I haven't written a letter to you since last August. I try to write only when I have something worthwhile to say, which is seldom. Like most people, it's easy for me to talk and talk and talk without saying anything. But when it comes to writing, I try to exercise some awareness and self discipline. I'm often told, "Brent, you are a skilled writer; you should write books, newspaper columns and such." My unspoken response, "The world is drowning in words. Who needs more to read?" I have on my shelves right now stacks of wonderful classic books I have yet to get around to reading. I suspect you do as well. Yet we go about daily gorging ourselves with words from the sloppiest of places, especially the internet. In 1840 Henry Thoreau prophesied that one day men would be able to communicate with those on the other side of the globe in an instant.....only to discover they had nothing to say. He was right on both counts. Now, having discovered we have nothing to say, we keep on saying it anyway. And we are too busy texting to discover much of anything else. Thankfully I've managed to stay free of Facebook and other "social media". That has helped a little. I've thought I might get rich by franchising my own version: Assbook. Members would post pictures of their bare (or covered) posteriors. The only message posted: "It's my private life. Butt out!"
Last year on a beautiful spring day in Washington DC, I was sitting on a bench outside the Capital Hill Hotel smoking a cigar, when a ragged man stopped at the large sand filled ashtray near me and began fishing through it for a remnant of something to smoke. Feeling philanthropic I spoke up, "Here. Let me give you a fresh cigar". From my jacket I produced a "deluxe" corona still wrapped in cellophane. As I put it in his hand he looked surprised, then a little angry. "Well, I want money!" he snarled. I paused and said, "Forgive my presumption. The cigar is a gift. It is entirely yours. But I'm happy to buy it back from you at cost". I gave him three dollars and took back the stogie. He stared at me incredulously. "You must be a damned Republican!" he declared, and huffed away. Soon I started laughing...at both of us. He lacked courtesy, but I lacked humility. After all, I had the advantage. An observation though... I'd been told that everyone in D.C. is highly political. It's true. Even the vagrants are partisan.
The rancor of politics has intruded on our domestic life this past year. It has been nearly inescapable. Not only might you be a damned Republican; you might be a damned Democrat or a damned Whatever. Regardless of your position, you most surely will be damned by somebody. Damned used to be a theological term. At one time, only God was entrusted with Damnation since the exercise of it was considered severe and somewhat long lasting. Now we just use the word to insult one another.
I've discovered that most who live in our nation's capital claim to be neither conservative nor liberal, but progressive....another word made useless by being so flexible. To favor progress sounds high minded. Who could possibly be against it? But without defining the end toward which we are progressing, what is necessarily so good about it? Adolf Hitler might have said, "This week we dropped one hundred bombs on London. Next week we shall drop two hundred, and the week after that, three hundred! We are surely making progress in our efforts. But then, we always have been progressive".
In the investment world progress means getting and keeping ever larger sums of money. That can be pleasant and satisfying to a point. But even then, without determining the purpose...the use of the money...how can we assume it is automatically a good thing we are doing? We all know people who are rich but reprehensible. Millionaires are not necessarily nice people, and they commit suicide with greater frequency than the poor of Calcutta. That's why when working with clients, we often say, "It's not about your money; it's about your life". The former must serve the latter or you remain a slave regardless of your net worth.
The latest media fear is "De-Globalization", a new catchword in our industry to describe the threat of slowdown in global trade. The catalyst has been the Brexit vote in the U.K. and the election of a populist president here. (I said populist...not popular). Change is certainly in the air and there will be some near term winners and losers in the markets. However, I've done this too long to be overly swayed by the current trendy talk. Truth is, the floodgates have been opened and no one, no matter how vocal, is going to stop the free flow of ideas, products, and innovation worldwide. Even intense short term protectionism would be like damming up a raging river....soon it would work its way around and find a new flood path. The surging demand from the newly empowered global consumers....and there are multiplied millions....is the real driver....virtually unstoppable short of Armageddon. (In which case, as they say, we'll have other fish to fry)
I'm always wary of populist politics, but right now I think some of it is a healthy corrective. I think the Brexit vote came from the gut of a strong and capable people who decided that control of their lives had moved a little too far up line. The EU has been a committee-made horse and too much power has been transferred to the "elites", whoever the hell they are. I believe local identity and nationalism are healthy things as compared to the deceptive and pretentious "multiculturalism" running riot.
So, what about your money? Well, if you don't follow the news, it is doing just fine. In our portfolios we've been shifting to a greater focus on companies that benefit from the developing world. We've been early, but we've not been wrong. And the question of whether the market is too high or too low is irrelevant. It is both, depending on where you look. Never underestimate the power of public commerce. On television you see conflict, violence, terrorism, disturbing politicians, and dire predictions by professional worriers. But step outside and you see people driving to and from work. The resilience of human beings is the planet's real "renewable resource". Germany, razed and demoralized by the Second World War, became an economic powerhouse within thirty years. Nagasaki at night now looks like the dazzling skyline of Hong Kong. How could that be? Because people went back to work. They always do.
The Elevator Theory of Stocks
I know that many people perceive the stock market as something like an elevator in a tall building; it goes up and down, up and down, and ultimately goes nowhere. They assume that, in order to make money, you have to know when to get on and when to get off....and on what floors. This is a persistent and costly error. The truer image is that of a man climbing ever higher on mountainous terrain. His path is not an uninterrupted plane of progress. He must go up and down on rough irregular ground in order to climb yet higher. At times, his path will be sharply downward, but that is only a necessary part of the journey. Only from a distance can we see his sure trajectory...ever upward. That has been true as long as we have had a stock market.
Of course we repeatedly say we don't invest in markets. We invest in stocks of individual companies whose daily price is swayed by market moves, but whose long-term value is driven by the success of the enterprise itself. Our friends at Capital Group tell us they buy individual companies not countries or "asset classes". Ron Baron's team in New York takes it further, saying, "We buy people and cultures, not companies." Their long term results have been extraordinary. Hold on to your hat for there is a wild ride ahead. How do I know that? Because investing in equities is always a wild ride. If you learn to relax, it can be a lot of fun. We are here for you. Thank you for entrusting us with your financial life.
With Sincere Appreciation,