2023 Q3 Newsletter
“The only thing new in the world is the history you don’t know.”
Harry Truman
Fifty years ago this month, I was enjoying life as a kindergartner at Northside Elementary in my small hometown of Fairport in upstate New York. My days consisted of a delightfully predictable routine: Mom would walk my older brother and I to the bus stop, the bus driver would make a dozen or so stops to pick up the other neighborhood kids, my best friend Sean Coyle and I would race from the bus drop-off to the school entrance, my teacher Mrs. Fitzgerald would play the piano and sing, I would finish our assigned arithmetic problems in five of the allotted thirty minutes (then fidget impatiently), I would race Sean back to the bus after school to get the bounciest seats in the last row, and then Mom would greet me with a big hug and kiss at the bus stop before walking me home by the hand.
After-school time was less predictable, but no less delightful, for a five-year-old with three older brothers: backyard football, riding bikes, playing superheroes, catching frogs, and whatever we could think of to annoy our poor little sister (sorry Rene!).
But as the son of Captain Kenneth Davey, USMC, the chaos stopped abruptly in our house at 6 p.m. At that time, we would clean ourselves up, help Mom set the table, sit at our assigned seats, say grace, and enjoy family dinner together. Once excused, we completed our assigned chores and did our homework while Mom and Dad escaped to the living room for some well-deserved peace, quiet, and Walter Cronkite’s “And That’s the Way It Is” newscast at 7 p.m.In my mind, watching some old guy talk about current events on TV seemed like a complete waste of time. So I often tried to “rescue” my parents from what surely must’ve been excruciating boredom by entertaining them with somersaults, headstands, or push-ups. If I was quiet, they would typically allow it, and even throw me a loving smile or laugh every now and then.
But during what must have been October of 1973, Mom and Dad seemed unusually attentive to the news and dismissive of my acrobatics. I took this to mean Mr. Kronkite must have been saying something important, so I turned my attention toward him, as best a curious five-year-old could. I remember hearing strange words like Nixon, Watergate, Israel, Soviet Union, nuclear war, oil embargo, gas prices, stock market, and recession. I had no idea what any of them meant, but I got the sense it wasn’t anything good.
In fact, historians may very well judge October of 1973 as the onset of the very worst confluence of constitutional, geo-political, and economic crises our nation has ever seen: gas prices quadrupled, the president resigned, Americans slept under the very real threat of the Cold War morphing into a Hot War by morning, and the stock market dropped 49%.
By the time I matured and started to pay attention to world events myself, I experienced the One Day Crash in 1987 (S&P 500 down 22.6%), the Gulf War in 1990 (down 20%), the Asian Contagion in 1998 (down 20%), the Bursting of the Dot-Com Bubble in 2000 (down 49%), the Global Financial Crisis in 2008-2009 (down 57%), the Greece/Europe Debt Crisis in 2011 (down 20%), the Christmas Eve Massacre in 2018 (down 20%), the COVID Collapse in 2020 (down 34%), and most recently, the Runaway Inflation/Fed Tightening Debacle in 2022 (down 26%).
By my count, just during my lifetime (which overlaps many of yours), I have experienced no fewer than ten separate “crises” that triggered stock market declines of 20% or more, three of which were 50% declines. Yet from the time I was a kindergartner to today, the price of the S&P 500 is up about 35 times, earnings are up up about 35 times, the cash dividend has increased three times as much as inflation, and the compound return has been almost exactly 10%.
As with yesterday’s crises, none of today’s crises (the war in Ukraine, stubbornly high inflation, Fitch’s downgrade of US sovereign debt, another surely divisive election cycle, etc.) has an obvious solution. Even so, history suggests that Great Companies will find a way to adapt, innovate, and evolve to grow earnings, dividends, and shareholder value for patient, disciplined, long-term investors. So rather than succumb to the pessimists’ foolish cry “This time is different," we Spartans confidently maintain our child-like optimism with our wise rebuttal “This too shall pass.”
Don Davey
Senior Portfolio Manager
Disciplined Equity Management
Plan Appropriately, Invest Intelligently, Diversify Broadly, Ignore the Noise
