2024 CEO Letter

January 1, 2024

At 4:10pm JST on New Year’s Day 2024 (just after Midnight of 01.01.24 MST), a massive 7.6-magnitude earthquake struck Ishikawa Prefecture in Japan. BSW’s CEO David Wolf is in Ishikawa visiting his wife’s family and shares his thoughts on the events and 2024 in this blog post. Video footage of the earthquake here

When the Earth trembles and crashes down around us, how will we react?

As I write this post, I just felt and heard another aftershock. The ground sways. Walls imperceptibly shimmy. Jingling and tinkling sounds permeate the house at plates, glasses, and anything unattached vibrates. Alarms beep. Distant sirens briefly follow. Then the sounds of birds, quiet, and normalcy return.

Map of Japan locating the epicenter of a 7.5-magnitude earthquake on January 1 – AFP / AFP

After twenty-seven hours of travel door-to-door, my wife (Norie), 6-year-old son (Hiroyuki), and I arrived in Nata-machi village, Ishikawa Prefecture, Japan late on December 29, 2023. As many BSW clients know, my wife is Japanese and her family lives in Japan. This is my 19th trip to Japan, this visit to celebrate the New Year’s holiday with Norie’s parents, kiss her goodbye as she heads to Hokkaido for another season of ski guiding, and wish my son the best as he begins three months of Japanese kindergarten and living with his Obasan and Ojisan (Grandmother and Grandfather).

New Year’s Day is the most important holiday of the year in Japan. Imagine if Americans rolled Thanksgiving, Christmas, and New Year’s all together and you’ll get a sense of New Year’s significance for Japanese. It is a time to celebrate with family and friends, reflect on the past year, and share hope for what is ahead. It is also a Japanese tradition to visit a Buddhist temple or Shinto shrine at Midnight and on New Year’s Day. My wife’s father and brother are Buddhist monks, and her family has administered the 1300-year-old Natadera Temple for generations, so New Year’s carries extra significance in her household. As head monk of Natadera, her brother leads the bell ringing procession marking Midnight and conducts various ceremonies and blessings for throngs of visitors on New Year’s Day.

After celebrating at Natadera, Norie, Hiro, and I headed up to the local ski area, Hakusan Seymour, to meet another family. Although similar in size to California, Japan has more ski areas than all the US combined. While some areas (like Niseko) have been discovered by foreign guests, most areas are off the radar. The chairs are slow, the lifties friendly old men who are farmers in summer, and the facilities aged. Lift tickets are less than $20. There are no slopeside condominium complexes, t-shirt shops, or $30 Epic Burgers. Here, skiing is still an accessible, affordable, family affair that feels more like Iowa than Aspen.

After skiing, we went to Yusenji onsen, a modest community hot springs, to bathe. The entrance fee is ¥490, about $3.50. With the holiday, Yusenji is busy. This is a rice farming area, and it shows. Guests are old, but with lean, strong bodies and smiling, weathered faces. Everyone is on the same program. Relax and bathe before heading back to dinner with family.

At just before 4pm, I am sitting in an outdoor onsen with several other Japanese bathers, naked as the day we were born. Red-headed gaijin (foreigners) are a rare sight at rural Yusenji, so we are making small talk. Why are you here? Where are you from? Do you enjoy Japan? Hiro and other kids are playing in the nearby bath and collecting ドングリ (donguri, acorns).

The television in the dressing area suddenly flashes red with a picture of the nearby Noto Peninsula. Early warning sounds blare from the television and sirens. Another bather says to me,  地震! (jishin) then, in English, “earthquake!” There is a rumbling deep, deep in the earth. Everything – the ground, the walls, the horizon – begins swaying and shaking violently. I have never before seen walls move and reverberate like waves. Ceiling condensation falls like a sheet of rain. The onsen water rocks and is thrown about like storm surge. Time is distorted. The minutes feel longer and sharper, but concurrently briefer and blurred.

After the first tremor ended, what did NOT happen was, to me, what was most noticeable. There was no screaming, no shouting. But for a few very young children, no crying. When the warnings sounded, folks moved swiftly but calmly away from windows and under doorframes. Younger folks helped elderly folks to areas of safety. Elderly folks calmed worried children. When it ended, Yusenji staff raced about making sure everyone was OK and the structure undamaged. Keeping in mind that all the bathers in this scenario were still completely naked, the contrast was remarkable. Calm truly is contagious.

Many folks wrapped up their business, dressed, and headed out to inspect their homes for damage. Nearly everyone was on the phone checking on family or friends. Roadways were full yet orderly, with many cars pulled off by the side of the road so their drivers could make phone calls. Even after an earthquake, the Japanese adhere to the law that prohibits driving while talking on the phone. Again, remarkable, yes?

Thoughts On 2023 & 2024

Hiro’s 絵馬 (ema, New Year’s prayer) the morning before the earthquake.

A magnitude 7.6 is a major earthquake. Anything larger than 8.0 is monstrous. The earthquake and tsunami that struck Japan in March 2011 was incomprehensibly large at 9.0.  Yet, as of this morning, only forty-eight tragic deaths have been reported from yesterday’s earthquake. Any death is tragic, and Japan is mourning. The death toll will most certainly climb as rescue efforts continue. For comparison, though, in February 2023 a similarly sized magnitude 7.8 earthquake struck Turkey and more than 60,000 people died. What can we learn from this and what parallels can be drawn?

While relative affluence certainly plays a critical role, the difference in outcomes in this thought exercise comes down to preparation and experience. Roughly 20% of the world’s earthquakes, and nearly 2,000 tremors of varying sizes, occur annually in Japan. Japanese kids regularly practice earthquake drills and that knowledge persists into adulthood. Japanese buildings are engineered to be dynamic and respond to earthquakes, rather than resist and collapse. These practices and designs are continually refined and improved over time. This is the Japanese concept of 改善 (kaizen, continuous + incremental improvement). More knowledge and experience leads to better preparation and increased resiliency.

This all comes to mind as we reflect on 2023 and look ahead to 2024. While at gatherings and events through the Thanksgiving and Christmas holidays, the tone of pessimism and resignation toward 2023 was striking. “Thank goodness 2023 is over,” and “What a stinker of a year,” were heard repeatedly. That sentiment is puzzling, yet understandable. 2023 will be remembered as the year of the 10.07.23 massacre in Israel and the ensuing war in Gaza; the ongoing war in Ukraine; the deadly wildfires in Maui; a US and global banking crisis in which Silicon Valley Bank and Credit Suisse failed; and ongoing political division and turmoil as former President Trump faces various legal proceedings and sitting President Biden and his family are investigated for potential corruption.

Yet, at the same time, BSW clients were rewarded by some of the best investment returns in memory. Both stocks AND bonds rallied sharply, with the S&P 500 up more than 25% and nearing record territory; the Dow Jones hitting new all-time highs, global markets climbing more than 13%, and bonds up nearly 6%, Inflation appeared to have finally abated with the US Federal Reserve shifting from a hawkish to dovish tone. Fears of the most anticipated recession that never happened fading to talk of soft landings. Personal incomes, household wealth, and corporate earnings are setting records. So why the long face?

Because bad news sells. Indeed, if the earthquake in Japan is dire and scary enough to even make the US news cycle, articles will no doubt also mention the accompanying tsunami because that word tsunami sounds foreign and scary. A five-meter tsunami did strike western Japan, though no one died. The same articles will focus on the forty-eight reported deaths thus far, rather than preparation and experience that allowed a country of 125 million people to endure largely unscathed. Similarly, remember that COVID was going to cripple the world? That the Russia-Ukraine war would drive “massive global starvation?” That the US banking crisis would lead to a collapse of commercial real estate?

So what lays wait for us in 2024? What will be the newest monster drummed up to stoke fear and anxiety? 2024 is a US Presidential election year, so we can be certain that political nastiness and muckraking will be a plot element. But rather than worrying about the next shoe to drop, consider what we have collectively made it through over the last several years. It is stunning to think about. What gets overlooked, unfortunately, is the simpler truth: The more you overcome, the stronger you become.

Reflecting on 2023, we are honored to work with, and on behalf of, you — our clients. Embracing the spirit of kaizen (continuous improvement) the BSW team made important changes across our functional groups to benefit clients. Backed by rigorous analysis, academic research, and real-life practicality, BSW’s Investment Group introduced a greatly enhanced equity strategy and process. Our Advisory and Financial Planning Group modernized and streamlined your Investment Policy Statement experience. And our Operations Group deployed and refined new technologies to make capital calls, wires, and other processes more efficient and seamless for you. Through disciplined investment, thoughtful planning, and diligent execution, BSW clients participated in the unexpected and historic gains of 2023 as others sat on the sidelines waiting for the “all clear” sign that has never (and will never) come.

As another aftershock shakes the house just now, what if our portfolios, lives, and institutions were engineered to be dynamic and responsive, rather than to resist and collapse? What if we could respond to the challenges that will inevitably (and literally) rock our worlds with the calm, purposeful confidence gained through through knowledge, experience, and preparation? Working together, we can. This is what BSW strives to do each day on your behalf. Bringing stability and resilience as the ground inevitably (and literally!) shifts under our feet.

On behalf of all of us at BSW, we wish you, your family, and loved ones a healthy and prosperous 2024!  あけましておめでとうございます! (Akemashite omedeto gozaimasu!, Happy New Year!)

-david wolf, CEO

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