Client Survey Results

We want to thank you for sharing your feedback on our first annual client survey. Overall, you rated us with an amazing score of 81. The global consultant Bain & Company says a score above 50 is great and above 80 is excellent. This score means you like what we do for you, you like how responsive we are, and you like how we communicate with you. You also had some constructive comments on improvements we could make in our business. We are taking all of these to heart and will have a more detailed letter to you next month.

Investment Update

The two main strategies we manage for you – Dynamic Growth and Dynamic Income – both performed well last year and continue to do their work this year. Over the last two days, these two accounts have been holding up nicely as the market realizes some of what we will talk about below. If you know friends, colleagues, neighbors, or family members who could benefit from reading this letter, please feel free to pass this message along.

Remaining Cautious in a Jekyll & Hyde Market: Our Investment Outlook for the Months Ahead

As we enter 2023, the markets seem to have taken on a dual personality, much like the infamous characters of Jekyll and Hyde. While the market has rallied strongly in the first part of the year, the market is now retracing some of those steps quite quickly. We can’t ignore the risks that are lurking beneath the surface. The market may like to climb the wall of worry and defy the odds, but it can only do so for so long. In this case, the wall of worry is a bit too high, with concerns ranging from inflation and interest rates to the debt ceiling debate, war in Ukraine, banking risks, and don’t forget rising mortgage rates.

While we remain optimistic for the long term, we are cautious in our outlook for the next few months. We see several concerns, including inflation, interest rates, the debt ceiling debate, rising mortgage rates, tighter monetary policy, and others. We believe that it is important to monitor these risks carefully and adjust our investment strategies accordingly.

On a positive note, the U.S. economy is off to a strong start in 2023. Based on January economic data and fourth-quarter revisions, the economy appears to be in a stronger position than economists had forecasted. Job growth is robust and consumer spending exceeded expectations. While manufacturing output was unchanged in January, investors will want to see confirmation of recent strength in the coming months.

On a cautious note, we anticipate the Federal Reserve increasing interest rates in the coming months due to the inflation sparked by the spending during Covid, and we see a possible rate cut by the end of the year. We maintain our positions in precious metals, value dividend-paying stocks, and industrial metals, as we believe these sectors will perform well during high inflation and rising interest rate environments.

Corporate Earnings Season for Fourth Quarter 2022

As of February 27, the majority of S&P 500 companies have reported, and earnings growth is down -4.9% vs Q4 2021. Quarterly earnings growth is negative, and forward earnings revisions continue to be lowered for 2023. We will be watching this closely, patiently waiting for buying opportunities in some great stocks with great dividends. We remain cautious in our investment outlook and believe we are still in a bear market.

If you’ve noticed, we are talking out of both sides of our mouth in this month’s letter. That’s the Jekyll and Hyde of this marketplace. Investing is always challenging, but today’s environment demands a different approach. As active managers, we have been preparing for this transformation from set-it-and-forget-it passive investing, to what we love – active investing.

This New Era of Investing

These markets excite us to do our best to reduce the risk in your portfolios and still work hard to earn a return for you as well. In this new era, we believe active investment management is crucial. The passive strategies of the last 20 years may not offer the necessary flexibility and risk management going forward. We realize we must be diligent and cautious. We continue to favor dividend-paying value stocks with strong balance sheets and exposure to sectors that perform well during high inflation and interest rates. We want to own companies outside the U.S. in precious and industrial metals.

Our long-term success demands risk management and willingness to adjust to changing market conditions. Our success also depends on the wonderful relationships we have with you and your families. Your faith in the future and trust in us is something we are eternally grateful for. We truly think about you often. Your values, your goals, your relationships, and your dreams – all working together towards economic freedom for you and your loved ones.

Thank you for your continued trust in us.

“Earnings Insight 031023.” FactSet, 10 March 2023. PDF download.