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1Q 2020 Client Letter

Updated: Apr 15, 2021

Thank you for your support of our new firm, Heron Bay Capital Management. As an independent firm dedicated to the management of the wealth of individuals and families, we are unencumbered by the conflicting needs and objectives of institutional investors or to sell investment “products.” We will work diligently to be worthy of the trust and confidence you have placed in us. This is the first of our quarterly letters. As we have had a previous relationship, you are already familiar with my management of portfolios. So while much of this letter may seem obvious, it is intended to provide my perspective on the investment implications of this crisis and to be a reminder of how I go about the business of investing and of serving you.

Following the death of Candace, my wife of 41 years, I spent many months in solitude. During this time, I considered the options for my path forward. I considered the prospects of retirement as well as the option to extend my employment contract with Seizert Capital Partners in November 2019. I soon realized that I was not “done” with work and that I remained devoted to the service of so many clients who had trusted me in the past. I also knew that the markets fanned the flame of my ambition. I had more than forty years of experience in portfolio management: I’d benefited from past leadership responsibilities and was qualified to start another firm. The opportunity to work with my son Paul and to mentor other young investors felt compelling. With those thoughts in mind Heron Bay Capital Management began operations in January of this year. We soon added Tammy Micakovic, an experienced administrator and bookkeeper, and Joseph Ashmore, a Chartered Financial Analyst (CFA) with strong quantitative and analytical experience. We certainly chose an interesting time to go into the business of private wealth management.

The first quarter of 2020 – with the global pandemic of COVID-19 and the market crash it has created – will be remembered as a critical time in our economic history. Not unlike the terrorist attacks of 9/11, the recession of 2008, or the market crash of 1987, this pandemic has taken a swift and dramatic toll as market sentiment shifted from greed in January to fear and survival in February and March. The human toll has been far worse. News of the dramatic spread of the virus proved beyond the imaginations of most. The quarantines and social distancing will alter our lives and behaviors long after the crisis has passed. While the toll on the economy will be significant, the toll on our psyche may be just as extreme, and it will require time to heal. Market estimates at this juncture are at best inferences based on the experience with the virus in China and Italy. We will not join in with forecasting the unknowable effects of the novel Coronavirus on the economy and the markets. What is obvious is that the sharp economic decline that began in March will affect most industries. The duration of this economic decline is unknown. Amidst this pragmatism, we have a deep faith in our resilience as a nation and that research will ultimately find a vaccine. It seems that we are getting some hopeful news from both China and Italy that the rates of infection and its death toll are ebbing. It is also encouraging that our government is now “all in” and the Federal Reserve has been aggressive in providing much needed liquidity and stimulus. We anticipate that recovery will likely be stronger than if the government had not intervened aggressively.

My perspective: The market decline has been swift and unprecedented. The impact of mass selling because of fear among investors, algorithmic trading and the commonality of holdings of many ETF’s and passive strategies has been broad. Smaller stocks and those immediately affected by the quarantines were hit hardest. There was no place to hide and I am humbled that I did not see this coming. But as Rahm Emmanuel once said, “Never let a crisis go to waste.” Taking the view of a long-term investor and knowing that this too shall pass, we are using the equity market’s decline as an opportunity. There is a “reset” of individual company valuations occurring as some will not survive, some may limp through the crisis and others will emerge in a solid position. My focus is on the third and we are compelled to be very selective, as the duration and depth of the downturn are uncertain. It is a time, however, to act and begin to concentrate our holdings in companies with very strong financial positions, high levels of profitability, management focused on productive capital allocation and selling at new and attractive valuations.

My experiences in the past periods of duress (1987, 2001-2003, 2007-2009) and my study of the market declines of 1918, 1929, The Great Depression, and the “nifty fifty” era that ended in 1974 come to bear. In each period, there was a sharp decline and a “bounce” from the new market low. As emotions swung to fear, there was a period of very high volatility over the next several months and there was a “retest” of the initial sell-off. Sometimes this caused a new low and sometimes not. As macro policies were put in place and companies reacted to the new environment, more rational behavior took over and individual stocks and markets recovered. Following such a “reset”, many of the previous cycle’s “winners” took years to get back to their old highs and some never got there. However, those with less extreme valuations (and where the business was intact) recovered in a much shorter time. What makes this situation different is the timing and magnitude of the government response. Relative to our GDP, the monetary and fiscal response is the largest ever and months ahead of what was done in the last recession. The impacts of these government responses will be both immediate and extended which will lessen the pain of this crisis and ultimately provide for a more significant recovery. During the recent volatility, we initiated some new investments and will continue to opportunistically add to existing holdings in the days to come, as the economy improves. We are using our discipline as active value-oriented investors in quality companies to meet your objectives.

In these unprecedented times, we are working diligently to absorb new information as we seek to manage the inherent risks of the market. As always, if you have any questions or concerns, don’t hesitate to call.


Heron Bay Capital Management, LLC (“HBCM") is a registered investment advisor. Advisory services are only offered to clients or prospective clients where HBCM and its representatives are properly licensed or exempt from licensure. For current HBCM information, please visit the Investment Adviser Public Disclosure website at by searching with HBCM’s CRD #305537.

No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of HBCM strategies are disclosed in the publicly available Form ADV Part 2A. Risk associated with equity investing include stock values which may fluctuate in response to the activities of individual companies and general market and economic conditions.

The model performance shown was created by HBCM utilizing Portfolio Attribution within Factset for each investment portfolio listed. The model performance shown is not indicative of future performance, which could differ substantially. It does not reflect actual account performance for any specific client or a composite performance for a group of clients. Model results represent what an investor’s returns might have been, had they been invested in the exact investments using the exact same allocation for the exact same time period for the model portfolio reflected. This does not reflect the impact that material economic and market factors may have had on decision making. The results shown were achieved by means of a mathematical formula.

Actual returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. The collection of fees produces a compounding effect on the total rate of return net of management fees. The applicable fees are described in Part II of the Form ADV.

Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income. You cannot invest directly in an Index.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.


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