June 10, 2020 in Articles & Newsletters | by Chris Pate

FIRST QUARTER 2020

2020 Q1 Letter-featured-image

2020-Q1-men-and-mulesI have stated a number of times over the past two months that this COVID-19-induced lifestyle feels like stepping back in time to my childhood. Nights and weekends, normally filled during the Spring by kids’ sports and countless other obligations, have given way to activities such as family walks and bike rides, dinner at the table every night, and puzzles in the living room. No doubt exists for me that on a personal level there are some lessons around priorities that I will take away from the experience.

Meanwhile we have worked harder than ever to constantly ascertain what this environment means for investors, and to make adjustments to our portfolios in response. In March this was difficult because the market’s sheer volatility changed figures dramatically day-over-day and week-over-week. At this point in May one thing we know is that, regardless of how quick the “recovery” in our economy occurs, ripple effects from these events will be cascading around financial markets for quarters; not merely weeks or months.

Don Woodard wrote the following piece for Western’s 2010 first quarter letter. A decade later two things are clear to me: 1) printing his past letters is probably as close as I will get to talking him into reprising his former quarterly role, and 2) the below words are truer now than they were the day he wrote them. Enjoy.

Chris Pate
Managing Director


A Journey to an Unfamiliar Past

Ella Francis Bivens was born in rural Wise County, Texas in the year 1900. She would give birth to 13 babies – 11 survived – who, during her 92 years, would provide her with a collection of 38 grandchildren, more or less, of whom I was one. While my appearance was a mere 61 years removed, the nature and quality of our life experiences were separated by a vast and imponderable gulf not measurable by time.

My maternal grandmother had been born into a world driven by needs – concerned primarily with survival. I was born into a vastly different world – driven by wants and in relentless pursuit of entertainment to occupy hours that, in her youth, would have been consumed by manual labor. In yellowing black-and-white photographs, my grandmother’s appearance is reminiscent of those weary souls from prior centuries captured in the works of the Old Masters – their faces and hands betraying years of physical labor and hardship, slaves to a daily cycle of light and dark.

2020-Q1-telephoneA visit to my grandmother’s white frame house on the edge of a pasture in Springtown, Texas was for me a journey to an unfamiliar past. According to my mother, this was the first house her folks had owned. She recalled that, prior to purchasing this place, they had worked and lived on farms owned by others in return for a percentage of the Crops - “sharecroppers.” One of the few “modern” conveniences in the old house was a telephone. It had a crank and was a so-called “party” line shared with neighboring farmers. More often than not, picking up the receiver made you a “party” to a conversation in progress. Protocol required you politely hang up and wait your turn. Even as a small child, I grasped that the inability to discuss the comings and goings of one’s neighbors in privacy greatly reduced the utility of the device.

The story of Mrs. Bivens – as my father respectfully referred to my grandmother – is not simply one of limited means. Rather, it serves as a benchmark for American ingenuity and prosperity over the past 100+ years. The tendency of the human mind to rapidly weave new luxuries into the fabric of necessity greatly impairs its ability to comprehend an existence without the modern accoutrements. A sizable percentage of our daily expenditures are for goods and services that had yet to be dreamed up in my grandmother’s time.

It is jolting to realize that my own mother did not live in a house with electricity until she was a young woman, just before leaving home for the big city of Fort Worth. How did they function when the sun went down – lanterns, candles or flashlights? I haven’t a clue. There wasn’t a reason to lament
the lack of money to buy air conditioning, refrigeration, dishwasher, washing machine or television. Even if they had existed somewhere in theory, there would have been no place to plug them in.

2020-Q1-civilian-conservation-corpsThe first real restaurant, Delmonico’s, had appeared in New York City only about 60 years before Grandmother’s birth. Until late in her life, however, restaurants as a substitute for home cooking had not made it that far west and, when they did, were regarded with suspicion in rural communities. It was the same way with the encroachment of the automobile. Family lore holds that my dad probably never completely overcame the initial bad impression he made on his future mother-in-law when he pulled up to call on her daughter in an automobile. As a child listening to this tale, I would try to imagine what might have been his other alternatives. All I could come up with was a covered wagon or a bicycle.

Consistent with the pervasive absence of material comforts was the ingrained self-reliance and the resulting absence of expectation of life-improving influences from the outside world. In contrast, my generation grew up to expect that, for whatever problem, one day there would be a solution. While my relationship with my grandmother was without exception friendly (I can’t recall a single cross word directed my way) the pervasive absence of shared experiences and cultural references made conversation tricky and caused each of us to view the other as a somewhat benign curiosity.

My most enlightening discussion with Grandmother occurred one evening during her last years in the comfortable den of the house where I grew up. My dad, after reflecting on the loyalty of a favored dog and lamenting the brevity of a dog’s life, casually mentioned that he would look forward to seeing his friend again one day in heaven. Mrs. Bivens was a woman whose life had consisted of endless hardship and for whom honest entry into heaven was the sole remaining object. Animals of all stripes were regarded as farm implements or, worse, competition for meager resources. The thought of sharing her eternal reward with a dog proved untenable. My grandmother’s relaxed countenance disappeared as she firmly insisted that heaven was for people, not animals. Dad and I immediately discerned this was not fertile ground for debate, and no further words were spoken on the matter. It was during this truncated discussion when I realized that one person’s grandest dreams for eternity could fall short of that which another takes for granted in the here and now.

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The Greatest Generation

As with so many others of my generation, the enormous disparity in my quality of life from that endured by my grandparents is, of course, attributable to my parents.

There can be little argument with Tom Brokaw’s assertion that theirs was, in fact, the Greatest Generation. The World War II generation inherited a largely agrarian society firmly in the grip of the Great Depression and bequeathed to my generation largess beyond the wildest imaginations of their parents. They accomplished this miracle within a span of 30 years while winning – through sheer force of will – the most desperate conflict between good and evil the world ever has known.

2020-Q1-Franklin-RooseveltThere is a tendency to equate economic progress with the value and accumulation of financial resources. Without a doubt, on an individual level, money and investments are essential to the fulfillment of current and future wants and needs. However, from a larger perspective, economic progress is measured not in dollars but in the accumulation of practical know-how, experience and expertise. Once humans discover how to make some new device or solve some longstanding problem, that knowledge never goes away; it serves as a perpetual fountain of new inventions and methods to produce goods and services more efficiently – and to make them more widely accessible.

One of the great political and economic debates of our time is whether healthcare is a human right and, if so, how it should be supplied and how it should be financed. It is ironic to note that current-day proponents who believe it to be so are the political heirs of Franklin Delano Roosevelt – one of the richest and arguably most powerful of all American presidents – who died in office at age 63 from a brain hemorrhage caused by chronic uncontrolled high blood pressure. Blood pressure medications readily available today for around $10 per month simply did not exist in April 1945. Healthcare may be
a God-given right, but if it is, it’s a relatively new one.

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Today, Americans find themselves surrounded by significant economic concerns: among them mushrooming governmental debts, the constant drumbeat of higher taxes, looming inflation and an extended period of low investment returns. However, unlike in my grandmother’s day, a problem we don’t face today is going without. In many ways, the poorest of the poor today are far richer than the richest of the rich of that era. Of one thing we can be relatively certain: Whatever happens in the financial economy, the clock of American progress will not be turned back to 1900. Regardless of taxes, inflation and investment returns that monopolize economic discussion, it is likely that the only reason some existing luxury won’t be readily available and somehow affordable is that some improved version has taken its place.

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Don Woodard Jr.
President, Western Commerce Group

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