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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