We thought that we would share some thoughts with you regarding the market volatility since the beginning of the year.

Since New Year’s, stock markets around the world have declined swiftly, with markets in Asia faring the worst so far. Although this market volatility is unsettling, we have only retraced the path markets experienced during the declines in March and August of last year. We have yet to see any new lows in major market indexes (the true sign that a more prolonged market decline may be upon us). Recently, many stock market pundits have declared that we are in a bear market for stocks. We find this a strange comment, since we believe that certain sectors of the global stock market have already been in bear markets for quite some time.

Over the past nine months, financials stocks have declined 25% with some falling significantly more. Consumer discretionary companies have fallen by similar numbers. These are real bear market numbers. However, consumer staple, energy and healthcare stocks (the bulk of the stocks in your portfolio) have held up and some have gone up, not only this year but for the past nine months. This dichotomy of market performance is a testament that it is truly a market of individual stocks, not necessarily a one decision "stock market".

Most importantly, we wanted to reach out to you and let you know that we continue to believe that the jury is still out as to whether a recession and bear market are for certain (please refer to our most recent quarterly letter for further commentary), and remind you that the recent market decline is simply retracing a path you have already experienced quite recently (though it doesn’t make it feel anymore comfortable the second and third time around). In the case that markets do fall further and recession becomes inevitable, we continue to maintain stop losses on your economically sensitive stocks and will be here to manage these risks to the best of our abilities.

We hope you are doing well and please feel free to contact us with any questions or thoughts.

Sincerely,

James E. Demmert
Managing Partner