2023 Annual Letter: Investment Principles and 2023 Observations
Each year I send out an Annual Letter, a reminder, encouragement, long-term truth statement that I call our “Investment Principles.” These Principles are used to guide long-term investment decisions in both good times and bad. These Principles are not just for you, they are also for me. We all need reminding.
General Principles
You and I are long-term, goal-focused, plan-driven equity investors. We believe that lifetime investment success comes from acting continuously on our plan. Likewise, we believe substandard returns, and even lifetime investment failure, come from reacting to current 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 temporary declines.
These will continue to be the bedrock convictions that inform our investment policy, as we work towards financial goals.
2023 Observations
Hard to believe that February 2023 marks the three year anniversary of Covid. Financial confusion continued in 2022. The central drama of the year—and, it seems likely, of 2023 - was and likely is - the Federal Reserve's belated but very aggressive efforts to bring inflation under control.
The S&P 500 has risen nearly 7x in the 13 years between the trough of the Global Financial Crisis (March 9, 2009) and this past January 3, the U.S. equity market sold off sharply; at its most recent trough in October, the S&P 500 was down 27%. (Bond prices also swooned in response to sharply higher interest rates.) Source
Surprising to most, since the start of 2020 through the end of 2022, the S&P 500 has risen from 3,278 (Jan 2020) to 3,912 (Dec 2022). Which is an example of the power of the above Principle to stay invested. Not great, but not at all bad for three years during which it seemed our economic, financial, political and geopolitical world blew up.
If anything, this tends to validate the 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, that continues to be my recommendation, and in the strongest possible terms.
The burning question I keep hearing from clients is whether the Fed, in its inflation-fighting, 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. My position continues to be that this outcome is simply unknowable, and that one cannot make rational investment policy out of an unknowable. However, I am optimistic, but sentiment is not investment policy.
I do continue to believe that taming inflation is a top priority and short-term pain will be worth it in the long-run.
Please don’t forget that our portfolios largely consist of the ownership of enduringly companies—businesses that are even now refining their strategies opportunistically to meet the needs and wants of an eight billion person world. I like what we own.
As I always say—but can never say enough—thank you for being my clients. It is a genuine privilege to serve you.
Don’t hesitate to call/email or schedule a time to talk.
-Dave
David Hobbs, CFP®
Wealth Advisor | Owner
Hobbs Wealth Management
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