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9 Month Look Back

Daniel B. Berkowitz and Fred Snitzer
Published on October 15, 2020

Prudent Management Associates is introducing a quarterly video series to help keep us connected to our PMA community. In this first episode, Dan Berkowitz, Senior Investment Officer and Fred Snitzer, Managing Director, share their thoughts on the unusual and volatile first nine months of 2020 and touch on the upcoming election’s potential impact on the markets. 


Fred Snitzer

Hi, I am Fred Snitzer, Managing Director of Prudent Management Associates, and welcome to this first edition of Partner Talk. Because it is so difficult to get together in person, we are initiating a series of videos about issues that we think will be of interest to our clients and friends.

With me today is my colleague Dan Berkowitz, who joined PMA as a Senior Investment Officer from Vanguard July in 2019. In addition to his MBA from Cornell Dan is also a CFA charterholder and also has received his Certificate in Investment Performance Measurement from the CFA institute.

So Dan, we’ve had quite a year this far in 2020. I think it is fair to say that on January 1, 2020 nobody – and that means nobody in this country of 340 million people – had any idea whatsoever what was about to happen. We talk a lot at PMA about how future events are unpredictable, and the roller coaster of a year we’ve had in 2020 drives that point home. Looking back at the year from the “safety” of September 2020, it is almost possible to forget what we experienced in the markets in March.

Dan Berkowitz

Yeah, that’s right Fred. March 2020 was really a historically bad month for the markets. Even though it was only a short 6 months ago, it is easy to forget some of those “high-lights” or to suppress them from our memory. But as a brief reminder, market volatility went through the roof this year and peaked in March.  The Dow Jones Industrial Average experienced the fastest 20% drop ever, its largest one day drop since 1987, and a total drawdown or in other words a decline of about 37%. Similarly, the S&P 500 Index, which covers more of the US stock market, experienced roughly a 34% decline through March, so not much better.


Hmmm, that was a vivid, maybe too vivid, reminder of how bad things got in March, Dan. That definitely was a stressful and difficult time. Using the benefit of hindsight, we can now see that the markets recovered relatively quickly from these huge drops, but, again, no-one knew in March that the rebound would occur so quickly and dramatically as it did. Instead, as we were going through that period, as scary as it was, we relied on the core underlying principles that have governed PMA since the beginning


Yes, the market dive was a real stress test but also an opportunity to review the investment principles that are really at the core of PMA.  So let me talk about a few of them:

  • Strong risk control: we place a great deal of emphasis on building portfolios that are well-diversified across stocks and bonds and within various stock/bond sub-asset categories.  Strong diversification is critical during times of stock market stress, and it helped buffer our clients’ portfolios.
  • Transparent and highly liquid investments: we use low-cost, open-end mutual funds to build our portfolios and avoid some of the more complex, private investments which presented a number of problems earlier this year (particularly on the fixed income side).  These types of products also allowed us to rebalance effectively and provided us with timely snapshots of how our clients’ portfolios were holding up during the first/second quarter.
  • Long-term focus: as we always do, we avoided making short-term, market timing decisions in March.  Staying the course ultimately proved to be the best course of action (in that the market recovered—not that we were predicting this quick recovery, but we didn’t abandon our allocations at the wrong time).


I agree with you Dan.  And not to “toot our own horn” too much, but we did in March encourage clients to stay invested.  We wrote in an email sent out to our clients and posted on our website that “studies have shown that when markets rebound from unpleasant declines is not predictable in advance, and that missing a very few days of the rebound when it occurs has an adverse effect on a portfolio’s performance.”

Now, having said that, we also recognize that living through such dramatic market declines is not easy, and we did encourage our clients – and continue to encourage our clients – to evaluate whether they can live with the amount of risk they are taking in the equity markets. We’ve talked to a good number of clients about that issue, and we’ve had a good number of them decide to reduce their exposure to equities as a result. This is a highly personal, individual decision that should be reviewed carefully with us.


Well, now that the markets have mostly recovered from those March downturns, everyone is wondering what’s next, and especially what the affect of the Presidential election might be.

It is true that the election is creating uncertainty and concern, with fears of election disputes and refusals to accept the results being bandied about. And we do see some parts of the financial markets anticipating greater volatility after the election, including futures and options prices that currently show an ambiguous election result is now set as the stock market’s baseline expectation. But as you said at the beginning of our conversation, future events are unpredictable, and as we saw with the coronavirus, sometimes it is the most unexpected results that cause the most market turmoil. With the election, some expectation of political upheaval seems baked into market pricing now, but if things turn out worse than the consensus expectation, markets could sell off, on the other hand, if things turn out better than expected, that may very well product a positive reaction.

We just don’t know which direction it’s going to be, and we don’t believe anyone can know that for certain either. Some will guess, and just as a matter of odds, some will guess correctly. A better approach than guessing is to rely on the underlying principles that we just discussed and keep a steady hand.


Thanks Dan.  And thanks to all of you who have listened. We will see you soon in our next edition of Partner Talk.


Look for our next video in January: “The role of bonds in a low rate environment” 

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