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2015 Q2 Newsletter

June 30th, 2015

Behaving Rationally Amidst Uncertainty

I rarely watch any of the dribble shown on mainstream financial media. However, while travelling this week, I was greeted on the morning of June 29th with CNBC’s breaking story about Greece’s default on its sovereign loan obligations and the global financial crisis that will undoubtedly ensue. What struck me most about the broadcast was not the panic in the voice of the foreign correspondent as she rattled off dozens of potential worst case scenarios, but the calm demeanor of the citizens that could be seen in the background simply going about their day to day lives in the streets of Athens. The widespread fear that the broadcaster was so desperately trying to convey was definitely not being reflected in the behavior of the people most affected by this event. I couldn’t help but think that Aristotle himself would have been quite proud to witness his descendants behaving so rationally in the face of their country’s uncertainty.

To be sure, the situation in Greece introduces some additional uncertainty into the financial markets and may even trigger some short term pain. But just like the Greek citizens this week, our role as your advisor is to continue to act rationally amidst uncertainty (for uncertainty is, after all, a perpetual state). With that in mind, allow me to offer the following observations to maintain proper perspective:

  • Greece has been teetering on the brink of default for the past six years, so the probability of this event has been priced into the markets for a very long time.
  • The creation of the Euro prevents Greece from hiding its fiscal problems by simply printing money and devaluing its currency. If the IMF sticks to its guns, Greece will be forced to finally address its underlying problems and find a way to spend less than it takes in. Ultimately, this will be just as good for Greece as it always is for a household.
  • The entire GDP of Greece is approximately $240 billion, or about the same as the the city of Detroit. With a GDP of more than $13 trillion, the Eurozone is more than capable of assimilating Greece’s problems into its economy, even if Greece were to vanish as a nation altogether.

Neither wars, nor recessions, nor natural disasters, nor even a Greek default have the power to alter the fundamental tenets of intelligent investing. Accumulating and clinging firmly to shares of the World’s Best Companies run by the World’s Smartest People throughout one’s lifetime remains the surest and easiest path to accumulate the inevitable wealth that capitalism fosters. Based on Leonard Read’s classic 1958 Essay, “I, Pencil” this video from the Competitive Enterprise Institute ( elegantly describes why and how the Invisible Hand of Capitalism promotes cooperation, peace, and prosperity amongst free market societies over the long haul. The next time you see a broadcaster going to pieces over the latest crisis, please invest six minutes of your time watching this video instead. And as a personal favor to me, please share it with your children to help me spread this lesson to the next generation. Stinygiasou!

Administrative Note: Based on your feedback, the enclosed quarterly reports now combine all personal accounts from the same household into a single report. These composite reports will give you a better sense of your overall holdings, asset allocation, and long term performance. Thank you for your feedback.

Don Davey
Senior Portfolio Manager
Disciplined Equity Management
Plan Appropriately, Invest Intelligently, Diversify Broadly, Ignore the Noise

2015 Q2 Market Index Returns

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