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Three months ago, we discussed how investors' uncertainty created stock market volatility, ultimately resulting in numerous opportunities to start the year. Halfway through the year, we were not alone in this thought. As of June 30, 2023, the stock market (as measured by the S&P 500 Index) was up nearly 16%. On top of that, it has gained 20%+ since its October lows, setting off the proverbial bull market. This term is somewhat meaningless, but it gives the media something to headline. I think some savvy media commentator coined both bull market and bear market while assigning the qualification of a 20% move from the recent highs or lows set. The current iteration has sent the talking heads off on whether this is a bull market with legs or a move that provides false hope only to see the bottom fall out and drive the market lower. Of course, neither argument influences our nearly three-decade-old investment approach (i.e., we invest in stocks when we believe the price is right… period). But this specific stock market rally does remind us that the stock market is a market of stocks. Though many times lost on the average investor, it succinctly explains the first half of the year. You see, the S&P 500 Index is a market capitalization-weighted index. Meaning the larger the company, the more it impacts the index price. For instance, Apple is the world’s largest company as measured by market capitalization (which hovers around $3 trillion today). As a member of the S&P 500 Index, it accounts for over 7.5% of the index price. Therefore, if Apple’s stock price moves 1%, it will be much more impactful to the index price than if the 400th largest company, Akamai Technologies, with a weighting of .038%, was to move 1%. Currently, the top ten companies in the S&P 500 Index make up over 30% of the market capitalization of the index. Leaving nearly 70% to the other 493 companies (believe it or not, the S&P 500 these days comprises 503 companies). The ten stalwarts continue to grow and took off in the first half of the year (starting in October 2022). And guess what? Eight of the ten all have a common theme… tech companies. While these companies didn’t come out of nowhere, they have all seen their stock prices rebound from the recent corrections in 2022. Other sectors have helped lead the S&P 500 Index higher, but it is clear that technology is leading the way. Many presume this is due to the recent AI (Artificial Intelligence) bonanza. Whatever the stimulus, when ten stocks make up 30% of the index and three of these have 100% returns in the first six months of the year, they are not only carrying the index returns but overshadowing the opportunity of the rest. A great way to see this is to look at the regular market capitalization-weighted index compared to the equal-weighted index. That’s right; there is another index that weights all companies the same. As you can see, something happened in the middle of March when the tech heavyweights began their flight leaving the rest of the index in the dust. The result was a nearly 10% outperformance… the largest ever seen. Will this divergence continue? Will ten stocks continue to have such an outsized impact on the overall stock market's performance (as measured by the S&P 500)? Well, history says NO. The above chart is the same as the prior one but for the past ten years. As you can see, the market capitalization-weighted and equal-weighted indexes have very similar performances. Over time, there is little doubt we will see market performance more in line with the above. The current iteration proves that the stock market is a market of stocks. A great reminder! Onto The 2nd Half & Beyond: We still do not own a crystal ball, so we have no idea what is in store for the rest of the year. But even though we are not in the prediction business, we know more now than we did one year ago… which is a good thing! The Federal Reserve Bank’s (Fed) campaign to thwart inflation through tightening the money supply (i.e., raising the Fed fund rate) while not breaking the economy seems to be working… for now. We are not incredibly concerned about the economy heading into a recession, especially if it comes because of successfully taming inflation. Our economy can and will bounce back but left unchecked; inflation can run wild for a long time, causing severe harm. The chart to the right demonstrates the aggressive nature of the rate hikes. In little over a year, the Fed has gone from basically a 0% rate to over 5%. This is an unparallelled, almost incomprehensible move when viewed on its own. But when we remember that the Fed has held rates at or near zero for the better part of a decade (as well as injected trillions of dollars in Covid relief) … the acceleration to 5% is understandable. You see, on a macro level (i.e., Big Picture), the Fed’s control of the money supply writes the blueprint for economic growth or tightening. In a perfect world, I would suggest moderate growth is the goal, but that does not always happen, prompting the Fed to pull what it deems appropriate triggers. Sometimes getting it right and sometimes not. Coming out of the Great Financial Crisis in 2009 (a long recession), the Fed was right to lower borrowing costs. But they clearly held rates too low for too long. So, they pulled the right triggers but held onto them for longer than necessary. This seems to be the common playbook… hence the earlier comment about not breaking the economy, yet. No doubt something similar will play out in the next 12 – 24 months. Fed fund rates above 5% don’t typically last that long. So, something must give. When and by how much… who knows. What we do know is that the Fed is in a better position to deal with what comes next. And as investors, we’ll take advantage of whatever the market gives us. As always, that is the key to investing… nothing changes… we buy great companies at good or better prices. Stay tuned… it should be an interesting, if not exciting rest of the year. Marcus

As with 2022, volatility is omnipresent. Three months into the new year, the stock market (as measured by the S&P 500 Index) has gained 7%+. The market shot out of the gate, rising nearly 9% in January, only to give it all back by Mid-March to go right back up through the end of March, landing at the 7% level. Quite the roller coaster that gives the impression investors don’t know if they are coming or going. Well, we’ve said it numerous times over the years… there is one thing investors do not like, uncertainty! These days, issues abound that may paralyze an investor from executing their investment plan. Off the top of my head: · The Ukraine / Russia war, · Rising Federal Funds rate, · Persistent inflation, · The pending recession (if it’s not already started), · Bank failures, · Donald Trump (and the 2024 presidential election), and · The trade war with China (and then some). While the world can only end once, the above issues are severe enough to cause concern amongst most stock market participants. Since the beginning of 2022, concerns have proliferated to the point where nothing seems clear to investors. Fortunately (for us), one investor’s concern is another’s opportunity. At least, that’s what history and our own experience tell us… In our past writings, we have belabored the point that, over the long term, the stock market goes up. Whether citing historical statistics or showing a graphic, we have demonstrated that history is on the stock investor’s side. So, why break tradition? As of the end of 2022, depending on your source, the stock market (as measured by the S&P 500 Index) has a historical average annual return of just under 10%. So, when considering the below-average return of 2022, it stands to reason that future years should be brighter to return to that 65-year-old average… right? But maybe you are thinking… what if returns don’t gravitate back to the average (or better)? The issues laid out above are somewhat concerning on an individual basis. Take them all together, and maybe you are thinking, dare I say it … What if this time it's different? Well, I’m here to tell you this time is NOT different. It never is! In two-plus decades as investors, we have experienced not one but three, now four, significant stock market corrections. With every episode, we have come out on the other side better for it. History tells us this will happen again. Naturally, you may ask, how can we know this time is not different? Because the same thing that drove the returns of the past will drive the future… fantastic companies! This fuels our steadfast belief in the stock market. Let’s dive in with an example… Walmart is a household name. It was founded in 1945 by its namesake, Sam Walton. Over the past 75+ years, the company has grown to the point where 90% of Americans live within 15 minutes of a Walmart. As of January 31, 2023, they have 5,317 stores (including Sam’s Club) in the United States. Eye-popping, but even more impressive, they have another 5,306 international stores bringing the total to 10,623. And guess what… they have a way to go. They only have 28 stores in India, a country that just became the most populous in the world with more than 1.4 billion people… more than four times our country’s population. While India may not be the nation of consumers we are, I think India might still need more than 28 Walmarts to serve its massive population. To the right is a fantastic graphic that shows the behemoth that Walmart has become. In this country, they are the largest private employer in 22 states. As they continue to expand west, seeing them increase this total would not be surprising. Also, if you look closely, you will see the largest employer in the other states are mainly educational institutions or healthcare organizations… our beloved Government is funding both. Walmart’s growth is all on its own. So why do I bring all this up? Well, this is what we are investing in when we are Walmart shareholders. In a capitalist society, the growth of this business leads to higher sales and profits. Profits that get reinvested into the business or paid out to its owners. This is a 75 year trend for Walmart and has led to tremendous wealth for shareholders… are we to believe it will all suddenly end? The chart below reflects Walmart (WMT) and the S&P 500 Index (SP500) price for the past 30 years through 3/31/23. Walmart is up 974%, and the S&P 500 Index is up 824%. This isn’t a magic trick. For Walmart, it is the valuation of a company that now annually does $600 billion in sales and $30 billion in profits. While the total return is impressive, even more important is to look at the direction of the chart. It goes up, and every time there is a decline, the stock price eventually returns to its previous high. In addition, notice how the S&P 500’s price moves in line with Walmart’s stock price. When people say “the stock market” is down or up or whatever, there is substance there. It is the Walmarts of the world we are talking about. So, when someone utters the phrase this time, it’s different… how can it be when we are talking about companies like Walmart? Are the seven issues I laid out at the beginning going to put a 75-year-old retailer out of business? Sure, there may be a lull in business or a decline over the short run… but over the long term? Um… I highly doubt it. These short-term corrections are the opportunities long-term investors capitalize on. Walmart is trading at the same price it was selling at 18 months ago. This doesn’t create a huge opportunity, as Walmart is a mature company… but it’s a good time to invest in a great company at a discount. But Walmart is not the only game in town. Other companies growing much faster have seen their market capitalization spiral down, and ever heard of a little company named AMAZON? This behemoth saw its stock price drop from $183 a share to $84 in a year. Regardless of how much anyone thinks Amazon is worth, is there any way a more than 50% decline in market value is justified? Did our fabled leaders unilaterally decide the internet will be closed for half the day? As disciplined, value investors, we never owned Amazon stock before this recent sell-off. But guess what… we do now. While this uncertainty has caused some unrest, more importantly, it has created opportunities. For your sake (and ours… remember we are invested alongside you), it’s our job to take advantage. Uncertainty has worked in the past, and we see no reason why it won’t work in the future. The next time someone proclaims the four words: this time, it’s different… you be sure to return fire with our four words: this too shall pass. At least, that’s what history and experience tell us. Note: Nothing contained herein this letter should be considered investment advice, research or an invitation to buy or sell any securities

Over the past few decades, more than once have I heard comments that allude that investing in the stock market is akin to gambling… a game of chance per se. Needless to say, this comes from a lack of understanding, but nonetheless, it is a thought that occupies space in many people’s minds. (Read more: Stock ownership does mean something) I hear this enough that it spurred a thought of my own… What if stock investing was truly just another game of chance you find on the casino floor? Where would it rank amongst the other games, would it be popular, etc.? So, in light of the most gambled-upon event just ending, the Super Bowl, there is no better time to put some real analysis behind this… Whether you are placing a wager at a blackjack table or investing in an S&P 500 Index fund, there are historical statistics to each that portend the probability of winning. With casino games, yes, you can spend a weekend in Sin City and walk away a big winner… but over time (months, even years), you most likely will land at the averages. Which, unfortunately, are worse than the weekend binge! The same goes for investing in the stock market… but inversely. The longer you participate, the better the odds of winning. In fact, stay invested long enough, and it is a near certainty you will experience positive returns. Over time, not accounting for the value of the complimentary cocktails, Craps is the only casino game where you have a 50/50 chance of walking away with the money you arrived at in Las Vegas. On the other hand, keeping your money invested in an S&P 500 Index fund for one year yields a 75%+ chance of increasing the size of your pocketbook. Put another way; there is a 75% chance your investment will increase in value in any given year. Another way is if you stay invested for four years, three of those years will have positive returns. I like those odds… but it gets even better! Keep your money invested for 10+ years, and there is a 95% - 100% chance that your money will grow! Hence, this is why any reputable investment advisor will tell you to only invest in the stock market if you have at least 5 – 10 years to keep your money invested. Sounds like a great trade-off to me. In return for your time, you will be rewarded with more money! Investing is not gambling. As an investor, the odds are stacked in your favor. Imagine if, on average, you won at least 75% of the time when you went to Las Vegas. Well, there wouldn’t be a Las Vegas for very long. That adult Disneyland exists because the odds are 50/50 or slightly better for the casinos. The near-even odds allow the casinos to make some money and provide an extraordinary experience while at the same time giving its customers (gamblers) a winning opportunity. While it may not seem like it when you leave town on the wrong side, it is the proverbial win/win. On the other hand, long-term investors win… if you are willing to stay in the casino, I mean the stock market. As history tells us, the longer you stay, the better the odds of positive returns. And of course, we should always learn from history! Note: Nothing in this letter should be considered investment advice, research, or an invitation to buy or sell any securities.

With the turn of the calendar, it is standard practice for the world’s numerous investment professionals to roll out their thoughts for all things financial, leading to the big prize… a stock market prediction. Since the stock market ends the year in plus territory more than 75% of the time, it doesn’t take a rocket scientist, or a 5-year-old, to be right most of the time. “Um, Daddy… I choose upsies.” simple, right? Nonetheless, this is an emotional moment for many folks, especially coming off a down year… the horror! And when we get the worst year for the stock market since the GFC (Great Financial Crisis) … lookout. Anxiety, excitement, consternation, panic, etc., you name the emotion, and I am sure someone is feeling it. All driven by the uncertainty of what the year ahead holds. Fortunately, I am here to share a glimmer of hope! To the innocent bystander, it must be crazy enough when you read that, on average, the stock market finishes positive three out of every four years. If you can’t fathom that statistic, skip the below chart. (Pause) Ok, back to it… the stock market rarely experiences back-to-back down years. As you can see, the market has experienced at least two down years in a row only twice in the past 72 years… less than 3% of the time. Regardless of what your market expert predicts, this must put a smile on your face. (Sidenote: There is sound economic reason stocks typically head north, but that is a post for another day). As a stock market investor, history is genuinely on your side. But that’s just half the title of the post. The second half… Does it matter in the long run? If we are investors with a long-term horizon, will a negative 2023 ruin your retirement plan(s)? Of course, not. And brace yourself… you would be better off with another ho-hum year. How do I know? We’ve lived it and are way better off for it. Let me introduce (or reacquaint) you with The Lost Decade (And Some) … As the chart depicts, from March 2000 to July 2012, the stock market (as measured by the S&P 500 Index) essentially started and ended at the same level. Effectively, this period was lost… right? Not necessarily… At last check, the S&P 500 Index has an average annual return of over 11%. Remember that this index was established in 1957… that’s 65 years ago! So, for 12+ years, we believe we did not get our 11% annual return. Based on history, our money should have more than doubled during this period… but it did not. Before we start shedding tears, this is a good thing. Maybe even a great thing! Let me explain… You see, as investors, we invest continuously. For many, this is via a bi-weekly 401(k) payroll deduction. If this is you, you are investing at prices along the line you see in the graphic. While buying at different levels, overall, your contributions are being invested on the cheap! And ultimately, you will be rewarded for your patience… most likely beyond your imagination. The proof is in the pudding, as they say. Below is one of our current client’s portfolio performance for the Lost Decade. As you can see, not only did he not lose anything, but he also gained about 4% annually due to his continuous contributions. Not bad… unless you compare it to the next chart. This chart reflects the subsequent period, mid-2012 thru 2021. The client’s portfolio had an average annual return of 16% during this period! Providing some proof that the stock market does indeed have a historical yearly return of 11%, but the positive effect of this entire period goes even further. Since the client continued to invest annually during the down period, he amassed an even larger investment portfolio due to these contributions before the subsequent period of growth. From 2000 – 2012, the client portfolio gained just under $175,000. By the end of 2021, the client portfolio registered gains of nearly $2,500,000. A 16% annualized return results in your money doubling every 4.5 years. In this case, following the “lost decade,” this client’s portfolio doubled twice. Let that sink in for a minute! As we state repeatedly, investing is a long-term exercise. As the first chart demonstrates, the odds are we don’t see many back-to-back down years for the stock market. So, for those who live and die with the daily stock ticker on the squawk box, this should give you solace. For those who want to build meaningful wealth over an extended period… I look forward to seeing you down the road. Here’s to a great 2023 (irrespective of what Mr. Market does)! Note: Nothing in this letter should be considered investment advice, research, or an invitation to buy or sell any securities.

Three years ago, the Federal Reserve (and Government Officials) unleashed an unlimited amount of money into our economy to stave off any financial misery brought on by the coronavirus. For the most part, they accomplished what they set out to do. Unfortunately, they went a bit too far and must unwind their mess. The past year we watched the Fed’s march to tighten monetary policy (i.e., raise the Fed fund rate) to bring down inflation. This act will slow the economy, but will they go too far in this direction? We won’t know until this movie ends, and waiting to act will be too late. So, we will do what we have done for the past two decades… stay the course. We invite you to revisit our general principles below, proceed to our views on 2022, and end with a recap of new positions added to our portfolio. Happy reading! General Principles We 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 in the wrong direction 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, the most reliable way to capture the full return of equities is to ride out their frequent but historically temporary declines. These are the bedrock convictions that form our investment policy as we pursue your most important financial goals together. Current Observations Unrelieved chaos continued in 2022. The central drama of the year—and, it seems likely, of the coming year—was the Federal Reserve’s belated but very aggressive efforts to bring inflation under control. After rising seven times in the nearly 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.) It seems more than a little ironic that, after the serial nightmares through which it suffered since the onset of the pandemic early in 2020, the mainstream equity market managed to close out 2022 somewhat higher than the end of 2019 (3,839 versus 3,231, a gain of 19%+). Not great, but not bad for three years during which our entire economic, financial, political, and geopolitical world blew up. If anything, this tends to validate our core investment strategy over these three years, which—stated—has been: stand fast, tune out the noise and continue to invest for the long term. The burning question of the hour seems to be whether and to what extent the Fed, in its inflation-fighting zeal, might tip the economy into recession at some point—if it hasn’t already done so. Over the coming year, how this plays out may determine the near-term trend of equity prices. We believe this outcome is simply unknowable and that one cannot make a rational investment policy out of an unknowable. We believe that whatever it takes to put out the inflationary fire will be well worth it. Inflation is a cancer that affects everyone in our society; if recession proves to be the painful chemotherapy required to destroy that cancer, so be it. Although this may be hard to remember every time the market gyrates (and financial journalism shrieks) over some meaningless monthly economic datum, you and I are not investing in the macroeconomy. Our portfolios primarily consist of the ownership of enduringly successful companies—businesses that are even now refining their strategies opportunistically to meet the needs and wants of an eight-billion-person world. We like what we own. Portfolio Activity This past year, just as in 2020, more than a few buying opportunities presented themselves, both within our existing positions and companies entirely new to our investment portfolio. For the latter, we always like to share our original thesis for each (at a summary level). Our goal is for these companies to be a part of our equity growth portfolio (and sometimes our income portfolio) for the long term. One investment theme that has natural long-term appeal is the aging of our population. People are living longer, and through innovation, the way the elderly are cared for will continue to improve vastly. We made two investments that fit this theme… Stryker and Best Buy. Stryker is a medical technology company best known for their work with hip and knee joint replacements. As we all live longer, there will be a growing need for these procedures. We’ve had our eye on Stryker for a while and were happy to see the stock trade 30%+ below its 52-week high and enter our fair value range. Best Buy is the type of investment where we all know what they do very well (i.e., electronics retailer), but then they have a new initiative with the potential for serious longterm growth. In this case, we get the only electronics retailer to compete with Amazon successfully and a company with the new opportunity of in-home healthcare. As we age, most people would rather stay in their homes than move to an assisted living facility, etc. With its technological capabilities, this company is in the early stages of helping people stay in their homes via their healthcare unit… Best Buy Health. We’ll keep a close eye to see how things progress. Healthy living is a big theme leading to the one we discussed. For several years, Nike has been our stalwart under this theme, but not the only one we’ve kept our eye on. Thankfully, this past year’s correction has allowed us to add Lululemon and Garmin to our portfolio. Lululemon has become a household name for top-notch athletic apparel. While we appreciate this, we view the true strength of their business as their focus on selling directto-consumer (DTC). Just as Nike has switched to selling more merchandise via DTC, Lululemon has continuously operated in this manner. When done correctly, the DTC sales approach allows for an unmatched business-to-customer relationship. With a stock price decline of 40%+, it finally reached our buy price, and we were happy to pick it up on the cheap. Garmin, while known in the past for its GPS device, has experienced a rebirth with niche navigation-based products. While participating in several industries, their niche sports business is tremendous. A well-run company with an outstanding track record also traded 40%+ from its highs. This, combined with a favorable valuation, led us to pick up the stock. For as long as we have been investors, any company selling pet-related products/services is worth a look based on the sole idea (thesis) that pet owners treat their pets like their children. This has continued to increase as people spend more and more on their animals. And just like humans, life expectancy continues to grow. Therefore, we are always on the prowl for these types of companies, and this time, we landed on Zoetis, an animal pharmaceutical company. We have known about this industry giant for a while, and once again, the market correction of 2022 allowed us a great entry point to begin investing in Zoetis. Lastly, we added Amazon and Intuit to our portfolio this past year. I don’t think either needs an introduction other than saying they fall into our traditional to digital reckoning theme. Both companies have been at the forefront of digitizing our world for the past decade, and as with many investments we made this year, the stock market correction allowed us to invest in these stocks at great valuations. Both stocks were off just about 50% from their all-time highs at one point during the year. I don’t need to tell you that 2022 was an unusual year on many fronts. As you can see, from an investment perspective, it was a busy year for us. For 2023, we anticipate a more typical year where we might add one or two new positions. But, if the stock market continues to correct, we will be more than happy to expand our portfolio with the addition of more wonderful companies. In closing, as we always say—but can never say enough—thank you for being our clients. It is a genuine privilege to serve you.

For most of us, the motivation to invest is the same… grow our money. Unfortunately, when seeking to expedite that growth, many are destined to play a supporting role in FTX-like stories. Typically, we attribute success to picking the right investment; however, avoiding potentially flawed opportunities is just as important. The FTX debacle serves as a reminder or even an education to invest appropriately. For the past few weeks, the information has been coming fast and furious on what led to the bankruptcy filing of the cryptocurrency exchange darling, FTX. Whether it’s the founder, SBF (Sam Bankman-Fried), tweeting, appearing on camera at a conference(s), or the astute new CEO charged with dissecting this dumpster fire of a company, the explanation(s) are plenty. Let me see if I can simplify what transpired so we can move on to the real lesson here. The most plausible working theory is that SBF took client money from their accounts at FTX and moved it to his other company, Alameda Research, a hedge fund. Here, he made trades that went bad, thus driving down the capital reserves of both companies. (BTW: Much of the capital was held in FTX’s token, FTT.) News of this came public, and once a significant rival crypto exchange sold its FTT, demand to sell took over to the point that FTX halted customer withdrawals. In simple terms, FTX didn’t have the money to return to the accountholders. And down the rabbit hole we go! If you are wondering, none of this is above board. SBF did not have the authority to use account holder assets to make trades at his hedge fund. And as we continue to learn, he participated in even more activities that can be filed under the “NO-NO” category. While SBF may very well become the poster child of cryptocurrencies shortcomings, he is not alone. Since bitcoin, the grand poobah of crypto, came into existence over 11 years ago, over 2,400 cryptocurrencies have failed! Don’t worry; there are still 8,000+ in existence today to choose from! And while I’m not a crypto expert (not sure one exists), I guess more will pop up. How do I know this? Well, as long as humans have emotions, get-rich-quick schemes will appear… and by the way, this crypto phenomenon is nowhere close to running its course! I have been approached by many folks seeking my opinion on crypto. And while my tone varies depending on with whom I am conversing (I don’t like to hurt people’s feelings), the main points are always the same: · Hope Is Not An Investment Strategy: We need to have a clear reason why we invest. Over the long run, we know a stock price (market capitalization) will represent the value of the business. It’s not magic that drives stock prices up (or down). It’s the performance of the company (tangible assets). Can we say the same for crypto? At this point, no. By buying bitcoin today, you are hoping someone will pay more for it in the future. It doesn’t produce cash flow (like a company), it is not backed by a sovereign state (like the USA), and there is no actual use case (like the dollar). When Andy Dufresne told Red that hope is a good thing, maybe the best of things, and no good thing ever dies, he was not referring to crypto. · Fear Of Missing Out (FOMO) Is Not A Rational Thought: With the FTX implosion, the question most asked on TV is, “How could this happen.” Most likely, this is directed toward the major players (i.e., SBF), but individuals should answer it. And for many people, FOMO is the answer. Maybe a neighbor or a work colleague made a small fortune as a bitcoin early adopter. You get wind of this, FOMO kicks in, and before you know it, you are at the top. This is not a huge problem if you have sound reasoning to own bitcoin. But if it’s a FOMO purchase, good luck ascertaining when to sell, buy more, or hold. FOMO is driven by greed, and anything done for greed generally does not end well. · Invest In What You Know (Or At Least Can Understand): Most importantly, subscribing to the adage that there are two rules to investing… 1) Don’t lose your money, and 2) Never forget rule #1 should keep us from investing or speculating in something we don’t understand. We are dealing with real hard-earned money. There are zero reasons to subject it to something that does not possess a clear thesis that will lead to investment success. When we buy Home Depot stock, we know this company serves the housing industry. An industry that continues to grow via new construction, repairs, and remodels. To simplify… we can see houses! With crypto, what are we investing in… Satoshi Nakamoto?!?! Crypto is not the first new shiny object that has garnered the public’s interest resulting in early adopters realizing sizable gains. And it’s not the first to burn many speculators. Over time, it may very well become something and enrich many folks. And that’s great for them. Last time I checked, there isn’t any law that says we ALL need to get in on the “next best thing” every time it comes around. It’s okay if others make some money and you don’t. We need to control what we can, and that’s staying focused on making good investments; over time, they will serve us well. Unfortunately (or fortunately), FTX is a harsh reminder of what could happen when straying from this path.

As investors, our ability to picture a future that is brighter than the present largely comes from never forgetting the past. A belief that is strengthened in our everyday life… if we take notice. I often share with clients, colleagues, and even myself that today we are living our best life. My educated guess would be that in ten years, I can make the same statement. Unfortunately, in this go-go world, we don’t give much thought to how good our lives are. We are focused on the minutia of the day. A recent moment gave me such pause that it led me to share it in this valuable space here. A few weeks back, it was a typical fall Saturday for this Crawshaw clan. We started at 8 am on the pitch (that’s soccer talk for all you Americans) and ended at 4 pm on the softball diamond. As we watched match #2 on the pitch, it was time to divide and conquer. That’s right; I needed to drive my daughter to her softball game while my wife stayed to watch the second half of the soccer match. In a rush, I left my mobile phone with my youngest son, as he was using it… code for staying occupied! Within five minutes, perspective set in (at least in my little brain). If I’m being honest, panic set in at first. As we got to the softball fields, neither my daughter nor I could identify any of her teammates or coaches. After two laps around the park and seeing no one from her team, I had no idea what to do. I first tried to call my wife from my smartwatch. No dice… not smart enough to make a call without the phone in toe. Next, I thought to myself… “what would I have done if this happened fifteen years ago before I had an everything device on my hip.” Well, I most likely would have written directions down to the actual park where the game(s) were being played and thus would’ve known ahead of time that we were not playing at the field I was circling. So, of course, I relied on my 10-year-old for the proper course of action, who sagely recommended we head back to the pitch and get my phone. The disaster was averted, and we arrived a few minutes late at the correct field. Thankfully, I am still in the running for DOY (Dad Of The Year)! As investors, our memories compared to today remind us how much our lives improve with every passing year, decade, etc. Putting this into context makes us appreciate today, but more importantly, it drives our positive thoughts for the future. That’s right; it’s okay to be positive… we call it proper perspective! Think about how your handheld device has improved your life, mainly by providing information at your fingertips on demand. It’s shocking how easy and efficient our lives are (or can be) with this device at our side. It’s even more terrifying to imagine living without it. Trust me on this one! Ten years (even a few years) from now, handheld devices may very well be the key to improving our health, or more so, our healthcare. Today, at its simplest, the smartwatch allows millions of people to track their steps… which leads to better health. Years from now, this device will do even more… maybe alert you before having a cardiac event or when it’s time for a checkup with your doctor… over Zoom! When building retirement plans, I share with clients that many of us will live to 100. If that’s hard to believe, there’s no way you can fathom that the first 150-year-old is most likely being born today. Well, if I told you 15 years ago you would have the power of a computer in your pocket, would you have believed it? The future is bright… we need to allow ourselves to see it! Happy T-Day to all! Note: Nothing in this letter should be considered investment advice, research, or an invitation to buy or sell any securities.

Many times, when other investors overreact to the “crisis du jour,” they drive down stock prices, thus providing long-termers (us) appealing entry points to buy stocks… even the stocks of the most steadfast companies around. Nearly seventy percent of Americans own real estate… mostly via homeownership. Just over fifty percent invest in the stock market. Meanwhile, stocks historically have outperformed real estate on an apples-to-apples basis. There are clear benefits to homeownership that you don’t get with stocks, but just looking at the performance of each investment, stocks do better over time. If this is the case, why do so many more people participate in the real estate market than in the stock market? My theory: many people who know a wealthy investor know them as a person who has gained these riches via real estate, not stocks. Therefore, people want to follow the real estate investor playbook. Makes sense to me. For many reasons, real estate investing works (i.e., debt financing, physical asset, etc.), but the driver of this success is that people are forced to hold their investment for the long term. You can’t go online, submit an order to sell your 4-unit apartment building and seconds later have confirmation of your sale. Hence, it’s a requirement to be a true investor… long-term. This same playbook works with stocks. Again, there are different reasons why stock investing works (i.e., diversification, economic growth, great American companies, etc.), but the riches of the stock market are reserved for those willing to stay invested for the long term. Without this fortitude, you will succumb to emotions and your irrational behavior will lead to what we call… short-termism. Our current crisis produces many opportunities that can only be explained by people selling under the auspice that the global economy will never rebound. While we can slightly understand how some high-flying tech stocks that carry a greater level of volatility may exasperate investors, our minds are (happily) blown when investors sell off a solid company… something we’ve seen a lot over the past year. Let me introduce you to “the toll road in the sky” … the Otis Worldwide Corporation (OTIS). If the name is unfamiliar, the next time you are in an elevator, look down at the name on the door and there is a good chance it will say, Otis. Yes, this company manufactures and, more importantly, services elevators and escalators. They are one of three companies that dominate this industry, creating an oligopoly of sorts. Next to healthcare, you would be hard-pressed to find a more needed service than that of the elevator maintenance business. Think about it, people living & working in urban settings greatly rely on elevators always working properly…. To put it another way, new buildings are getting taller, and we put our safety in these motorized boxes to get us up and down! So, in summary, OTIS operates in a needed industry that is dominated by three companies and continues to see growth as more people across the globe live and work in urban settings. And by the way, they have been in business since 1853. You would agree; solid attributes for even the most discerning investor… right? Then why in the world did the stock recently trade nearly 30% below its one-year high… a level not seen for more than two years? Short-termism… that’s why! Suddenly, investors lost all sense of reality and must have thought high-rise buildings would start to force visitors to use the stairs to go up 30 floors. Or the global construction of new buildings would screech to a halt, thus no longer needing elevators. We have been investing for over two decades and it still amazes us to see the short-term mindset that kicks in for many folks. Yes, we understand stocks go up and down, and sure, the elevator servicing business might slow down a bit if the economy slows. But does that mean a company is suddenly worth 30% less?!?! This argument could be made for a stock that has a lot of unknowns but for one that is nearly 170 years old and provides a rather important service. I don’t think so… We’ll stay in our lane, buying stocks for the long term… and unless something drastically changes, that lane will have a portion of our portfolio invested on the toll road in the sky. Note: Nothing in this letter should be considered investment advice, research, or an invitation to buy or sell any securities.

A Familiar Fed Playbook The past three months were no different from the prior six months. The Federal Reserve (“Fed”) has actually increased the speed of its economic pain train with even higher rate hikes. The Fed’s initial .25% raise in March looks like an excuse me check swing bunt compared to the latest three (that’s right, I said 3!) tape measure home runs of .75% hikes! Mix in a pedestrian .50% raise in May, and the Fed rate now sits at 3.25%. And the kicker… they are not done! At least that’s been the party line. Time will tell… In fact, with investing, time is always our friend, and the more of it, the better. We know from history that the longer our investment timeframe, the better chance of positive returns. With a 15-year holding period, the odds of investment loss are zero. This is a fact. We also understand that history can give us perspective and guide our investment expectations when faced with an unnatural environment. In this instance, we are referencing the current Fed rate hiking program. Just as they held rates artificially low after the Great Financial Crisis, they are now on a rate-rising campaign, most likely landing too high, probably dropping us into a recession. How do we know this… history tells us so. This chart goes back to 2000. The grey area(s) represent recessions. During these 22 years, there were two periods identified as recessionary. Before each, the Fed implemented a rate-hiking program that quickly ended with a slowing economy and, ultimately, a recession. So, when will rising rates, well… stop rising? Based on history… you guessed it - when we hit a recession. That’s the reality. The Fed will tell you when inflation has subsided and heads towards its target rate of 2%. Unfortunately, with the tools at their disposal and the fact they are using backward-looking data, they most likely will shove us into a recession before they know it… literally. The Fed’s mandate has always been maximum employment, stable prices, and moderate long-term interest rates. Their ability to manage all three by influencing the money supply via the federal fund rate and quantitative easing and tightening is the same today as it’s always been. Nothing has changed. But the difference this time around is that inflation has spiked quite rapidly, causing freakouts spurred by memories of the 1970s! Persistent inflation, or the prospect of it, is not something to take lightly. But, as in the past (even the dreaded 1970’s), the Fed will get this under control, one way or another. Maybe somewhat elevated concerns, but a familiar role for them… Finding Ourselves In A Familiar Environment Just as the Fed knows its role, as investors, so do we. For us, the cause of an economic contraction and, subsequently, a stock market correction is less concerning as we are not tasked with trying to fix whatever ails the economy. We are tuned into how best to position our investment portfolio(s) for long-term success. Newsflash, this is not a departure from our daily routine. The heightened stock market volatility would lead you to think investors should be doing something different. Sorry to be the bearer of bad (or good) news, but we’ve seen this movie before… So, after nine months of a declining stock market driven by a 3.25% Fed funds rate projected to keep rising, dare I say that stocks are ripe for the ‘pickens’. Before you call us crazy, remember that the stock market is forward-looking. The 20%+ drop from all-time highs for the stock market incorporates much of what is anticipated in the coming 6 – 12 months (at a minimum). You know, the R-word. Within that 20% market drop, plenty of this great Country’s most prominent companies have seen their stocks decline 40%+! As value investors, we like to say that if you like a stock one day, you must love it after it drops 20%, 30%, and 40%. On the flip side, the argument can be made (erroneously) that stocks have fallen this much for a reason. Yes, in the short run, but what about the long run? Will we be in a recession forever? No matter your current investment stance, with nearly a quarter of the stock market value erased this year, you must recognize that you are most likely about to do more harm than good by being out of the market. You see (literally), this chart demonstrates that bull markets are built on the shoulders of bears. Can the stock market continue to go negative… of course. But, as long-term investors, we should be comfortable watching our portfolio decline another 10%+ to ensure we participate in the forthcoming bull market… whenever possible. We must accept the market's volatility to reap the historical average returns. Just the facts, but nothing we are not familiar with… As always, we are honored and privileged to be your investment advisor sharing in this wealth-building journey! Please do not hesitate to reach out for any reason. As with past corrections, we will undoubtedly come out for the better on the other side. As we mentioned, we’ve seen this movie before (a few times). The characters have changed; we never know when it will end, but we do know it will end. Have a great holiday season!

Last month we used this valuable real estate to discuss the rapid decline of the stock market over a 30-day period, resulting in this decades first bear market. As reasonable investment professionals, we shared that we had ZERO idea if the stock market bottomed or was going to go even lower. What we did know is that stocks of some of the best companies in the world were suddenly on sale and unless the world was about to end, there were some great long-term investments to be made. A month later and apparently the tune has changed… at least from the stock market perspective. The two charts to the right say it all. In fact, all you need to do is look at the direction of the lines. In March, the two major indices (S&P 500 and Dow Jones 30) dropped between 16% - 18%. The low point on this chart was the nearly 35% drop from the Feb 19th high. Fast forward 30 days and abracadabra… these market indices are up between 16% - 18% for the month of April! And remember, this rally started on March 23rd, measuring 30%+ rise from that date. Why the sudden reversal you ask? From our perspective, stocks got cheap, so investors ran in and bought them… and the bidding hasn’t stopped. Ask the pundits on TV and you will get explanations ranging from “Don’t fight the Fed” to “Too much money on the sidelines” to “It’s all about the FAANG stocks,” etc. What’s even better than the pundits trying to explain why stocks have started to ascend is the subsequent prediction game… when will stocks crater (again)?!?! “There is no way stocks can go up that fast and stay there.” “The economy is in shambles; the stock market has to test the bottom.” The reasoning goes on and on to the point investors convince themselves of whatever they are arguing until of course, they are clearly wrong. Stare at those two charts for a minute… can you even imagine formulating an investment strategy based on those moves. My head hurts just looking at it. Yes, it is interesting to discuss the volatile stock market and it might even exercise your brain a bit, but having a real impact on your investment approach… I sure hope not. We can’t tell you where the market goes in the next month, quarter or even year… but we have a pretty good idea where it should be in five years. As Warren Buffett puts it… in the short run the stock market is a voting machine; in the long run it is a weighing machine. I’m thinking the past two months are the short run he’s referring to. Congratulations to all of us… we just got a life’s lesson from the greatest investor of all-time. Let’s remember it!

As we near the end of the first quarter of 2021, the beat goes on for the stock market. Through today (March 25th) the stock market, as measured by the S&P 500 Index, is up over 3.5%. This continues the undeterred rise since the market bottomed on March 16th of last year. Quite the ride for seasoned market participants and the newbies to the stock market. The economic story of the past twelve months has been well documented. A pandemic developed, sending the world economies into lock down, ultimately forcing the hand of authorities to unleash historic levels of capital relief to the masses. These trillions of dollars have kept us afloat, probably more so than required, as we await with giddy optimism a return to normalcy. A clear sign that the level of relief has exceeded its need, is what we are seeing in some corners of the investment markets. When there is too much money chasing too few good ideas, guess what you end up with… more ideas! Unfortunately, the balance shifts towards bad ideas versus good ideas. Excess money will not sit quietly, especially in a historically low interest rate environment. It will chase these less-than-ideal opportunities with the same motive as any other investment… make money. And on the flip side, those responsible for presenting these new ideas know there is too much money out there and will race to prosper while the market is hot. This dynamic dials up the speculative aspect of investing. Speculation is always present in the stock market, but even more so in easy money times like we see today. We define speculation as the act of committing money to an investment with no justifiable expected outcome. You are hoping someone else will pay you more for it. Many times, these investments are the result of following the herd into the investment do jour. In 2021, look no further than the SPAC. A SPAC (Special Purpose Acquisition Corp) raises capital through an initial public offering (IPO) for the purpose of acquiring an existing operating company. Subsequently, an operating company can merge with (or be acquired by) the publicly traded SPAC and become a listed company in lieu of executing its own IPO. While SPACs have been around for a while, they have recently gained acceptance as an easier way to take companies public… maybe too easy. In 2019, blank-check companies (another term for a SPAC) raised over $13 billion. At that moment, it was an all-time high. As of this writing, blank-check companies have raised more than $90 billion this year. All told there are 430 of these companies seeking to acquire either another public company or more likely a private enterprise. There is plenty of skepticism that there are 400+ legit companies out there ready to be bought out and taken public via a SPAC. You can count yours truly in this camp. In fact, I think the SPAC creators are sensing this as well. This might be the driving force behind the latest SPAC development… celebrity athletes. That’s right, last month, both MLB All-Star Alex Rodriguez and former NFL player Colin Kaepernick announced plans for their own SPACs. NBA Hall of Famer Shaquille O’Neal and music mogul Jay-Z are among the other celebrities who have SPAC connections. Maybe the SPAC founders are feeling they need a little something extra to gain investor interest amongst the increasingly crowded landscape? If the level and intensity that capital is being raised via the SPAC sounds all too familiar, your memory serves you well. A quarter of a century ago we witnessed the great phenomenon known as the Dot Com Era. For a period of nearly five years the number of companies coming public the traditional way, via an IPO, was staggering. What was even crazier was the first day pop the stocks received. On average over 50%! If you remember that time period, then there is no need to rehash how it ended. For those who have blocked it out or are too young to have experienced it, let’s just say of the hundreds of companies that came public during this period, there are only a handful that you would know today (i.e., Amazon, Ebay, Qualcomm). I know it’s hard to believe, but Pets.com with its beloved sock puppet but little in sales (not to mention profits) did not make it (in its original form). The budding speculative craze today is no different than what we saw back then. For the company, they want to capitalize on the pent-up demand demonstrated by investors (speculators). And these folks are looking to get in on the new issues with the hopes someone else will pay them more for it. Everyone involved is looking to make quick and easy money. Unfortunately, there is nothing quick nor easy to achieve long-term investment success. As much as I am a Shaq fan, I’m not interested in joining this speculative dance. As we all know when speculating (hoping someone else pays you more for your investment), there is a good chance the music will stop (when hope is lost amongst the masses), and I have no interest in being the guy left without a chair. We’ll stick to our boring long-term approach that is based on a little more than hope.

Last we wrote in October; we summarized the potential earth-shattering events of November. They included the election, vaccine(s), and stimulus. As self-proclaimed glass half-full guys, we made the point that no matter how painful one or all of these events could be, we would eventually move past them. As of today, it appears while we are not out of the woods yet, we are on the right side of these issues. We do not pretend to be election or pandemic experts, but we do have a strong belief in this great Country to eventually get things right. Fortunately, as long-term, patient investors we are more than happy to wait till this happens. If the stock market is any indicator, this time around, we did not have to wait very long! The month of November saw the Dow Jones Industrial Average rally 11.8%... it’s best one-month performance since January 1987. The S&P 500 Index and Nasdaq Composite rose 10.8% and 11.8%, respectively. Through November 30th, the S&P 500 Index is up 13.8% for the year. Quite astounding, considering for the year, the index was down 31% in March. In hindsight, it is understandable that many called this March low a buying opportunity of a lifetime. So, what has happened to cause such a drastic turnaround? In one word: Clarity! Clarity on all fronts. (Remember, investors hate uncertainty.) While the President is still disputing the election results, the predicted civil unrest amid a prolonged uncertainty of who would be #46 has not materialized. As we head into flu season and Covid-19 cases rise, vaccines are to begin rolling out in the next few weeks (if not already). And lastly, as I write this letter, our tone-deaf politicians are supposedly nearing a compromised stimulus bill. All of these recent positive developments have provided the clarity many investors need/want in order to put their money to work in the stock market. Maybe they now realize we will not be locked up forever or that our great Country will not be without a leader. There were plenty of earlier positive signs. For instance, while we only hear of the big vaccine developments, there are actual 50 potential vaccines at different development stages. That’s right, 5-0… FIFTY! Got to believe at least a few would succeed… No? A little reading goes a long way… but I digress. Fortunately for us, we did not need the events of November to invest with confidence. In addition to what we glean from our reading/research, we’ve seen this movie more than a few times over the past two decades. Yes, the storyline and the run time always differs, but the movie typically ends the same. You may not enjoy portions of the plot, but as long as you have enough popcorn to keep you engaged till the end… you’ll be alright! Looking forward to providing more perspective in 2021. Have a happy and safe holiday!