2023 Q4 Newsletter
What We Believe
Don Davey
As we flip the calendar to the New Year, we take this opportunity to clearly and concisely restate our Core Beliefs:
- All successful long-term investing is goal-focused and plan-driven.
- As your family’s Trusted Advisor, our role is to prevent fatal mistakes by quantifying your goals, engineering a Plan, designing a Portfolio that maximizes your probability of success, and aligning your behaviors with the Plan.
- Second only to love, the most powerful force on earth is human ingenuity. And equities are the only financial asset that fully captures human ingenuity.
- Over the long term, owners of successful businesses (stockholders) must make far greater returns than lenders to those businesses (bondholders). After all, owners have no incentive to borrow unless they can earn a return that is significantly more than their borrowing costs.
- The only rational definition of “money” is purchasing power; therefore, the goal of long-term investing can only be the accretion of purchasing power.
- Over the past century, the S&P 500 stock index has compounded at 7% above inflation, while the most comparable corporate bond index has compounded at 3% above inflation. Its cash dividend has increased at a rate of 5% versus the average inflation rate of 3%. Since the truest measure of the “safety” of an investment is its long-term return over inflation, stocks are significantly safer than bonds.
- Relying on a permanently fixed income stream to fund the perpetually rising expenses of a three-decade, two-person, real-world retirement is a bad idea. By contrast, funding retirement with a perpetually rising dividend stream paid by the World’s Best Companies is not only a good idea, it is a critical need.
- Since the end of World War II, the longest time it has taken to break even in stocks—with dividends reinvested—has been five years and eight months (Dr. Jeremy Siegel, Stocks for the Long Run). The risks in equities decline with time.
- The economy cannot be consistently forecast, nor the equity market consistently timed. So the only way to reliably capture equities’ premium long-term return is to remain fully invested in all market conditions. In other words, Panic is Forbidden at DEM.
- Plan Wisely. Diversify Broadly. Invest Intelligently. Ignore the Noise.
The most recent two-year period has proven the enduring strength and wisdom of these Core Beliefs. In 2022, the Dow, S&P 500, and Nasdaq 100 experienced peak-to-trough declines ranging from 20% to 35%, triggering record outflows from equity funds. As a result, millions of frightened lemmings sat idly in cash while all three indices soared to new record highs by the end of 2023. Investors are doomed not by a lack of intelligence, but by a lack of discipline.
As is always the case, the new year is marked by significant uncertainties: unsustainable trends in deficit spending and the national debt, ongoing wars in Ukraine and the Middle East, middle-class budgets strained by the stubbornly high prices of most goods and services, a possible recession still on the horizon, and the onset of another bitterly partisan presidential election cycle. Yet our time-tested advice remains unchanged: Unless your goals have changed, neither shall your Plan or Portfolio.
As we begin our 26th year together, we continue to be grateful for the privilege of serving as your family’s Trusted Advisor. Happy New Year!
Don Davey
Senior Portfolio Manager
Disciplined Equity Management
Plan Appropriately, Invest Intelligently, Diversify Broadly, Ignore the Noise
