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March Financial Minute: America the Beautiful- Full of Trees and Forests

| March 13, 2019

Once again, the year is off to a fast start in so many ways. Spring is waiting to descend upon us with (we hope) longer days, warmer weather and some more green in the scenery.  Catherine and I are busy with our Fork Union Military Academy Interact Club getting ready for the biennial service project, Rise Against Hunger.  Both of our Interact clubs have been having bake sales and other assorted fund-raisers for the past 18 months getting ready for this event.  On March 22, about 90-100 of us will gather together and package over 22,000 meals for this great charity. The meals will be sent to various places in need around the world. 

A couple of things about this that may be interesting. First, to get to 22,000 meals our club members had to raise over $5,000. Second, they have been planning and working towards this since our last event in Spring of 2017.  Just like in our future financial planning, our students set a goal, focused on the goal and made incremental steps towards that goal for an extended period.  Focus, consistency and re-commitment to the goals we set are the hallmarks of a successful plan.

Many of you know that it is common practice for the president or CEO of a company to include a letter to shareholders in the company's annual report. Berkshire Hathaway’s chairman and CEO, Warren Buffett, doesn’t buck the trend.

His annual letter ( always captures plenty of attention, and this year is no exception. The focus is on the investments and operating performance of Berkshire Hathaway, but the Oracle of Omaha also includes many sound principles for wealth creation as well as his general thoughts about the U.S. economy.

Buffett’s record

As a reminder, from 1965-2018, the market value of Berkshire Hathaway posted a compounded annual gain of 20.5%, more than double the S&P 500’s advance, which averaged 9.5%, including reinvested dividends.  There are two things that pop out here. First, Buffett's enviable record and his ability to create long-term wealth using time-tested principles. Second, the S&P 500’s record illustrates that a well-diversified stock portfolio has been a critical component of a long-term financial plan.

In case you’re wondering, Berkshire Hathaway’s overall gain has been 2,472,627% versus the S&P 500’s still-impressive 15,019%.  One more data point – Buffet continues to perform well, topping the S&P 500 Index in eight of the last 11 years.

Focus on the forest–not the trees

Just like Berkshire Hathaway, your financial plan is comprised of many parts. This would equate to what Buffett calls the “economic trees.” In other words, let’s not get to caught up on any one investment. 

“A few of our trees are diseased and unlikely to be around a decade from now. Many others, though, are destined to grow in size and beauty,” Buffett writes.

He won’t get every investment right. Neither will we. Berkshire holds a substantial position in Kraft Heinz (KHC), whose shares recently tumbled after the company delivered poor results and slashed its dividend.   But, if we review the portfolio as we’d view the forest, we find a diversity of trees, wildlife, and plants. It’s a work of beauty. Your portfolio is built from the bottom up. Like the forest it’s very diversified, and it is created with your financial goals in mind.

As Buffett opines (and we agree), “I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities.”  That said, how did the 19.8% drop in the S&P 500 Index (September peak to Dec 24th trough) sit with you? With your input, we do our best to gauge your tolerance for risk. If you found yourself fretting over the volatility, let’s talk.

On the other hand, if you slept soundly, it would suggest your investment mix in relation to risk is on target.  “At Berkshire, the whole is greater–considerably greater–than the sum of the parts.” We feel the same way about your financial plan.

Bright start to the new year

First, let’s go back to December. A headline in summed it up well: "Dow Gains on Last Day of Worst December Since the Depression." Even a 7% bounce in the final week of the year didn’t prevent a performance that was compared to the early 1930s.

When the S&P 500 Index touched its bottom on December 24, the broad-based index of 500 large U.S. companies had shed 19.8% from its September 20 peak. We were barely 0.2 percentage points from officially entering a bear market.

Market turmoil in the fall and December’s action were especially ugly. Steep market corrections are not something we look forward to; they are impossible to consistently predict, but they come with the territory.

As I’ve repeatedly said, your investment plan incorporates the unexpected detours. The disciplined investor, who divorces the emotional component from the investment plan, chooses the best path to meet his or her long-term financial goals.

That said, 2019 has been much better:

  • A flexible Federal Reserve has taken its finger off the rate-hike button,
  • The economy continues to expand, albeit the pace has slowed, and
  • We’ve been treated to headlines saying the U.S. and China are making progress toward a trade agreement.


                                              MTD%       YTD %         3-yr* %

DJIA                                        3.7             11.1             16.2

NASDAQ Composite              3.4             13.5             18.2

S&P 500 Index                       3                11.1              12.9

Russell 2000 Index                5.1             16.8              15.1

MSCI World ex-USA**           2.4                9.5               6.5

MSCI Emerging Markets**     0.1                8.8            12.4

Bloomberg Barclays US        -0.1                1                 1.7

Aggregate Bond TR                           

Source: Wall Street Journal,, Morningstar, MarketWatch

MTD: returns: January 31, 2019—Feb 28, 2019

YTD returns: Dec 31, 2018—Feb 28, 2019


**in US dollars

There are no guarantees a deal will be inked, but a March 4 headline in the Wall Street Journal summed up recent sentiment:

 "U.S., China Close In on Trade Deal"

Both countries could lift some tariffs imposed last year, and Beijing would agree to ease restrictions on American products

 A trade deal that pries open Chinese markets to U.S. products and services, protects U.S. intellectual property rights, and ends forced technology transfers (and one with strong enforcement provisions) would not only benefit the U.S. economy, but a deal between the world’s largest economies would sweep away one cloud of uncertainty that has plagued investors.

 10 years gone

 On March 9, 2009, the Dow Jones Industrial Average closed at 6,547. It marked the bottom of the last bear market. On February 28, 2019, the Dow finished the day at 25,916, less than 1,000 points from its all-time high of 26,656 on September 20, 2018.

The bull market turns ten years old this month. How much life is left in the bull? We are in the latter stages of the cycle, but much will depend on the economic fundamentals going forward. With the Fed on hold, inflation contained, and the economy moving forward, the fundamentals are currently sound.

But never discount volatility. Stocks seem to take the stairs up and the elevator down.

In the spirit of the celebrating the last ten years, let’s look at a partial list of the worries that temporarily sidelined the bull, but didn’t sideline those with a long-term view:

The European debt crisisGreece... global growth worriesU.S. growth is slowing...China is slowing...the dollar is too strong...Japan earthquake/tsunami/nuclear disaster...U.S. debt downgrade...fiscal cliff...Obama will be re-elected...Trump will get elected...Hillary will get elected...the Fed will end bond buys...Fed will start hiking interest rates...falling oil prices...Ebola scare...Russia invades Ukraine...North tensions...acrimony in D.C....and stocks have risen too quickly.

Shorter-term risks never completely abate. But Warren Buffett’s message has been consistent. Don’t bet against America.  Let me emphasize again that it is my job to assist you! If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.