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A Note to Clients and Friends About Recent Market Volatility

by PMA Investment Committee

“A rich understanding of human psychology, a reasonable appreciation of financial theory, a deep awareness of history, and a broad exposure to current events all contribute to development of well-informed portfolio strategies.” – David Swensen

We begin this note with a quote from David Swensen, legendary head of the Yale Endowment, and we ask you to focus on two phrases – “a deep awareness of history” and “a rich understanding of human psychology”.

When global markets go through the kind of periodic convulsions that we are now witnessing what we need is perspective and calm – the perspective that comes from reviewing stock market history and being able to say “We have seen this before and know that it will pass” and the calm that comes from knowing not only this history but also yourself, and being able to say “I am a long-term investor, I have picked the allocation that best fits my needs and temperament, and I am not going to change that allocation while others panic”.

We should view the recent market convulsions as a test of our resolve, perspective, and intelligence. The behavior of financial markets is a mirror of the behavior of human beings, a blend of art and science, a product of financial number crunching and human psychology. At times like these, human fear dominates, and it is in the best interest of investors to resist the urge to panic, and simply do nothing.

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