Dear Partners,  

If you’re a fan of the 1980 comedy Caddyshack, you’ll no doubt recognize the following poem, which Judge Elihu Smails proudly reads at the launch of his sloop, the Flying Wasp:  

It's easy to grin when your ship comes in
And you've got the stock market beat.
But the man worthwhile is the man who can smile
When his shorts are too tight in the seat.  

Judge Smails is hardly an admirable character. He lacks compassion. He’s quick to take offense. He’s a liar, a cheat, and a hypocrite. Yet his understanding of investor psychology is exactly correct. How many of us grin and pat ourselves on the back for our superior investing acumen when our portfolio is beating the market – only to wince and wonder what we did wrong the moment our outperformance starts to unwind? Few of us, it seems, can smile when our shorts (pants, that is, not positions) are too tight in the seat.  Since late September, the markets have been testing our ability to smile. Elevated valuations, rate hikes, a trade war with China, “quantitative tightening”, and more have coalesced in a perfect storm, sending equities sharply lower. Fear, bordering on panic, has returned.