2023 Annual Client Letter
Each January, as we reflect on the year just completed, we like to revisit our general guiding principles. We find they help us stay grounded from economic and market noise and focused on our long-term plan. Some years when the market is soaring, these principles seem like a simple reminder. Other times, when the market is experiencing turmoil, these beliefs might just be the difference between holding tight versus abandoning a well laid plan. We follow our comments on general principles with some current observations on where things stand with respect to the economy and markets. We hope you find both these items helpful and reassuring as we enter 2023.
- Together, we are long-term, goal-focused, plan-driven equity investors. We believe that the key to lifetime success is to act continuously on our specific, written plan. Likewise, we believe substandard returns, and even investment failure proceed inevitably from reacting to (or trying to anticipate) current economic/market events.
- The unforeseen and indeed unforeseeable economic, market, political and geopolitical chaos of the three years since the onset of the pandemic demonstrates conclusively that the economy can never be consistently forecast nor the market consistently timed.
- Therefore, we believe that the most reliable way to capture the full return of equities is to ride out their frequent, but historically always temporary, declines.
- These will continue to be the bedrock convictions that inform our investment policy, as we pursue your most important financial goals together.
- Unrelieved chaos continued in 2022. The central drama of the year—and, it seems likely, of the coming year—was the Federal Reserve's belated, but very aggressive efforts, to bring inflation under control.
- After rising seven times in the nearly 13 years between the bottom of the Global Financial Crisis (March 9, 2009) and this past January 3, 2023, the U.S. equity market sold off sharply; at its most recent bottom in October, the S&P 500 was down 27%. Bond prices also declined rather sharply in response to suddenly higher interest rates.
- It seems to us more than a little ironic that, after the serial nightmares through which it's suffered since the onset of the pandemic early in 2020, the S&P 500 index managed to close out 2022 at 3,839, somewhat higher than it was at the end of 2019, which was 3,221. A total gain of 19% over the past 3 years. Not great, but not at all bad for three years during which our entire economic, financial, political and geopolitical world blew up.
- If anything, this tends to validate our core investment strategy over these three years, which—simply stated—has been: stand fast, tune out the noise and continue to work your long-term plan. Needless to say, but that continues to be our recommendation, and in the strongest possible terms.
- The burning question of the hour seems to be whether and to what extent the Fed, in its inflation-fighting zeal, might tip the economy into recession at some point—if it hasn't already done so. Over the coming year, the way this plays out may determine the near-term trend of equity prices. Our position continues to be that this outcome is simply unknowable, and that one cannot create a rational investment policy out of an unknowable.
- That said, we continue to strongly believe that whatever it takes to put out the inflationary fire will be well worth it. Inflation is a cancer that affects everyone in our society; if recession proves to be the painful chemotherapy required to destroy that cancer, then so be it.
- Although this may be hard to remember every time the market gyrates (and financial journalism shrieks) over some meaningless monthly economic datum or other, you’ll recall: we are not investing in the macroeconomy. Our portfolios largely consist of the ownership of enduringly successful companies—businesses that are even now refining their strategies opportunistically to meet the needs and wants of an eight billion person world. We like what we own.
As always, we welcome your comments, questions, and concerns. And remember, we can't predict, but we can plan. Thank you for being our client. It is a privilege to serve you.
EnRich Financial Partners LLC
Investment Advisory Services offered through EnRich Financial Partners LLC, a Registered Investment Advisor.
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