Many who have come into my office have asked about a small green sweater that is framed and hanging on my wall. It seems a strange item for a financial planning firm, but the story behind it plays a significant role in my philosophy towards investing.
 
In 1921 my grandpa Jones opened a small knitting mill in Los Angeles.  From the beginning he decided to run his little company based on two very simple principles. First- Be fair and honest with customers and employees. Second - Only produce the highest quality clothing, made from 100% pure wool.
 
The early years were not easy. Among other things was stiff competition from several other mills in the area that had chosen to use “fillers” in their wool. By mixing foreign material in the wool, the competition could keep costs lower, yet under regulations at the time they could still claim to be pure wool. This concerned Grandpa but he pressed forward with a firm determination to follow his business plan. When people bought a “Jonesknit” sweater, he wanted them to know they could trust the product to be of the highest quality.
 
The years went by and Jonesknit, despite receiving numerous awards for the quality of its sweaters, continued to struggle in a competitive world where price often had the final say. Suddenly, in 1929 the Great Depression struck and the garment industry was particularly hard-hit.
 
Amazingly, while competitors were shutting down, the sales of Grandpa’s sweaters grew. Public schools, large organizations and even the U.S. Postal service began to buy almost exclusively from Jonesknit. Not only were there no layoffs, but new people were hired and Grandpa was able to continue giving his employees regular raises. He learned that when times get tough, people can’t afford to waste their money on junk. They look for quality. Grandpas focus on quality resulted in his family and employees being cared for in comfort while so many were suffering during the depression.
 
The small green cardigan Jonesknit sweater in my office was given to me by my grandpa when I was eight years old. I admit to being pretty disappointed at the time, having really wanted another toy airplane that Christmas. But I have since come to appreciate the valuable message knitted into that sweater. During those times when the investing world is struggling and I am searching for appropriate investments for my clients, I glance over at that sweater and remember the lessons learned from grandpa Jones. “Focus on quality,” I remind myself, as those companies who do so are most likely to survive and thrive. I call it my Green Sweater principle and it has served me well for many years.
 
As the investing markets enter this current season of heightened concern and increased volatility, you can be sure I will be paying particular attention to the lessons of that old green Jonesknit sweater hanging on my wall.

We were on the mountain this week and Jayden and his friend wanted to go for an ATV ride. It was late afternoon so I let them go on condition that they were back by dark. Later on, as the sky darkened I was wondering when the boys might get home and realized I had given them bad advice. By telling them to be home by dark, I hadn’t allowed any room for error. There are lots of ways to run into trouble on the mountain, from a serious accident to a less serious mechanical breakdown, or simply getting lost. Even the most experienced riders can get turned around in the forest. By giving them instructions to be home by dark, I didn’t leave any room to go looking for them in the event they failed to show up.  There is no cell service on the trails and once it gets dark, finding someone can be very difficult. Needless to say, we were glad to see them pull in just as the last light was disappearing.
 
Investors often come to me with an odd request. They tell me that since the markets are pretty good they want me to keep their investments overly aggressive but, to move them to safety if things change. It would be great if that were possible but the reality is, when the markets turn against you there isn’t always a lot of warning. Sometimes by the time the markets go dark, as it were, it’s too late to do anything about it. This is one of the reasons I emphasize taking a more balanced approach to investing. In a sense, it is like giving you room for error. A balanced portfolio, by design, may have some investments that are doing very well and others that may not be doing quite so well. Then the investments may switch places. The goal is to get a favorable rate of return overall, while not exposing yourself to more risk than is reasonable. It is a trade-off.
 
Since I didn’t give the boys any room for error, I realized that I had exposed them to too much risk. A simple flat tire could have become a major problem given the difficulty of finding help in the dark. By asking them to be home an hour before dark they would have had a little less time for fun, or perhaps a little less return as it relates to investing, but the price would have been worth the reduced risk. It has been my experience that trading off a little return in exchange for less risk can result in a more positive investing experience over time. As with four wheeling, a flat tire eventually will happen and when it does you will be glad you saved that extra hour of sunlight to help you find a solution.

On September 11th,  2012 an automated text message from the mayor of Santa Clara, Utah warned that the dam above my house was about to break. I raced home but before arriving received a call from my neighbor.  He was normally quite a jokester but there was no joking in his voice when he said that a wall of water had just crashed through my house. “You don’t want to see this.” he said. And he was right.
 
Water is an unpredictable thing. The flood had come barreling down the street, crossed a field, and crashed through our French doors filling our house with over three feet of mud. It was as if the flood had singled us out for destruction. As bad as it looked, we had no idea it would take 18 months and over $200,000 to repair our property. As Launa and I surveyed the terrible scene I said, “What are we going to do?” She responded, “Start shoveling.”
 
We learned from our own personal 9/11 that sometimes bad things just happen. Despite all your best efforts, you can’t always predict or prevent disaster. I have helped many people through personal financial disasters in their lives. Job losses, medical emergencies, divorce, criminal activity, national economic collapse and many other unexpected disasters can put a real squeeze on family finances. There are things that can be done to prepare, but there is never a guarantee that your preparation will be enough. Life doesn’t really offer many real guarantees. I have seen people do everything seemingly right and still find themselves looking at a flooded life wondering if they will ever recover.
 
The thing to remember about proper financial preparation is that it’s like living a healthy lifestyle. You may eat properly and exercise daily your whole life, and still wind up with a heart attack before age 60. That’s just the way life is. But those first 60 years would have been much more enjoyable for having lived so well. In similar fashion, being financially responsible is not just about hoping to retire comfortably in your old age, but about living better in your younger years. It’s about having more peace and less stress in your life today, even if all your efforts can’t guarantee what might happen tomorrow. Doing what’s right today brings its own reward right now, and will also make whatever comes tomorrow easier to handle.
 
I may be a little sentimental but I still have several shovels in my hangar covered with Santa Clara red mud. I keep them as a reminder that despite our best efforts, disasters can still happen. They also remind me that our preparation before the flood made the disaster much more bearable. We can’t stop the floods of life from coming, but we can live better until they do, and get through them easier if we are prepared. Financially speaking, doing what is right today is always a good idea.