trading platforms like Robinhood got greedy at the right time – when stocks looked cheap. This movement, at least in part, seems to have fueled some of the asset classes’ moves upward. We will not write a 10 page letter describing all of the assets classes listed above. If you find any particularly interesting or would like a further discussion, we are happy to chat. It is safe to say that we see frothiness in everything listed above, as well as other areas of the market. We will highlight this mania through the movements of one of the so called “meme stocks.”

It appears that many of the new market entrants in 2020 became aware of a cadre of stocks, primarily through message boards on the website Reddit. These investors’ buying helped pushed up the stocks’ prices. This price rise was triggered in part due to short-sellers (people investing with the view that the share price will go down) covering their positions by buying the stock and adding to the upward momentum of the share price. One such company’s stock was GameStop (ticker: GME). GME has the unenviable position of being a bricks and mortar retailer of video games. This business is at minimum under pressure due to gamers playing video games online. Nonetheless, as shown in Graph 1 below, one could have purchased GME for $18/share, 0.24x Sales, in early January 2021 and sold it for $347/share, or 4.7x Sales, in late January. That amounts to a 19x increase in share price. Now if one had been greedy and held on until mid-February, the shares had declined 88% back to $41/share from $347/share. At the time of writing, that vacillation does not seem to be over, as GME’s share price popped 6.3x to $260/share in mid-March. Could these moves possibly represent the true value of GME’s underlying business?

We do not believe 2021’s first quarter trading in GME represents the true value of its deteriorating core business. We view it as clear evidence of frothiness, indeed the fear and greed in investors’ psychology, among many assets classes at this point in time. What do we do at times like these?

In our mission to protect and grow your assets, we attempt to not get caught up in manias. We strive to understand and evaluate most of the asset classes available within the stock market. During that process we root our analyses in understanding the intrinsic value of a given asset and discerning whether value exists compared to the current market price. We want you to know that we are weighing the various investment opportunities available to us daily. If you hear in the media that the market for SPACs has gone wild or that several green energy companies’ stocks have levitated, we are almost always going to have a viewpoint on whether or not those statements are accurate and whether or not the highlighted assets or asset classes present value compared to their market prices. By routinely performing these analyses, we are looking for opportunity and undervalued businesses – whether they are large companies, small companies, high growth companies, lower growth companies, or whatever designation Wall Street has assigned a given company. We strive then to construct a portfolio of companies whose stocks represent the best opportunity to increase the balance of the portfolio over time.

We are content to attempt to increase the balance of your portfolio steadily over time while attempting to avoid the swings in value shown in Graph 1, above. We find ourselves at one of those points in the stock market cycle where it feels like more than usual is going on – with greater than usual media attention. If you read this and find that you have questions or just want to check in, please reach out to us. Thank you, as always, for placing trust of your assets in our care!