Our 2020 Client Newsletters
June 27, 2020
Dear Clients, Colleagues, Friends,
Well, we have officially entered the Summer of The Year of COVID-19. If you think of the early portion of the year as being caught in a snowglobe that fell off a mountain, you might characterize these last three months as the roller-coaster ride through a dense and misty fog.
Let’s take a quick look back: By the end of last year, the market was up 28%, reflecting a huge one-year increase, and stock prices indicated sustained optimism for 2020. By late February, the knowledge that coronavirus would impact the business of multinational companies triggered sharp declines in the stock market. By the middle of March, all of the broad-market gains from 2019 were lost. But suddenly, a recovery began, and moved as quickly as the initial plunge. At yesterday’s close, while the S&P 500 was down about 7% for the year, it was still 20% higher than 18 months prior, at the start of 2019.
This rapid rally has returned us to levels that indicate a fair amount of optimism among investors. Normally cycles like the one we have just experienced take anywhere from several quarters to multiple years to run their course. This time it was only weeks.
The rapid and significant changes we have seen this year have caused the investment landscape to shift from one that was starting to present solid buying opportunities to one that is now more neutral.
Today we are balancing our long-term confidence in the economy and financial markets with our knowledge that the uncertainties of the next six to 12 months are heightened by an unusually wide range of shorter-term issues—including the scientific and economic ramifications of COVID-19, the economic impact of the anti-racism movement, trade relations with China, and what will likely be a heated run-up to our presidential election in November.
These kinds of current events are often a source of short-term volatility and long-term opportunity. As always, we employ a proactive view, taking advantage of the volatility of the day with a long-term eye instead of reacting with the crowd. Throughout the coming months, we will buy when individual opportunities meet our disciplined criteria for risk and return—and reduce positions in your portfolios when prices reflect excessive optimism and increasing risk.
Our work for you is really akin to navigating a never-ending trail run, not a 5k or a sprint. We need to be aware of the tree roots, mud-holes, wild animals, and sketchy downhill patches, but keep our eyes on our longer-term health to deliver the endurance that will mean a successful finish for you. We have trained with discipline and executed our trail-run strategy well. And unlike what the world may have felt like back in late February, and then mid-March, at Two Point Capital we are not trapped inside a tilted snow globe or riding a rogue roller-coaster. We are running ahead on our own steam, at our own pace.
As always, I am energized by and grateful for your confidence in the work we do for you.
Our company update
As of this week, the Finger Lakes Region of New York State has entered Phase 4, which allows for a continued reopening of businesses and services. With an abundance of caution, we continue to work primarily from home, with team members being careful to stagger any time in the office. We are currently meeting with clients via Zoom or Skype, and are finding that works relatively well for people. Our plan is to continue with our virtual platform, while monitoring coronavirus case numbers in our area to determine a reasonable timeframe for reopening the office to our clients, partners, and friends. You will be the first to know.
More action, more talk
As you know, the last few months have been very busy ones on the investment front. But as planned, we have begun to address our online presence to make it easier to communicate with you as well as with prospective clients. We are starting with more activity on social networks like Facebook, Twitter, and LinkedIn. Next week we plan to launch our blog, and while our primary focus will continue to be delivering our unique investment insight, we will strive for some light-hearted balance. We will kick it off with a two-part post on How to Live a Richer Life During a Pandemic. Part I will focus on enrichment, and Part II on entertainment. Our mission is to share information and analysis that inspires, energizes, and maybe makes you think.
Next week, for instance, is the 4th of July! How are you handling the shift to warmer weather and outdoor activities? We have been practicing safe ways to gather with small groups of family and friends, and would love to incorporate your ideas into ours, and share them on the blog. Send your suggestions our way.
This summer, may you and your loved ones remain safe and healthy. With our best wishes, and at your service,
Founder and CEO
June 12, 2020
Dear Clients, Colleagues, Friends, and Family,
On the afternoon of Saturday, May 30, I marched. I was grateful for the right to protest, and unhappy that we had cause to do so. I joined my family, thousands of people in my community and across our nation and the world to stand up and be counted as an ally of black and brown people everywhere. The protest was black-led, it was youth-led, it was peaceful, it was inspiring, it was as diverse as America.
On the way home, we pulled off the road to watch the SpaceX launch. More inspiration, more pride in our nation’s innovation and spirit. For the adults, it was also nostalgic; for my six-and-three-quarter-year-old niece, it was a wide-eyed moment of surprise and excitement. We cheered.
By five p.m., the first reports of violence and rioting began to trickle in. Instigators, divisiveness, tear gas, rubber bullets. That night, I lay in my bed and wept. I wept for my country and for all of my fellow Americans.
This great rip in our democracy did not start with the tragic, senseless and preventable death of George Floyd at the hands of an officer, and his compatriots, who had sworn an oath to serve and protect all of us. George Floyd was not the first. The disregard for non-white human life was knitted into the fabric of our country long ago. And realistically, despite our very best efforts, Mr. Floyd will not be the last unjustified death in our country. My fervent hope is that it will mark a significant turning point in our nation’s trajectory.
My views on the issue of race in America have changed over the past 10 years. These changes came slowly. For me, understanding our world from another’s perspective—specifically a black person’s perspective—required an uncomfortable, sometimes painful admission that some things I had always taken for granted were simply not true. Harder yet is the current knowledge that even after years of mental wrestling, and speaking up as best I know how, I have only scratched the surface of understanding the inherent unfairness of the black experience in America, and its degrading, dehumanizing effects.
My good intentions and actions over the years, along with those of my family, friends, business colleagues, fellow citizens and the institutions we erected to serve us, are not enough. We have not created an environment where all people are treated equally, where all have an equal opportunity to strive, and to achieve, and where equal effort paired with equal skill can produce an equal outcome.
What is clear is that we must do more and we must do it differently.
Two Point Capital Management will approach this, as we approach investing, for the long term. Movements arise, but they do not succeed or mature overnight. We are beginning with a vow to listen more. We commit to actively search out people and organizations focused on dismantling systemic racism, and fostering the hard but necessary conversations that must happen now. We commit to be present for open and candid talk about racism and race relations.
We will learn from what we hear, and use that knowledge to expand our current actions to bring down barriers and uplift quality of life. We will use that knowledge to change our actions as necessary, and to do more, so that our pledge of zero tolerance for prejudice and discrimination is complete, and absolute. And we will share what we learn and what we’re doing, so you, and we, can hold us accountable.
We want to hear from you, as well. What are your thoughts, and feelings, on this subject? What are you doing, how can we help, how can we collaborate to create a better world? Please feel welcome to reach out to me or any member of our team in the weeks and months ahead. Here is a link to open the conversation.
The movement toward equal justice is long. But recent actions are so blatant and clear that we must also act with urgency.
If not now, when?
We have, as you may know, long focused our financial resources and talent to help create healthy, thriving children; quality elementary education; an end to poverty; an end to racism; and the arts as a vehicle to achieve those goals.
On an immediate basis we are doubling our financial contribution for 2020 to The Avenue Blackbox Theatre and The Center for Teen Empowerment, two Rochester organizations engaging with predominantly black and brown children, many of whom struggle with poverty and the stress and trauma of life in a marginalized community.
We will also spotlight the work of both in our advertising on WXXI Public Radio, bringing them greater public exposure, and hopefully, support.
If you came to our Live a Richer Life 2019 Chard Fest, you met some of the young talent from The Avenue Blackbox Theatre. They were brave and eloquent in their performances. They have a platform and a voice because of Reenah Golden, The Avenue’s founder, a local and international “artivist” who brings an unparalleled passion to the development of the performing arts. For more than 20 years, she has used the stage to educate, affect social change. and create new ways of thinking. The Avenue is her latest leap of faith. It has already transformed the lives of countless children by bringing its light to the treasure that is its community. You can feel the vitality and spark on Joseph Avenue.
Perhaps you have joined us at one of Teen Empowerment’s unbelievably inspiring luncheons, where youth-led social change makes you believe that transforming the world is well within reach. Teen Empowerment youth leaders have been engaging wider circles of youth in Rochester for 18 years, and are poised to expand their reach across the City of Rochester. Next week, you will have the virtual opportunity to be inspired by the work of Teen Empowerment. Mark your calendars for noon to 1 pm this coming Wednesday, June 17; keep your eyes open for our invitation and link to the annual, now virtual, celebration.
If we hope to fulfill the promise that is America—a place where all are created equal and where life, liberty and the pursuit of happiness isn’t limited to a select portion of our citizens—we must change, and we must do more.
The experiment we call America is based on the premise, and promise, that each of us is free to choose our own path. I know you already live lives that manifest so much of what makes our country great, but I invite you to join me on an accelerated path toward justice for all. Let us together increase our understanding, and the impact of our actions on all the people around us—those we know and care for now, and those we will be so fortunate to know and love tomorrow.
Jack McGowan, CFA
Founder and CEO
P. S. We are happy to include more people in this conversation. Do you have friends, family, or colleagues whom you would like to invite? Please feel free to share or forward this email.
March 31, 2020
Dear Clients, Colleagues, and Friends,
A few weeks ago, I shared some big-picture thoughts about the current health crisis and its financial impact now and in the future. Obviously, there have been some ups and downs since this began, with headlines in the Wall Street Journal including:
“Dow posts worst day since 1987” (March 13)
and 12 days later:
“Dow Soars 11%, Best Day in 87 Years” (March 25).
Over that same timeframe, business executives and board members have also shifted in large numbers from selling shares in their companies to buying shares.
This wide range of reactions reflects a few factors:
- We’re still in the early stages of an unexpected crisis, when information is at its sketchiest and least certain.
- Volatility is exacerbated by large flows of automatic trades driven by algorithms rather than humans, and most of those algorithms are purposefully designed to be reactive: they sell when prices are declining and buy when prices are rising—resulting in higher highs and lower lows.
We are also seeing companies with stronger balance sheets (more cash, less debt) outperform companies with weaker balance sheets (less cash with more debt).
This is in no way surprising, but it validates our strategic preference for companies with stronger balance sheets relative to the structure of their business. It’s also part of the reason that our investment portfolios have continued to outperform the broader market indexes during this volatile year—so far, both on the way down and on the way back up.
While I can’t predict the short-term moves of the financial markets (no one can) and I can’t know when our discipline will out- or under-perform the broader markets, I am confident that owning better quality companies (Quality) , purchased at attractive prices (Value), will produce good results over the long haul. And, as I mentioned last time, we’re continuing to look for new investment opportunities amidst the volatility.
Questions or Suggestions?
Our plan is to continue with these updates on a regular basis. If you have questions or suggestions for specific topics you’d like us to cover, reply to this email and we’ll make note and do our best. (If you have a specific question about your own portfolio or situation, feel free to call at 585-586-1731 or write to Jen at [email protected] for a faster response.)
Live a Richer Life
How are you doing? The one thing about the near-term that I do know is that it’s important that each of us take care of ourselves and our loved ones. If we’re not individually mentally and physically healthy we won’t be able to help all of us maintain our collective health. It’s a good time to read that book, watch that movie(s!) or send that letter you’ve been thinking about.
Beyond taking care of yourself and the people you love, opportunities to do more are popping up in every community. Here in Rochester there’s a Facebook group connecting people with relatively simple needs to those who can easily help. Yesterday, we delivered moving boxes that were piled in our basement to a group that will use them to deliver food care packages. We wore gloves and kept our social distance. The Facebook group is called Hey Rochester, NY! What do you need? What do you got? and you can subscribe here: https://www.facebook.com/groups/242170623614066
I’m sure there are similar efforts going on in your town.
As always, stay safe and thank you for your continued confidence in the work we do for you.
Founder and CEO
March 17, 2020
Dear Clients, Colleagues, and Friends,
I’d like to thank you for the trust and confidence you’ve shown in Two Point Capital Management. In challenging times like these we’re doubling our efforts to strengthen your confidence by staying focused on what we do best: controlling risk and investing your savings effectively in a changing world.
One of the reasons you chose us is that you value the long-term approach to investing. We know this health crisis will peak and pass and that it won’t fundamentally change the way the economy is structured. In fact, the financial market reaction to this crisis has much in common with other downturns I’ve navigated successfully over a 30-year-plus career, including the crash of 1987, the Internet bubble burst of 2000, the global financial meltdown of 2008 and any number of slowdowns and recessions in between.
One thing I’ve learned over the years is the importance of consistently executing our investment discipline when near-term events are most stressful. It’s at times like this that the market provides an increased number of better-than-usual investment opportunities. As a result, you should expect to see a higher level of investment activity in your portfolio in the coming days and weeks.
When times are good I occasionally feel like a wet blanket when I talk about the importance of risk control and having a deep understanding of the companies we own. But the past few weeks are a good example of why these are so important. When we focus first on quality, we look for companies with sustainable advantages that help them weather the unpredictable storms during the long period we plan to own them. Today, in the midst of one of those storms, we’re confident that the companies we own will survive to thrive long into the future.
In addition to quality we importantly focus on value. This helps us reduce risk and increase upside opportunity for each of our investments. During turbulent times, this allows us to identify and take advantage of the lower prices and better long-term investment bargains that will enhance future profits from our investments.
We’ve been heartened over the past couple of weeks by the confidence that our clients have shown. Some have deposited additional cash for us to invest. We’re not rushing in to invest these extra funds but we’ll incorporate them in our investment decisions.
As of yesterday, in the spirit of acting responsibly toward our clients, neighbors and community, Two Point Capital has temporarily migrated to a work-from-home environment, where we have 100% capability to function as we always do. As this situation continues to develop we’ll also be communicating more of our thoughts on investing, the economy and the financial markets. Please remember that you can reach out whenever you have questions or issues that you’d like us to address.
Our wish for each of you is that you and your loved ones remain safe and healthy, and that you can personally find a place of calm within the chaos.
With our best wishes, and at your service,
Founder and CEO