I’m on deadline, but I’ve been unable to write for four days. In 25 years, that’s never happened to me. A journalism professor once told me that a professional writer never gets writer’s block. I believed him. Until now.
I’m a New Yorker. I grew up in Queens, just a 20-minute subway ride from Manhattan. I went to NYU and Columbia, and I covered Wall Street at The New York Daily News. The attack struck my hometown. It killed my people. Shock, grief, and anger shut me down. But now my deadline is 24 hours off and I’m fighting back the best way I know: by writing.
Let’s start with the story that financial advisor Gregg Fisher told me. Fisher was in a conference room meeting with a mutual fund wholesaler when Michael Goodman, one of his staff, blasted through the door.
“He was out of breath and pale and looked confused,” says Fisher, a 30-year-old CFP licensee with a staff of 15. Goodman, a CPA and CFP, had been eating breakfast across the street at the New York office of the Federal Reserve when, as he was leaving, the first plane hit the North tower. “He said ‘The World Trade Center is on fire!’ ” Fisher said.
At first, Fisher thought Goodman was kidding. Minutes later, the second plane struck the South tower, creating the fireball that is now burned into the national psyche.
“Then, our building started to vibrate and I guess it felt something like an earthquake,” says Fisher.
Fisher’s office on the fourth floor at 90 William Street is a three-minute walk to the World Trade Center, three short blocks. “I went to the back of my office and looked out the window and I saw smoke,” he says. “We turned on the radio and got on the Internet. They were reporting the story but didn’t know exactly what was happening.”
Fisher and his colleagues knew they were under attack and debated whether to leave their office. “It wasn’t safe to go out because there was smoke and mayhem,” says Fisher. “It was happening all at once.”
Forty-two minutes after the second plane struck, the south tower of the Trade Center, a building that is more than twice the size of all the other city skyscrapers surrounding it, collapsed.
“I heard a loud explosion and our building is shaking again,” says Fisher, “and then I see hundreds of people running down Pratt Street screaming and a black cloud of smoke is following right behind them. At this point, I really thought that it was flames from the collapse that were coming next, and I thought all of us were going to die.”
Fisher says everything in his office went black as a mushroom cloud of soot and smoke engulfed lower Manhattan, turning a bright and clear day into night. Twenty-three agonizing minutes later, the north tower collapsed.
Fisher, whom I’ve known for about four years and who has always impressed me as being much older than his age, waited along with eight staffers, the wholesaler, and a client for the dust to clear.
After about an hour, he says, it got lighter outside. Then, an announcement over his building’s public address system: everyone should evacuate; air quality in the building was no longer safe. Wading through about four inches of soot and debris on the ground outside his office, Fisher says he and his co-workers began the long walk uptown to safety.
Frozen in Time
You didn’t have to be at ground zero, and you didn’t even have to be from New York to have those horrifying moments frozen in your mind. Like no other event since the assassination of John F. Kennedy, Americans forever will remember where they were and what they were doing on the morning of September 11, 2001.
I spoke with financial advisors from all over the country after the attack and they all have stories to tell. I don’t think it’s because many of the businesses in the towers were financial companies or because the towers are so close to Wall Street. It’s because so many people worked in those buildings that most Americans are bound to know someone who knows someone who works there. We’re all connected to that place.
Peter Langer, an advisor in Wilmington, North Carolina, was downloading data from Schwab and had the TV in his office tuned to CNBC when the tragedy struck. A native of the Bronx, Langer says the first thing he did was telephone his brother, who works at Lehman Brothers in One Liberty Plaza, just a block from the towers. Langer placed the call, and an assistant said his brother was not yet at work. Next, Langer dialed his wife, because her sister’s husband works for Fiduciary Trust, on the 97th floor of the South tower.
Langer says his brother-in-law had seen the first tower get hit. He walked down 30 flights of stairs to catch an express elevator to the lobby. While waiting for the elevator, the public address system assured workers that the danger had passed and to go back to their offices. His brother-in-law opted to go downstairs, but a colleague decided to go back to the office and is among those missing.
Langer would later learn that his brother also made it, but it was close. As he was walking into the building, Langer’s brother saw everyone leaving. Another bomb scare, he was told. He started toward an elevator but then thought better of it and turned around. When he stepped outside, he saw the second plane crash into the South tower. He watched horrified as people leapt from the tower. The investment banker then hitchhiked uptown. On the way, Langer says, his brother broke down crying.
In the aftermath of the attack, New Yorkers, once the most unflappable people in America, remain jittery. The stories, I believe, give us a preview into the period we are likely to face for at least the next few years, as Americans confront managing the terrorist threat that Israelis have tried to contain for years.
A day after the attacks, Joel Isaacson, whose advisory firm is located on Fifth Avenue and 42nd Street, was looking out his window right after someone had apparently called in a bomb scare. “People were running down 42nd Street screaming,” says Isaacson. “What happened hasn’t sunk in yet because you cannot fathom what it will be like to bury 6,000 people.”
Thursday night at around 1 A.M., I’m still glued to the TV and know that I could be in for another sleepless night. Suddenly, I hear a low rumble and grasp for the remote control to mute the TV. It was only thunder.
So where does this leave us? Has our world changed? Will the psychological scars heal? Americans are likely in coming days to regain the luxury of thinking about their money, but is financial planning changed?
“The world hasn’t changed,” says Bill Baldwin of Pillar Financial in Lexington, Massachusetts, “but our perception of the world has changed.”
“The principles of financial planning remain sound and have not changed,” says John MacIntyre, principal at Armstrong, MacIntyre & Severns, Inc. in Washington, D.C. “If anything, the attack reinforces what financial planners should always be doing: focusing people on personal goals and keeping them from getting wrapped up in the daily news and talking heads on CNBC.”
In the hours and days after the destruction of those towering icons of American capitalism, Harold Evensky, perhaps the nation’s best-known personal financial advisor, began calling clients and friends. Simply asking, “How are you?” would often lead to 10-minute answers, Evensky says. People would explain their reaction to what had happened to them–even though most of the calls were to the Coral Gables, Florida, vicinity where Evensky’s practice is located. “Just because people live here gave us no assurance that they were not affected by what happened,” says Evensky.
“We told clients that it was a horrible tragedy but not a financial event,” says Evensky. “Oil fields were not destroyed and Silicon Valley was still at work.”
Evensky says he warned clients that panic could hit the markets when they reopened and that a recession–a possibility before the attack–was, of course, more likely. “But recessions are part of normal cycles and their portfolios are designed for that,” says Evensky. “Our planning has always anticipated the possibility of recession and the only change outside of our normal process was that we asked clients for specific permission to make a change in their portfolios if we felt it was needed–without asking their permission first as we would normally.”
Evensky says that he, along with wife Deena Katz and a new partner, Bart Francis, made calls to money managers they hire to assess any damage they may have sustained. Was their physical plant intact? Had the grief and loss hit the staff personally?
But these were just the immediate issues. What of the longer-term implications? “The world may have fundamentally changed and we’ll need to assess that,” says Evensky. “Do I think there will be a flight to quality? Yes. Is that likely to be permanent? I don’t know.”
“I’ve argued for a long time that the market was overvalued and that we should expect lower returns over the next decade or longer,” says Evensky. “But if the market corrects hugely in the next few weeks, it might not be overvalued much longer and our expectations could change significantly if we go from a P/E of 25 on the S&P 500 to 14.”
It’s clear that airline, insurance, and transportation stocks will be extremely vulnerable but, says Evensky, “no one is likely to make money on anything so obvious.”
One thing the attack reinforced to planners and advisors is the notion that the world is unpredictable. This bolsters the importance of broad diversification of investments.
Where To Invest
In the aftermath, the alternative investments that make the most sense
Investment advisors have long built portfolios based on diversification, but many remain utterly focused on conventional styles and asset classes–growth and value stocks, large and small, and bonds and cash. In the two or three weeks before the September 11 terrorist attacks, I spent time examining nontraditional investments that can help diversify portfolios further. After the 11th, I followed up my research with calls to sources advocating nontraditional asset classes. The case for adding nontraditional assets to a portfolio became stronger after the attack.
I don’t feel great writing about the need to diversify beyond U.S. stocks at a time when the U.S. stock market could face turmoil. But you don’t diversify broadly because you know a market is going to go down. You do it precisely because you don’t know. You do it because markets are unpredictable. Let’s hope stocks soar. The most patriotic thing advisors can do right now is to act as a fiduciaries in helping clients preserve their wealth. So here are some ideas from planners I respect and their favorite alternative asset class managers.
Of all the out-of-the box thinkers I spoke with, Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co. was most impressive. Grantham’s Boston-based firm manages about $20 billion with a value tilt, much of it in a family of mutual funds. Tom Connelly, one of the smartest personal financial planners I know, told me he had been implementing ideas from Grantham’s research with his clients for a long time, and at a conference this summer sponsored by the Association for Investment Management Research, Grantham had debated noted academic bull, Professor Jeremy Siegel.
Grantham has been bearish on American stocks for over two years, but after the September 11 tragedy has become reluctant to be bearish publicly. “It is unfortunate that this tragedy occurred when stock prices were pretty high,” Grantham reluctantly said in a September 14 phone interview.
In previous conversations, however, Grantham made a cogent case for why U.S. stocks were overvalued as the S&P 500 traded at about 25 times earnings. Grantham, who has studied investment bubbles for years, says that the normal P/E ratio for stocks over the last 75 years or so is about 14. But assuming that the trend line toward higher sales growth and slightly bigger profit margins extends into the next decade, Grantham says a P/E ratio of 17.5 would be fair value for the S&P 500.
To confirm his research, Grantham says that in recent months he asked 1,000 full-time equity professionals at AIMR and similar conferences and seminars if they thought the P/E ratio on the S&P 500 would drop below 17.5 in the next 10 years. While there have been seven no votes, the rest have been yes. “It’s safe to say that 99.9% of all equity professionals believe the P/E will drop a whole lot from where it is. I know nothing about the timing, but it would seem to guarantee a severe bear market.”