A Letter to Our Clients

We are even more delighted than usual to report to you at midyear on the events of the last six months and on the further progress of our long-term plan. But first, as always, a brief recitation of our core convictions.

The Ideas That Guide Us

• We are long-term, goal-focused, planning-driven owners of broadly diversified portfolios of enduringly successful companies. As such, we act continuously on our plan instead of reacting episodically to current events and conditions.
• We're convinced that the economy cannot be consistently forecast, nor the market consistently timed. We infer from this that our best chance to capture something close to the full long-term return of equities is to ride out their frequent, sometimes significant, but historically always temporary declines.
• As we pursue your most cherished financial goals together, these will continue to be the bedrock convictions that inform our investment policy.

Current Commentary

After declining sharply for most of 2022, the S&P 500 ended the year at 3,840.

As 2023 dawned, it seemed as if the economy might well be in a no-win situation. Either the Federal Reserve would tighten credit conditions enough to stamp out inflation, thereby plunging us into recession. Or it would relent, avoiding recession but permitting inflation to burn on. In either case, we were assured that corporate earnings must be about to decline significantly, boding ill for "the stock market."

To this apparently intractable situation, the first half of 2023 added three new and potentially critical uncertainties:

• The specter of U.S. sovereign default,
• A wave of bank failures that seemed to threaten the banking system itself (already seems like old news, huh?),
• A renewed outbreak of fear surrounding the dollar's status as the world's reserve currency.

Yet after enduring that relentless onslaught of crises, real and imagined, the S&P 500 closed out the first half of 2023 at 4,449, an increase of 16%. We are almost tempted to say, "You read that right," and leave you to draw your own conclusions. Instead, we will just repeat Peter Lynch's timeless maxim: "The real key to making money in stocks is not to get scared out of them."

In that sense, these six months represent for us—and we devoutly hope for you—a successful investing career in microcosm. We did all that could be asked of us regarding our investments; amidst the near-universal pessimism, we didn't get scared out.

Rather, we stayed focused on your goals and on your long-term plan, with confidence that the management of the companies we own were husbanding our capital with diligence, while they sought out new and potentially greater opportunities amid the adversity.

In Summary

Everything that happened (and didn't happen) in the first half of 2023 turned out not to matter much. What mattered was that together we chose not to react to the news, but to respond based on our plan. Is it possible that a lifetime of patient, disciplined investment success is just that simple? We certainly believe it can be, and we sincerely hope you do too.

Thank you for the trust and confidence you've placed in us. It is a sincere privilege to serve you and your family. Please don't hesitate to reach out if you have any questions.

Your team at Spaugh Dameron Tenny

CRN202607-4663901