By: Mark Weiskind
June 2022 marked 20 years since Dan Gaugler and I founded Fairway. It’s a bit humbling to think back to where we started in 2002, just the two of us in shared office space in Westlake, Ohio, with what was hopefully a good business plan…but no clients! Now we are a business supporting 16 employees, over 260 clients, and advising on nearly $2B of client assets. First and foremost, we want to thank all the clients who have trusted us to help guide the management of their wealth over the years. It’s a job we are passionate about and take very personally, and it’s been an honor to work with so many kind, thoughtful, and appreciative families. Secondly, we want to thank the amazing staff we’ve built. Four of them (Matt, Laura, Maria and Kristen) have been with us for 15+ years, CJ joined us nearly 12 years ago and Chris is coming up on his 10-year anniversary. It’s a pleasure working alongside this group every day and we know our clients think so too.
We end our 20th year in the midst of a challenging financial environment. The S&P 500 just concluded its worst first half of the year since 1970. At the same time, by some measures the bond market is having its worst year since the mid-1800s. So we are seeing some “worsts” even though economic growth coming into 2022 was strong, unemployment remains extremely low, and earnings on the S&P 500 remains near an all-time high. No one said investing was easy! This led me to draw some parallels between the current market environment and financial challenges it can pose and Fairway’s business over the past 20 years.
As many of you who have run businesses are well aware, they aren’t immune to volatility. We’ve had employees leave; we’ve lost clients; we sadly had a partner pass away; we’ve been impacted by the market swings, in particular 2008/2009; we’ve bought out one partner, added two others and went through our transaction with Focus Financial Partners; we’ve had servers crash, files lost, phone systems go down. Our success has been far from a straight line. Every time, there was a feeling of doubt, how would we react, would our business be irreparably impacted, will our clients and employees lose their faith? However, we’ve always had a 3-5 year business plan, which kept us focusing on our long-term path and not making major deviations from our plan, despite all the bumps in the road. We’ve taken advantage of market volatility by actively pursuing new client opportunities when the “hot” managers crashed and burned, by adding strong employees when others were cutting costs, and by recommending rebalancing trades and estate planning ideas when values were down. We’ve stayed defensive to secure things in the short-term, in particular putting an extra emphasis on client communication and outreach when we knew clients were worrying. It hasn’t been a straight line, but if you attempted to model a chart of our business success, it would look very similar to that of the stock market, a steady upward trend despite some major bumps in the road.
The S&P 500 ended the second quarter down about 16% and is now down approximately 20% year-to-date. The Nasdaq is down nearly 30% YTD and the Russell 2000 small cap index is down 24%. Bonds continue to struggle as interest rates trended up again in the second quarter. The Barclays Aggregate is down just over 10% through June 30, after falling another 4.5% in the second quarter. We are officially in a bear market. This is now the 4th bear market since Fairway was founded (dot com bust in 2002, financial crisis in 2008-2009, Covid in early 2020 and today). We also had 19%+ dips in 2011 (downgrade of US sovereign debt) and 2018 (US/China trade war fears). And there were double-digit drops in the index in 2003, 2007, 2010, 2015 and 2016. So that’s six drops of 19% or more and eleven drops of 10%+ in just the 20 years since Fairway was founded. Every time, things were painful. Every time, there was doubt, feelings that the bottom will never come, that this time is different. Every time, we compared portfolio values to their highs and cringed when we assessed how much money we had “lost”. And yet each and every time, new highs were reached. Every dollar invested in the broad market during at least the first 9-10 of these dips has turned profitable even today, no matter where in the dip the investment was made. And for the 20 years ended 6/30/22, despite eleven drops of 10% or more and six of 19% or more, the S&P 500 is up about 9%/year. Our clients had adequate defense so that all near-term cash flow needs were insulated from every one of those market drops. And those that stuck to their long-term plans were able to take advantage of each drop in some way or another, despite never knowing when the bottom would eventually appear.
Running a successful business is a long-term endeavor, requiring vision, strategy, patience, and perseverance. Managing an investment portfolio requires many of the same traits. I suspect the next 20 years will bring continued challenges for Fairway…and like the market, they will likely be challenges new to the firm, challenges we didn’t necessarily see coming. But I’m also highly confident our continued trajectory will be up and to the right. We will continue to build and grow our team, provide more value to our clients, and more opportunity for our employees. And most importantly, help you fully enjoy your wealth…in lifestyle, legacy, and peace of mind.
