Quarterly Letter

The Uncle Point

Eric Wills, CFA · Q1 2026

To My Partners,

A colonoscopy followed by anesthesia is a much different experience than the inverse. In medicine, sequence determines your level of discomfort; in investing, it dictates your outcome. Many investors treat their portfolios like a game of Russian Roulette. Statistically, the “average” outcome is great—you win five out of six times. But if you play long enough, the average ceases to matter. In the markets, you don’t usually lose your life, but a deep enough drawdown can take you out of the game.

The Myth of the Unfeeling Investor

Conventional “buy and hold” wisdom is sound in theory, but incomplete in practice. It assumes the market’s average return is the same as the investor’s return. That is mathematically naïve. It focuses on the destination while ignoring the wreckage along the route. The market’s “long-term average” is a statistic; your portfolio is a single, idiosyncratic path. If that path hits a 50% drawdown, the “average” no longer exists for you.

When the market is climbing, the focus is entirely on the scoreboard. During the good times, we model ourselves as logical robots with immovable risk tolerances. But we are biological entities with fluctuating thresholds for pain. Everyone has an “uncle point”—the emotional threshold where a long-term horizon is replaced by an immediate need for survival. If you hit that point during a 50% drop and abandon your plan, you’ve succumbed to the ultimate math trap. You don’t need a 50% gain to get back to even; you need 100%. Even if you have the stomach to hold on, the sheer drag of digging out of a hole ensures your wealth will lag someone who maintained a shallower drawdown.

Consider two investors starting with $1,000,000:

Despite having an identical 10% arithmetic average, Investor B ends with $81,000 more than Investor A. Investor A took more risk, endured a stressful 20% drop, and ended up with 32% less in total profit. The “Buy-and-Hold Tax” is the price you pay for holding volatility.

The goal of an enduring strategy isn’t to capture every bit of the upside; it is to mitigate the deep drawdowns. You can recover from fluctuations; you cannot easily recover from a crisis.

Warren Buffett famously simplified the game of wealth with two rules:

1. Never lose money.
2. Never forget Rule #1.

Buffett’s mentor, Ben Graham, codified this as the “margin of safety.” While these mantras sound like simple caution, they are rooted in the cold math of compounding. Drawdowns matter more than the upside. Just about every titan of the industry shares this obsession with protecting capital. They know that if you take a large drawdown, you are no longer a player—you are a spectator, waiting for the next high tide to lift your sunken ship.

This principle is best exemplified by the career of Warren Buffett. After sixty years of relentless compounding, he has moved so far into the “right tail” of success that the math becomes almost surreal. He could suffer a catastrophic 99% drawdown tomorrow—a near-total evaporation of his life’s work—and still end his career having outperformed the S&P 500.

This is the ultimate reward for survival: you eventually build a lead so significant that even a “Black Swan” event cannot force you back into the world of the mediocre. By avoiding the “uncle point” for six decades, he has achieved a level of robustness where even a terminal loss for most would still leave him as a winner.

Thoughts on the Market: An Economic Tug of War

I have long observed that the investment world is a perpetual battle between the things that make me worried and the things that make me optimistic. Currently, we are witnessing a “tug of war” between two massive, opposing forces: the inflationary pressures of government deficit spending and the deflationary potential of AI-driven productivity.

While it is tempting to believe these two giants will simply cancel each other out – leaving us with a smooth 2% ride – reality is usually a bit more “spicy.” Inflation acts like a “tapeworm” that quietly consumes the capital of even the most robust businesses. When geopolitical conflict flares, the drag of inflation gets a sudden, violent boost.

Consider the Strait of Hormuz – a tiny but vital artery for the world’s energy. When that artery became constricted, energy prices didn’t just “tick up”; they surged. This cost eventually finds its way into your grocery bill, plane ticket and your peace of mind. War is a massive disruptor of global supply chains. It is a fat-tailed risk – a fancy way of saying that in our world, when things go wrong, they go very wrong, very fast.

The Average Fallacy

On the other side of the ledger, AI has the potential to make businesses significantly more productive, acting as a powerful deflationary force. Most economists are currently modeling a “meet in the middle” result – predicting a mild 2-3% inflation rate.

I am reminded of the tale of the six-foot-tall man who drowned crossing a river that was, on average, only four feet deep. He forgot about the 10-foot hole in the middle. We cannot treat these forces like a stable seesaw. A sudden systemic shock – like an energy crisis – can break highly leveraged companies before the “average” ever has a chance to save them. We are already seeing signs of an “Uncle Point” approaching for private credit markets and tech companies priced for perfection that the universe rarely grants.

To navigate this, we don’t bet on which side wins the tug of war. We build a barbell designed to withstand the pull from either direction. Our first rule is simple: don’t take risks that threaten a permanent loss of capital. Compounding only works if you stay in the game.

We entered the year with corporate profit margins close to the historical high-water mark set in 2021 along with a Price-to-Earnings capitalization at the high end of historical ranges. The weakness seen to start the year, has been rather orderly and consistent with a market correction. Think of market corrections as the “necessary pruning” a tree needs to flourish over the long haul. They aren’t just normal, they are healthy. Our approach doesn’t try to outrun every minor dip – it’s built to protect you from the deep crashes that truly harm your growth (the kind demonstrated in the “buy and hold tax” scenario).

Statistically, a 10% correction happens every 14 months. While some of these deepen into bear markets, we shouldn’t lose sight of the bigger picture. The American economy is remarkably resilient, having weathered far greater energy crises and global conflicts. My confidence in the long term remains unshaken.

History doesn’t crawl; it leaps. Our goal is to make sure that when it leaps, we land on our feet. We aren’t just trying to survive the tug of war; we are positioning your capital to thrive regardless of which side pulls harder. Markets are getting bumpy again. It is easy to be brave when everything is rising. It is a lot harder when the market turns red. Risk is that gut feeling that changes when the ground starts to shift.

Now is the time to revisit your “uncle point.” That is the number that would make you lose sleep. If you know what that point is, tell us, we want to avoid it. My goal is to manage your portfolio so that it bends but never breaks. I also want to manage in a way that protects your peace of mind too.

The average isn’t always the average.

Eric Wills

Legacy Planning

When it comes to investing, most of our energy is focused on avoiding stupidity. And frankly, there’s nothing more “stupid” than leaving a giant, tangled mess for your family to clean up once you’ve left the building. Yet, for reasons that beat me, about 55% to 67% of Americans are walking around without a basic estate plan. Why make your Legacy a tangled mess?

Let’s be honest: when most people hear “estate planning,” they don’t think, “Oh, how exciting!” It feels clinical, overwhelming, and—let’s face it—a little morbid. However, there is a deep peace of mind that comes from knowing your loved ones have a clear roadmap during their most difficult moments. It’s the difference between leaving your loved ones a clear roadmap or leaving them a 1,000-piece puzzle with the box cover missing.

We’ve personally seen estate plans go sideways due to a lack of clarity or follow-through. We want to help ensure:

• Your medical wishes are honored if you can’t speak for yourself.
• Your children or pets are cared for by people you trust.
• Your assets transition smoothly, privately, and simply.
• Your estate stays out of probate.
• Estate taxes are minimized or eliminated.

The “Big Four” in Your Playbook

To keep your financial house in order, there are four “heavy hitters” we like to see on the roster:

1. The Revocable Living Trust (The “Owner’s Manual”): Think of this as the master instructions for your stuff. It keeps your business out of the public courthouse (probate), which is usually slow, expensive, and a headache for everyone involved.

   The Golden Rule: A trust only works if you actually put your assets into it. Having an unfunded trust is like buying a top-of-the-line safe and then leaving your jewelry on the kitchen counter. It looks good, but it doesn’t protect a lick.

2. The Certificate of Trust (The “Executive Summary”): This is a shorthand version of your trust. It proves the trust exists without telling the whole world who’s getting the grand piano or the coin collection. Without this, we’re stuck in a “holding pattern” when your family needs us to move quickly.
3. The Pour-Over Will (The “Backstop”): No matter how careful you are, something usually slips through the cracks—a new bank account or a forgotten bond. This document “catches” those strays and pours them back into your trust. It’s your safety net.
4. The Financial Power of Attorney (The “Co-Pilot”): If you find yourself in a spot where you can’t make decisions, you need someone you trust at the controls. Without this, we can’t take orders from anyone—not even your spouse. This keeps the lights on and the bills paid while you’re sidelined.

A Simple Five-Minute Check

Just take five minutes to ask yourself: Do I know where these four documents are, and are they up to date?

If the answer is “yes,” please send copies over to our office. We want to be ready to swing the bat for you the second you need us. If you’re missing a few pieces of the puzzle, don’t sweat it—let’s start the conversation.

If you are in need of assistance, we’ve recently struck up a friendship with Christopher Nudo over at NTegrity Law. Chris is a first-rate guy who doesn’t believe in shortcuts. He treats your life’s work with the respect it deserves, making sure every brick is laid right for the next generation. If you want to sleep soundly at night knowing your assets are secure, Chris is the straight-shooter you want showing the way. He’s offered up an estate planning webinar if you are interested, and a complimentary estate plan review for those who would like a second review.

In your corner,
—Adam

“No Bamboozlement Here” I recently saw that line at the start of another legal disclaimer. It caught my attention and hope it captured yours as well. Disclaimers boil down to the following statement – if you choose to believe any of this, then you are on your own. Jeepers! Given the ramifications, I too must disclaim liability for errors, omissions, and offer no warranties. I encourage you to verify my information, point out and forgive any errors. I am human and prone to mistakes, though I always strive for honesty.

While I do not intend to mislead, I cannot guarantee the accuracy of my content or the interpretation of my ideas. As an investor, I strive to do a good job and provide informative updates on my actions and thought processes. I hope these letters are read in the same spirit in which they are written.

Common sense tells you that the price and value of shares can vary greatly, and while I do not aim for this, we must also recognize that impairment of capital is possible. In my communications, I refer to clients as “partners.” I do this to convey a relationship that I seek where we share an experience and common destiny. I do not mean to suggest that there is a partnership in a strict legal sense of the word between clients, prospects or others that have an interest in the content produced by Park River Advisors LLC.