Meeting the Dali Lama, the Pope or even Madonna may stand out as a major thrill you’d never forget.  Well, your advisors recently met the nonagenarian rock star of investment management – Nobel Prize winner Harry Markowitz.

Now that we have met and traded corny jokes with this titan of economics, can we call him Harry?  It was Harry’s Model Portfolio Theory that keeps our heads screwed on straight in challenging times, whether scary, euphoric, or, as seen in recent years, eerily calm. 
 
In 1952, at age 25, Harry unveiled research that underpins the investment methodology we have gladly employed for decades – namely asset allocation.  Through this systematic diversification, we seek to soften overall portfolio volatility and to realize an optimal rate of return.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Key to Model Portfolio Theory is periodic rebalancing among asset classes, such as stocks and bonds, which rise and decline at varying rates.  Presumably, though, you don’t need a deathly discourse about “correlation coefficients,” but somehow Harry made it a fun topic in between telling Henny Youngman jokes when presenting at the University of San Francisco School of Management.   
 
In all seriousness, Harry Markowitz’s Model Portfolio Theory has been an immeasurably valuable discipline for both individual and institutional investors – most importantly, clients of Hanke & Co. Wealth Management.  It was an honor to meet a man whose intellectual capital so richly benefits society.             
       

###

 
Our duty to clients is to check partisan sentiments at the door each morning and to proceed agnostically as financial planners and investment professionals.  We observe with interest these unusual times.  As in all times, investor vexations are in permanent supply; only the names of our gremlins change.   (Anyone remembers the Y2K crisis that never happened?)  As described above, Model Portfolio Theory, along with other analytic tools, provides healthy detachment from the 24-hour “noise” cycle.  
 
Hopefully, without adding to the noise, this humble newsletter offers observations of the quarter just ending:
 
Normal market volatility has returned, following relatively quiet and steady increases for the past few years. A little volatility actually can be sobering, thus reducing the potential for speculative bubbles or “irrational exuberance” that is seen so clearly only in retrospect.
 
Market fundamentals remain in place. Stock prices are relatively pricey, but not stratospheric. Economic growth continues. Inflation seems to be contained, but less so than in the past few years. Interest rates, at an expected pace, are rising from historic lows, but not so quickly as to clobber economic growth.
 
Then there’s the massive tax law passed in December that cuts taxes and increases government borrowing in times of prosperity and low unemployment.  Even critics of the new tax law concede some growth will come from the stimulus; whether that bump is short-lived or long-term, shall be revealed over time.
 
Historically, trade wars are a loser for investors and the economy.  The market dropped in February when President Donald Trump announced new tariffs against US trading partners. The limited tariffs announced thus far may have a minuscule impact upon financial markets. However, we could see severe damage if additional tariffs spark out-of-control tit-for-tat retaliation against American exports. The operative word here is “if.”
 
Included with the performance report is the quarterly fee assessment.  We are happy to guide you through these reports.  Likewise, we welcome any questions or concerns and appreciate this opportunity to be of service.