November 2015 Client Letter

Despite modest gains in the U.S. stock market this year, most U.S. stocks are down year-to-date. Outside of a handful of names, it has been a challenging year for equities and most especially for global equities. In the chart below we compare the performance of big U.S. stocks to small U.S. stocks, foreign developed market stocks, and emerging market stocks. The only group that has managed to stay out of the red YTD is big U.S. stocks. How have the big-cap U.S. stocks managed to stay in positive territory when most companies in these indices are down on the year? Fewer and fewer big stocks are responsible for the gains. Analysts call it a lack of breadth. A recent USA Today piece explains.

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October 2015 Client Letter

In July 1989, just four months before Richard C. Young & Co., Ltd., was incorporated, my dad was interviewed by The Providence Journal Bulletin. In that article, titled “Dividends the Key Element to Investing,” my dad provided the following stock advice:

1. The smart individual investor will tie down yield first and let capital gain come as it may.
2. Bet on stocks that have dividend momentum.
3. Pay no attention to companies that cut or don’t pay dividends.
4. Ride out core positions through thick and thin.
5. Assemble a portfolio of stocks that has a yield higher than the Dow’s yield and a growth rate in dividends that outstrips the Dow’s growth rate.

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September 2015 Client Letter

From its March 2009 low, the S&P 500 is up 230%, including dividends. That is an impressive return and has been cited regularly by pundits and promoters as a reason to buy more stocks. But it is important to remember that few investors earned 230%.

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August 2015 Client Letter

In August, a five-day financial markets rout saw the Dow Jones Industrial Average, the S&P 500, and the Nasdaq each decline over 10%, serving as a reminder that markets do indeed go down. The negative backdrop to the five-day mini-crash was evidently initiated by worries over China’s slowing economy, currency devaluation, and a drop-off in commodity prices.

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May 2015 Client Letter

William McChesney Martin, the longest-serving chairman of the Federal Reserve, once said it is the Fed’s job to “take away the punch bowl just as the party gets going.”

Despite such sage advice, few have accused the Fed of being ahead of the curve when it comes to the removal of party refreshments in the modern era. In cycle after cycle, many argue, the Fed has been slow to recognize when the economy is running too hot and when it is cooling. “Better late than never” is perhaps a more fitting slogan for today’s central bank.

It would also appear to be a fitting description of the Fed’s asset-bubble radar. You may recall it was former Fed chairman Ben Bernanke who told the public in October of 2005, only months prior to the national housing bust, that soaring home prices reflected strong economic fundamentals. There was no mention of an easy-money-fueled housing bubble from Dr. B.

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March 2015 Client Letter

This past June, at the age of 92, longtime Brattleboro, Vermont, resident Ronald Read passed away. Friends of Ronald knew him as a hard worker who lived modestly. He worked as a maintenance worker and janitor at a JCPenney store after years pumping gas at a service station partially owned by his brother. Mr. Read would often go to great lengths to cut costs by parking his car far from his final destination in order to avoid the parking meter.

But what shocked Mr. Read’s friends was when they learned his estate was valued at almost $8 million. When Mr. Read died, he left behind a large stack of stock certificates in a safety deposit box. The shares comprise the majority of his estate.

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January 2015 Client Letter

The global economy is much more interconnected than it was only a couple of decades ago. Global trade, as measured by the sum of exports and imports, is now 60% of world GDP compared to 40% in 1990 and 26% in 1960. A majority of the world’s investment opportunities now reside outside of the United States. The chart below from Fidelity Investments shows the number of globally listed companies and the share of globally listed companies. Over the last 25 years, the number of globally listed companies has more than doubled to 40,000, while the U.S. share of globally listed companies has plunged to about 10%.

In 2014, large-capitalization U.S. stocks were the standout performer on the global stage. The S&P 500 was up 13.7% last year. Smaller capitalization U.S. stocks, as measured by the Russell 2000 Index, were up 4.9%. Outside the U.S., stocks were down. The popular MSCI EAFE Index (Europe, Australasia, and Far East) was down 4.2% in 2014, while the MSCI Emerging Markets Index dropped 3.92%. Looking at the Vanguard Total World Stock Index Fund, which includes U.S. and developed and emerging foreign markets, global stocks were up about 3.92% last year.

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November 2014 Client Letter

This month marks 25 years since Richard C. Young & Co., Ltd. began helping conservative retired and soon-to-be-retired investors. During our two-plus decades investing for clients, we have made income investing a focus of our investment strategy. We believe that for investment purposes, as opposed to speculation, a stock portfolio with an emphasis on dividends can be a winning approach.

The framework for making our investment decisions is largely thanks to Ben Graham’s The Intelligent Investor, first published in 1949. The Intelligent Investor has been credited as one of the best books on investing ever written. Many investors have been drawn to Graham’s style of value investing, which is thought to protect investors against areas of possible substantial error and to teach investors to develop long-term strategies with which they will be comfortable down the road.

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September 2014 Client Letter

Swiss investor Marc Faber PhD, also known as Dr. Doom, recently explained how news from McDonald’s could spell trouble for the stock market. On Tuesday, September 9th, McDonald’s reported a 3.7% decline in global same-store sales. That ranks as the company’s worst global same-store sales results in more than a decade.

Said Faber, “We had, essentially, very poor sales from McDonald’s. Now, McDonald’s is a very good indicator of the global economy. If McDonald’s doesn’t increase its sales, it tells you that the monetary policies have largely failed in the sense that prices are going up more than disposable income, and so people have less purchasing power.”

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August 2014 Client Letter

Quality and dividends. If I had to describe our equity strategy in as few words as possible, that would probably do it. This is good news for most clients who are retired or soon to be retired. The strategy is easy to understand and provides a degree of comfort in today’s uncertain global economy.  There is nothing more overwhelming than having one’s nest egg tied to an investment strategy that requires a long, confusing explanation, and nothing more underwhelming than a strategy that’s too generic, diversified across too many stock and country sectors.

Longtime favored stock Johnson & Johnson (JNJ) fits our quality and dividends requirements nicely. JNJ is generally thought of as a stodgy company. But there’s nothing boring about its stable of popular brands, including Band-Aid, Tylenol, and Splenda. Nor is there anything boring about its dividend payout dating back to 1944. For investors, the consistency of an annual dividend check is reassuring, especially during periods of market volatility.

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