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Market Volatility Comments

The stock market has had a rough couple of weeks, and the volatility might continue for awhile. The uncertainty over Congress pushing the debt ceiling debate to the 11th hour and some less than stellar economic reports (possibly exacerbated by the Washington induced uncertainty) has made for some stomach churning days.  Couple those ingredients with a time of year often associated with some of the least favorable historical returns and the combination can make us all fret.  But try not to let it.  These are not conditions that should make us alter our long term strategies.  It is true we as a country have some serious fiscal issues that need to be addressed – as does a good portion of the developed world- and our quarterly Point of View we sent out in April acknowledged and tried to address that issue.

There is a quote we have heard in the past that is timely and accurate – “Investing in an uncertain world is the only certainty”.  This rings very true – as from almost every juncture in history we can pull a litany of items from the time that seemed destined to alter the investing landscape.  Very few do however when viewed in the context of someone’s long term needs and goals for their money. From our viewpoint it is vitally important for us as investors to focus on the kinds of qualities and characteristics we just discussed in our July Point of View letter.  It may also be helpful to remember the fundamental underpinnings and some current data points of our Core Dividend strategy.

  • Currently produces an average weighted equity yield of 3.81% as of 8/2/11.  The companies producing this income are very high quality multinational enterprises with balance sheets much healthier than the countries in which they live.  Their income will help offer long term support and ultimately growth in their prices.

  • The companies in our portfolio have grown their dividend income at almost 12% per year for the last 5 years, which includes during the depths of the financial crisis.  This growing income stream is vital for us as investors and ultimately is not ignored by the market.

  • The prices of these stocks, as demonstrated by an average PE multiple of under 12x, which is well below historical market averages, may also offer support and possibly significant opportunity.

  • To date, the stock market has noticed these kinds of attributes as we continue to outperform the market YTD as demand has grown for these types of companies.

We will always go through these periods of time; it is a fact of life for any investor.  The S&P 500 has only had one year in the last 30 years where the largest pullback didn’t exceed 5% and 17 of those 30 years produced one or more pullbacks exceeding double digits.  We need to use these times to stick with (and add) to those franchises that continue to pay us handsome dividend income while we wait out those volatile periods, and that ultimately drive their prices forward over the intermediate and long term.


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