2nd Quarter 2016: First Aid Kit

FIRST AID KIT

I just spent a fortune on a first aid kit! Next week I leave town for two weeks with 40 teenagers and 10 brave adults from Boy Scout Troop 58 in Davidson, North Carolina, to go to Philmont Scout Ranch in New Mexico. Philmont Scout Ranch is the Boy Scouts of America’s largest national High Adventure Base and the world’s largest youth camp. The ranch covers 137,000 acres— about 214 square miles—of rugged mountain wilderness in the Sangre de Cristo range of the Rocky Mountains in northern New Mexico. Philmont offers 315 miles of trails over rough terrain and elevations that range from 6,500 to 12,440 feet. More than a million Scouts and their volunteer leaders have made the trek to Philmont since Oklahoma oilman Waite Phillips gave the ranch to the BSA in 1938. This summer, approximately 22,000 Scouts and leaders will hit the trail for a 12- day backpacking trek. Each day, 350 arrive, 350 leave and 3,500 will sleep in the backcountry.

Our troop will be divided into five crews, each with eight Scouts and two adult leaders. Each crew will be on its own in the backcountry, backpacking 75 miles over 12 days. You guessed it, I’m an adult leader. Eight other Braggs will be in attendance, including two of my sons, my brother John with three of his children, and two sons of my brother, Phillips, who volunteered to stay home and mind the store at Bragg Financial Advisors. Phillips may avoid sleeping on the hard ground for twelve straight days but he’ll endure a lifetime of abuse from those of us who braved the adventure.

Preparing for the trip has been quite a commitment. In addition to assembling the required gear and completing training courses in wilderness survival and first aid, we’ve taken four so-called “prep-trips.” These included a 20- mile day hike in the Uwharrie Mountains east of Charlotte and a two-night, 22-mile backpacking trip in the Shining Rock Wilderness in western North Carolina. One of my roles as a crew leader was to assemble the first aid kit for my 10-person crew. REI sells a basic kit for $40 but I was told to supplement that kit with numerous other items that we might need. It’s amazing what can go wrong out there on the trail! In addition to the typical bandages, tape and wraps, I have a splint for broken bones, an irrigation syringe for cleaning cuts, wound closure strips, a CPR face shield, tweezers, trauma shears, vinyl gloves, thermometers, moleskin for blisters, Afrin for nosebleeds, Pepto Bismol for indigestion, Imodium for diarrhea, Benadryl for allergies, ibuprofen for pain, Orajel for mouth sores, EpiPens, inhalers, trauma pads, second skin for burns, a cravat to make a sling and even stool softener! I think I now have a complete kit but I’m broke! Hopefully we’ll have a safe trip and our first aid kit will remain buried in my 45-pound backpack. But should we need it, I’ll be prepared.

I’m excited about the trip. According to the many veterans of Philmont I’ve spoken with, including some of you reading this, it will be very challenging but it will be one of the best experiences of my life. I’m also a bit apprehensive as you might imagine. Assembling the first aid kit got my attention; it drove home the fact that I’ll be responsible for the safety of my crew. I’m also mindful of the fact that I’m nearing the end of my fifth decade of life … hopefully the muscles and joints will hold up for the journey. Finally, I’m dealing with the reality that I will be completely out of touch with the office for an extended period of time. I admit that I am guilty of dragging along my device (yes, I still use a Blackberry) on most vacations. At Philmont, there is no cell signal, none. This fact took center stage for me over the last two weeks as the markets went on a rollercoaster ride following the result of the Brexit vote. “This is just great, Benton,” I thought. “You’ll be deep in the wilderness of New Mexico as the market is unraveling.” Now, I know what you’re thinking. “Benton, you always preach about being a long-term investor and caution us against trying to make drastic portfolio moves in anticipation of something that might happen. Surely something like the Brexit vote isn’t something to worry about?” True, but as my father always says, “Our clients hire us to do the worrying so they don’t have to.” He’s right and if I am completely out of touch, I won’t even know if I should be worrying. I guess I’ll pass the two weeks wondering if I should be worried. At this point you’re probably a bit worried about me. I’ll stop.

Speaking of the Brexit (British Exit) vote, in case you were without a signal for the last two weeks, I’m referring to the June 23rd referendum when the British citizenry voted 52% to 48% to exit the European Union. The market action before and after the vote was remarkable. Leading up to the vote, markets surged dramatically in anticipation of a vote to “Bremain.” Then as the votes rolled in and it became clear that the Brexiteers were the victors, markets plunged. European indices dropped 11%, the British pound sterling fell 10% and US equities fell more than 5%. European bank stocks fell 20% or more. And then, remarkably, markets reversed course and rallied hard, erasing almost the entire decline during the final week of the quarter. The S&P 500 actually had a positive return for the month of June. At Bragg, we knew this was going to happen. I’m just kidding.

Of course we did not. But if you were watching CNBC or reading the news online, there were hundreds of “experts” who clearly wanted you to think they did. They and the breathless commentators did their darndest to make you think you needed to do something. “Take action, sell, buy, hedge, trade, unload these stocks and pile into those stocks!” And when the dust settled, the talking heads explained it all, providing a neat and tidy after-the-fact narrative that is so appealing to our hindsight bias. At least we got a break from Trump/Clinton for a few weeks, right?

The Brexit provides a great opportunity to review some fundamentals:

Volatility is normal. Markets rally and markets decline. That is what they do.

No one can see the future. The “authorities on the subject” (highly educated and compelling communicators) are always in abundance whether online, in print or on television. Listening to them can be entertaining and sometimes it can be scary as hell. But remind yourself that they don’t know what is going to happen.

Your portfolio should be based on a solid financial plan. Put yourself in a sustainable financial position. As we’ve discussed before, take care of liquidity first. Be sure your income (salary, pension, dividends, coupons) or your bond/cash position will allow you to make it through extended market declines. Then invest the remainder of your portfolio in long-term “ownership” assets. Own stocks, own real estate and be diversified.

That last point is paramount. I prepared for my Philmont adventure by taking 22 hours of backcountry safety and medical training and assembling a first aid kit to be ready for things that might happen on the trail. Our work at Bragg Financial is no different. As we work with you on your planning or your portfolio we acknowledge that the future is uncertain. Sometimes Brexit happens. The best thing we can do is Be Prepared.

Thank you for choosing Bragg for your financial planning and investing.