Recap and Outlook

  • 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 might well be in a no-win situation. 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. In either case, 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 itself, and a renewed outbreak of fear surrounding the dollar’s status as the world’s reserve currency.
  • Yet after enduring that relentless onslaught of crises real and imagined, the S&P 500 closed out the first half of 2023 at 4,450.38, up 15.89%. I’m almost 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 us—and we devoutly hope for you—a successful investing career in microcosm. We 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.

  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? We certainly believe it can be, and we sincerely hope you do too. Thank you, as always, for being our clients. It is a privilege to serve you.

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