July Member Letter
I'm even more delighted than usual for our mid-year report on the events of the last six months, and on the further progress of our long-term plan. But first, as always, a brief recitation of our principles.
The Ideas That Guide Us
We are long-term, goal-focused, planning-driven investors. We are owners of broadly-diversified portfolios of enduringly successful companies because this provides the highest probability of creating an income stream which rises to meet our rising cost of living and lasts the rest of our lives.
As such, we act continuously on our plan, as opposed to reacting episodically to current events and conditions.
We're convinced that the economy cannot be consistently forecast, nor the market consistently timed. We infer from this that our best chance to capture something close to the full long-term return of equities is to ride out their frequent, sometimes significant, but historically always temporary declines.
For this reason, we don't much care for your (or anyone's) particular market outlook – it doesn't matter.
These basic principles will continue to be the bedrock convictions that inform our investment policy, as we pursue your most cherished financial goals together.
After declining sharply for most of 2022, the S&P 500 ended the year at 3,840.
As the year turned, it seemed as if the economy was stuck between a rock and the proverbial hard place. Either the Federal Reserve would tighten credit conditions enough to stamp out inflation, thereby plunging us into recession – or it would relent, avoiding recession but permitting inflation to burn on.
Either way, we were assured that corporate earnings must be about to decline significantly, boding ill for "the stock market."
To this apparently intractable situation, the first half of 2023 added three new and potentially critical uncertainties: the specter of U.S. sovereign default, a wave of bank failures that seemed to threaten the banking system anew, and a renewed outbreak of fear surrounding the dollar's status as the world's reserve currency.
This last one is perhaps the most persistently exasperating because I cannot trace its origin. Every couple years it seems, I receive a half-dozen phone calls expressing concern about the dollar losing its reserve currency status. Historically it was always the "gold bugs" who would push the narrative. Today, I am guessing it's probably the crypto enthusiasts doing the same... and they are everywhere.
Yet after enduring that relentless onslaught of crises, real and imagined, the S&P 500 closed out the first half of 2023 at 4450, up 15.9%. I'm tempted to say, "You read that right," and leave you to draw your own conclusions. Instead, I'll just repeat Peter Lynch's timeless maxim: "The real key to making money in stocks is not to get scared out of them."
In that sense, these six months represent for me—and I hope for you—a successful investing career in microcosm. You and I did all that can be asked of us: amid well-nigh universal pessimism, we didn't get scared out.
Rather, we stayed focused on our goals and on our long-term plan, with confidence that the managements of the companies we own were husbanding our capital with diligence, while they sought out new and potentially greater opportunities amid the adversity.
You may want to read this last paragraph again. If/when you ever call with questions about something that may adversely affect our portfolios and wonder what we might do about it, you will hear some version of this statement specifically honed to the issue of the day.
In summary, everything that happened (and didn't happen) in the first half of 2023 turned out not to matter much. What mattered was that together we chose not to react. Is it possible that a lifetime of patient, disciplined investment success is just that simple? I certainly believe it can be, and I sincerely hope you see it too.
Thank you, as always, for your eyes and ears, for sharing the newsletter, for commenting on social media, and for being great clients, members, and friends of Mindful Money.
It is a privilege to serve you.
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