SWFG: 2023 Mid-Year Thoughts

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”
-Warren Buffett

We are even more delighted than usual to report to you at midyear on the events of the last six months, and on the further progress of our long-term plan. But first, as always, a brief recitation of our principles.

The Ideas That Guide Us

• Collectively, we are long-term, goal-focused, planning-driven owners of broadly diversified portfolios of enduringly successful companies. As such, we act continuously on our plan, as opposed to reacting episodically to current events and conditions.
• We're convinced that the economy cannot be consistently forecast, nor the market consistently timed. We infer from this that our best chance to capture something close to the full long-term return of investments is to ride out their frequent, sometimes significant, but historically temporary declines.
• These will continue to be the bedrock convictions that inform our investment policy, as we pursue your most cherished financial goals together.

Current Commentary

• 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 on June 30 at 4,450, up 15%. We will repeat Peter Lynch's timeless maxim: “The real key to making money in stocks is not to get scared out of them.” Though the markets have been vastly different than last year on a relative basis, especially with no more than 8 stocks driving over 80% of the return of the S&P 500 YTD. Consider the following results YTD through June 30:
  • The Dow Jones Industrial Average + 2.9%
  • The NASDAQ Composite Index was up 31.7% based largely on the excitement over artificial Intelligence (AI)
  • The Russell 2000 Small-Cap Index was up 8.09%
  • Foreign markets represented by the EAFE index were up 9.6%
  • The 10 year U.S. government bond was yielding 3.84%
• 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.
• With the yield curve inverted (short term bonds yielding more than long-term bonds) the possibility of recession is still upon us.
• Inflation has decreased meaningfully from 9.1% to 4%.
• Although the unemployment rate remains low - below 4%.
• We will stay focused on our goals and on our long-term plan, with confidence that the managements of the companies we own are managing our capital with diligence, while they seek out new and potentially greater opportunities amid the adversity.
• There’s no reason to imagine that any of us can predict the future with any accuracy, except to point out that markets have, historically, trended upward and rewarded patient investors. It’s possible that a future recession will test our collective patience once again, but it’s a test that will be easier to pass due to the gains that this year has provided us already.

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 for the trust and confidence you have placed in us and giving us the opportunity to provide education to you on your financial journey.

As always, thank you for the introduction of your friends and family that so many of you have made. We are honored to serve you! As a service to our clients, we are happy to act as a sounding board for your friends and family. If any of them should need a second opinion on their financial situation, introduce them to www.striblingwhalen.com or call us at 678-989-0048.

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Regards,

Warren D. Stribling, IV, CFP®
Principal
warren.stribling@striblingwhalen.com

Brian E. Whalen, CFP®, CIMA®, AIF®
Principal
brian.whalen@striblingwhalen.com

Jacob Beauchamp, AAMS®
Financial Advisor
jacob.beauchamp@striblingwhalen.com

Stribling~Whalen Financial Group, 620 Spring St. SE, Gainesville, GA 30501, PH: 678-989-0834

Sources:
Russell index data: http://www.ftse.com/products/indices/russell-us
S&P index data: https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
https://www.marketwatch.com/investing/index/spx
Nasdaq index data: https://www.morningstar.com/indexes/xnas/@cco/performance
International indices: https://www.msci.com/real-time-index-data-search
Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

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The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. VIX is the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. It is a widely used measure of market risk. The Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

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