Thought of the Week

1. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion of our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser.
Thought for the Week (291):
Panic Selling
Synopsis
 Equities sold off hard on Monday due to concerns over Russia’s move to deploy troops into southern Ukraine, and markets rebounded just as fast on Tuesday as the situation eased.
 Panic selling is a kneejerk reaction driven by human emotion rather than fundamental analysis, and equity markets are frequently impacted by this behavior.
 Markets put securities on sale every day, and the Investment Committee welcomes panic selling because these events represent some of the best times to buy equities.
What Happened on Monday?
On Monday, Russia’s leader, Vladimir Putin, ordered troops to be deployed into Ukraine’s southern region known as Crimea. This area is predominantly Russian by decent and still loyal to the Russian government. Putin’s explanation for this aggressive move was to protect the Russian population living there from potential persecution from Ukraine’s newly formed government.
Arguably the most heated standoff with the U.S. since the end of the Cold War is exposing the weakness of Russia’s economy that has been built solely on contributions from the energy industry. Oil and gas account for more than half of Russia’s exports, and with energy prices stagnant, the growth potential is all but exhausted. Growth forecasts for Russia’s economy have been cut more than once over the last 12 months, which has prompted Moscow to sound the recession alarm.
Furthermore, Russia supplies Western Europe with approximately 40% of their natural gas, of which 80% is transported via pipelines that stretch across Ukraine. Russia has a history of cutting off the supply of natural gas during conflict and has done so numerous times over the past decade.
Putin’s troop buildup in Crimea triggered the biggest stock selloff in Russia in over five years, down over 11%, and their currency weakened so much against the U.S. dollar that the Russian central bank was forced to intervene to prevent further losses.
World markets followed suit as The S&P 500 and Europe markets lost anywhere from 0.75% to over 3% in value. However, according to Oxford Economics, the following 2012 gross domestic product (GDP) numbers, which is a gauge of economic activity, highlight just how small Ukraine’s economy measures versus the U.S. and the world:
 Ukraine: $95 billion
 U.S.: $14.5 trillion
 World: $72.4 trillion
Therefore, if the entire Ukraine economy were to disappear, then the impact to world GDP would be approximately 0.13% (95 billion ÷ 72.4 trillion).
Simply put, rather than assessing the true impact to the global economy, traders chose to “shoot first and ask questions later” by selling feverously throughout the day.

2. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion of our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser.
What Happened on Tuesday?
On Tuesday, the U.S. woke to news that Putin chose not to escalate Russia’s involvement in Ukraine (for now). We cannot be sure why he chose to withdraw further aggression given that he had been clearly planning this move for weeks. Perhaps it had to do with the threat of sanctions from the U.S. and Europe. Perhaps not.
NOTE: One conspiracy theory that the Investment Committee believes hold some merit is that Putin backed off on Tuesday given the financial impact to Russia. He is a large owner of equities, and most of his allies are very powerful and wealthy individuals in Russia who lost billions in the 11% selloff in the Russian equity market on Monday.
Markets immediately rallied hard across the globe, as concerns over a full-blown invasion seemed highly unlikely. In fact, the S&P 500 saw its best day of 2014, erased all the losses for 2014, and even reached a new all-time high.
Panic selling is a kneejerk reaction driven by human emotion rather than fundamental analysis, and equity markets are frequently impacted by this behavior. To demonstrate, the chart below shows just how often the S&P 500 has been under pressure from panic selling.
Source: Yahoo! Finance
Let’s walk through some of the more recent selloffs and determine which have been predicated upon changing fundamentals:
 January 2014: Concerns over a looming correction of 10%+ in equities and fears in emerging markets spooked equities. However, company earnings were reported to be quite healthy and contagion from emerging markets were overblown.
 October 2013: Investors panicked over the government shutdown and potential default on U.S. debt. Both ended up to be nothing more than political charades and masking economic data that pointed to a slow and steady recovery in the U.S. and Europe.
 August 2013: The truly terrible events that occurred in Syria caused the S&P 500 to decline almost 1.5% the day the news was reported. Most companies in the U.S. have next to no

3. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion of our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser.
exposure to Syria, however, they sold off for the sole reason that investors’ appetite for risk reversed.
 June 2013: Fears over tapering of the Fed’s quantitative easing program caused panic worldwide and little was spared. But the Fed would only taper their bond buying if they felt that our economy was getting stronger, so stocks should do well in an improving economy. This counterintuitive behavior fortunately did not last long, and today tapering has been well received by investors.
Despite all of this panic selling, the only notable trend that emerged is that equities climbed higher each time because the catalyst for each selloff had nothing to do with the fundamentals of our economy and/or the fundamentals of the companies that compete in our economy.
Simply put, long-term investors can profit handsomely by spotting trends, and therefore, we have used these selloffs as opportunities to put cash to work.
Implications for Investors
In a span of just two trading days, we saw volatility spike and equity prices whipsaw over next to no change in the underlying fundamentals of the U.S. economy, the world economy, and/or companies that participate in these economies.
NOTE: If anything, we may actually see some good come out of Putin’s aggression in the form of increased exports of energy from the U.S. to other countries. Western Europe could certainly use an additional source of natural gas, and we would be a very welcome supplier given our vast resources and stable government.
The bottom line is that we’ve seen this behavior before and we will see it again. The Investment Committee even welcomes such irrational selling and we continue to sit patiently, waiting for these wonderful buying opportunities to emerge.