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.

Read More

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.

Read More

September 2014 Client Letter

Swiss investor Marc Faber PhD, also known as Dr. Doom, recently explained how news from McDonald’s could spell trouble for the stock market. On Tuesday, September 9th, McDonald’s reported a 3.7% decline in global same-store sales. That ranks as the company’s worst global same-store sales results in more than a decade.

Said Faber, “We had, essentially, very poor sales from McDonald’s. Now, McDonald’s is a very good indicator of the global economy. If McDonald’s doesn’t increase its sales, it tells you that the monetary policies have largely failed in the sense that prices are going up more than disposable income, and so people have less purchasing power.”

Read More

August 2014 Client Letter

Quality and dividends. If I had to describe our equity strategy in as few words as possible, that would probably do it. This is good news for most clients who are retired or soon to be retired. The strategy is easy to understand and provides a degree of comfort in today’s uncertain global economy.  There is nothing more overwhelming than having one’s nest egg tied to an investment strategy that requires a long, confusing explanation, and nothing more underwhelming than a strategy that’s too generic, diversified across too many stock and country sectors.

Longtime favored stock Johnson & Johnson (JNJ) fits our quality and dividends requirements nicely. JNJ is generally thought of as a stodgy company. But there’s nothing boring about its stable of popular brands, including Band-Aid, Tylenol, and Splenda. Nor is there anything boring about its dividend payout dating back to 1944. For investors, the consistency of an annual dividend check is reassuring, especially during periods of market volatility.

Read More

July 2014 Client Letter

For most retired or soon-to-be-retired investors, significant portfolio losses are unacceptable. Since year-end 1999, the stock market has experienced two peak-to-trough declines of about 50%. During the dot-com bust, the S&P 500 lost 48% of its value, and during the credit crisis, the index cratered 56%.

How would you react if your life savings, the source of your livelihood in retirement, was cut in half? Would you be comfortable riding out the storm in hopes of making your money back in future years? Or would you cut your losses? These are not hypothetical scenarios. These were actual returns. And based on the potential bubble valuations in the stock market today, significant market declines could be seen again before the decade is out.

Read More