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Quarterly Client Letters

October 1, 2019

Dear Client: Returns for the major stock indices for 2019, and the current bond and money market yields are as follows: Index YTD 2019 Dow Jones Industrial Average     16.81% S&P 500     20.44% Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 1.27% 1.28% 1.47% 2.11% US Treasuries 1.75% 1.55% 1.67% 2.12% Fidelity Government Cash Reserves Money Market Fund  1.69% As we celebrate our 25th year at LYNCH & Associates, we believe it is important to recognize that the equity markets are having a great year.  Despite the negative sensationalism in the financial media, the markets are only one percent off of their all-time highs.  The month of August gave investors a negative return as the looming recession was the focus and every media pundit seemed certain of its imminence.  As near all-time highs came in September, much of this hype has subsided.  We believe it is important to remember that even though recessions are a natural part of the business cycle, they do not always bring certain market declines.  We remind you that during five of the last ten recessions the equity markets increased.  As we have written, a common thought process is to immediately ascribe the pain of the most recent recession (Great Recession of 2008-09) as the standard market reaction to a recession.  It is easy to think we may be due for a recession (and perhaps we are) being that a decade has now passed, but recessions do not come from old age as we note that Australia has not had a recession for 28 years.  For many reasons, we have... read more

July 1, 2019

Dear Client: Returns for the major stock indices for 2019, and the current bond and money market yields are as follows: Index YTD 2019 Dow Jones Industrial Average     15.28% S&P 500     18.54% Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 1.28% 1.34% 1.62% 2.40% US Treasuries 1.93% 1.76% 2.01% 2.53% Fidelity Government Cash Reserves Money Market Fund  2.07% Happy 4th of July!  As we celebrate the birth of our nation, we would like to reflect on the incredible first half of 2019 in the equity markets.  We just recorded the best June in the stock market since 1955 and are up over 18% year to date.  We again endured volatility as the month of May was down 6.35% alone for the S&P 500, reminding us that markets do not go straight up.  By the end of June, the markets fully recovered all of May’s decline.  Though we are never comfortable over-emphasizing short-term markets, we believe it is healthy to reflect on the values of resilience, discipline and the grinding faith that markets will ultimately appreciate over time for inherent reasons.  We also take some solace knowing the U.S. equity markets have rallied back to new highs after every decline. With the above optimism in mind, we are always concerned about the future and as is said repeatedly in this business: past performance is no guarantee of future results.  We have written multiple times about our concerns for attractive fixed income options due to falling interest rates and rising bond prices (remember the inverse correlation: as bond prices rise, interest rates fall).  In our... read more

April 1, 2019

Dear Client: Returns for the major stock indices for 2019, and the current bond and money market yields are as follows: Index YTD 2019 Dow Jones Industrial Average     11.81% S&P 500     13.65% Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 1.51% 1.59% 1.89% 2.72% US Treasuries 2.39% 2.23% 2.41% 2.81% Fidelity Government Cash Reserves Money Market Fund  2.13% As we begin our 25th year at LYNCH & Associates, we would like to take the opportunity to thank all of you for your continued confidence.  Since our opening in December 1994, the S&P 500’s compounded annual growth rate has been 11%.  In that time, we have seen countless reasons for the markets to be fearful and euphoric: the internet boom and bust, 9/11 and terrorism, the housing boom and collapse, the Great Recession, enormous technological progress and huge economic expansion.  The fears and advancements are too many to count.  Through it all, we believe our continued principles of bottom-up, growth-oriented investing, owning the highest quality individual securities while being insistent on the long term, have and will continue to serve our clients well.  We repeat that it is the discipline to rationally adhere to sound investing principles during the difficult market times that will be most important to investing success. The first quarter of 2019 shaped up to be the best quarter since 1998.  After a very difficult fourth quarter where the S&P index dropped 20% from its all-time high on September 21st to its low on December 26th, the markets have snapped back quite impressively.  It has been great to see so many... read more

October 1, 2018

Dear Client:   Returns for the major stock indices through the third quarter of 2018, and the current bond market yields are as follows:   Index YTD 2018 Dow Jones Industrial Average      8.67% S&P 500      10.56%   Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 1.92% 2.23% 2.62%     3.26% US Treasuries 2.57% 2.94% 3.05% 3.20%   Through the first three quarters of 2018, the markets have continued to deliver successful results.  The equity market indices have again reached all-time highs as have your stock based portfolios.  The economy is firing on nearly all cylinders as eight of the eleven sectors in the S&P 500 are positive for the year, and 80% of the companies topped their earnings estimates in the 2nd quarter.  The markets are still benefiting from the lower corporate tax rates, which have significantly contributed to impressive year-over-year earnings growth.  In each of the first two quarters earnings have been up over 20% and we have yet to see the 3rd and 4th quarter numbers, which we do not believe will be anything but remarkable.  The U.S. markets have dominated their foreign counterparts as the total U.S. equity market capitalization has risen this year from 36.60% to 40.16% of the total world equity market cap.  By now, you are fully aware we are in a bull market and have been for almost a decade. At LYNCH & Associates, we believe to be successful as an investor, one must be dedicated to a long-term vision.  We admit we sound like a broken record beating the long-term drum.  As highlighted in multiple... read more

July 1, 2018

Dear Client:   Returns for the major stock indices for the first half of 2018 and the current bond market yields are as follows:   Index YTD 2018 Dow Jones Industrial Average -1.81% S&P 500 +1.67%   Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 1.47% 2.00% 2.47% 3.00% US Treasuries 2.31% 2.74% 2.86% 2.99%   The first half of 2018 has been fairly uneventful for the overall stock market.  The markets peaked on January 26th, then had a quick 10+ percent decline.  Now we have clawed our way back, but the Dow and S&P 500 are still off their all-time highs by 8 percent and 5 percent, respectively.  There have, however, been some bright spots in the market; small-capitalization stocks have performed well, as have some of the large Nasdaq/FAANG names we mentioned in our first quarter letter.  Despite some strong performances, the overall market has been boring year-to-date; or more plainly said, ordinary.  The markets’ performance in 2018 have not been particularly interesting, but investing is not supposed to be entertainment.  REAL investing is not a game; it is mundane, routine and long.  Successful long-term investing is a lethargic combination of discipline, grit, grind and humility.  Long-term investing can be studied, but in reality can take lots of time, introspection and experience to accept as a discipline. When I began at LYNCH & Associates 23 years ago, I was as green as could be but excited for the future and eager to learn everything about investing.  I was determined to prove to myself, my family and the clients of LYNCH & Associates that... read more

April 1, 2018

Dear Client: Returns for the major stock indices for the first quarter of 2018 and the current bond market yields are as follows:   Index YTD 2018 Dow Jones Industrial Average -2.49% S&P 500 -1.22%   Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 1.55% 2.07% 2.48% 3.01% US Treasuries 2.08% 2.56% 2.74% 2.97%   The equity markets are off to a bumpy start in 2018.  After a blistering January, continuing the unprecedented, non-stop (15-month in a row) rise since the presidential election, the market experienced one of the fastest 10% declines (January 26th to February 8th or nine trading days) in history.  The markets have not recovered back to the highs of January as we have just logged our first down quarter since the third quarter of 2015.  We could write at length about algorithmic trading, tariffs and other noise associated with short-term market declines but won’t because we do not believe them to be relevant to long-term investors and do not want to give merit to this type of short-term dialogue.  As long-term investors, we know the markets regularly correct and we understand that the uneasiness associated with market volatility is the price we must pay to be long-term investors.  However, we will always continue to seek perspective, humility and assurance. The primary objective of our quarterly letters is to highlight our most relevant thoughts on our outlook for the current markets.  Despite recent market turbulence, we continue to remain positive on the equity markets for 2018 for many reasons.  The following indicators we highlighted from one year ago are still in place... read more

January 1, 2018

Dear Client: Returns for the major stock indices for 2017 and the current bond market yields are as follows: Index 2017 Dow Jones Industrial Average 28.08% S&P 500 21.82%   Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 1.44% 1.70% 2.01% 2.62% US Treasuries 1.73% 2.21% 2.41% 2.74%   As we close out 2017, long-term equity investors have had another very successful year.  Not only was 2017 a successful year, it was one of the steadiest market performances in history.  The market increased in all 12 months and the S&P 500 index never declined over 3% in 2017.  This extraordinarily low volatility certainly will not last but is consistent with healthy bull market rallies.  The S&P 500 made 63 new highs while the Dow Jones Industrial Average logged 70 new highs in 2017.  Quite clearly, investors are buying market dips and optimism for the equity market is undoubtedly back.  While it is easy to reflect on good times and celebrate successful years, we never forget the stock market is a discounting mechanism that processes present and future expectations and current events.  Despite inevitable bumps in the road ahead, we still believe the equity markets are poised to reflect continued growth and will continue to benefit from the lack of attractive alternatives available to investors. At LYNCH & Associates, we do our best to be grounded in humility, as we have written that getting bogged down explaining away the day-to-day gyrations of the markets can be a fool’s errand.  We know that trying to interpret or predict short-term movements in the markets is impossible and has... read more

October 1, 2017

Dear Client: Returns for the major stock indices for the third quarter of 2017 and the current bond market yields are as follows: Index YTD 2017 Dow Jones Industrial Average 13.37% S&P 500 12.53%   Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 0.92% 1.37% 2.00% 2.90% US Treasuries 1.29% 1.93% 2.33% 2.86%   As you have seen in your monthly statements, the markets continue to deliver increases in asset prices.  While we hesitate to use loaded language, we recognize the markets have been very good to long-term equity investors.  The markets have plodded along in an upward trend quite systematically in 2017.  In many of our previous letters we have written about reasons to stay the course, emphasizing long-term results while advocating the words of Warren Buffett several times.  Our portfolios have never been higher and we acknowledge the good times are here; however, we have also been around the block a few times and know that markets do not rise in perpetuity without pauses, corrections or price adjustments. It is often said that “hindsight is 20/20,” implying that everything looks clear upon reflection.  We do reread our previous quarterly letters and attempt to take inventory of how we have navigated the markets and how our advice has fared over the 23 years since our inception.  We could highlight that we have often understood the current market conditions at the time, alluding most specifically to the late ‘90s when we wrote about excessive stock prices during the tech bubble as well as the inflated housing prices in the mid-2000s.  These were two of the... read more

July 1, 2017

Dear Client: Returns for the major stock indices for the first half of 2017 and the current bond market yields are as follows: Index YTD 2017 Dow Jones Industrial Average +8.03% S&P 500 +8.24%   Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 0.84% 1.35% 1.96% 2.81% US Treasuries 1.23% 1.89% 2.30% 2.83%   The good old days!  When I began work at LYNCH & Associates in 1995, I was a 22 year old recent graduate from Purdue’s Krannert School of Management.  I was excited to be in the investment business and to work alongside my dad who had been in the business since 1979.  Little did I know, we were in a Goldilocks era for investing; the S&P 500 Index was in the middle of a 37% year; followed by a 22% year in 1996, a 33% year in 1997, a 28% year in 1998 and a 21% year in 1999.   Accumulating wealth was easy, and we heard regular drumbeats that “it’s different this time” and “it’s the new economy” when explaining why we could come to expect big double-digit years in the stock markets.  Many in the industry began to believe you could assume a greater than 10% annualized return in the market.  As we know, the market corrected with three consecutive negative years (-9% in 2000, -11% in 2001, -22% in 2002), reversion to the mean ran its course, and valuations came back to normal.  Those with undiversified portfolios (most notably, overweightings in technology stocks), those using leverage to buy stocks, and those who thought it was “different this time” learned many... read more

April 1, 2017

Dear Client: Returns for the major stock indices for the first quarter of 2017 and the current bond market yields are as follows: Index YTD 2017 Dow Jones Industrial Average 4.56% S&P 500 5.53%   Fixed Income Yields 1 year 5 year 10 year 30 year Municipals 0.85% 1.58% 2.26% 3.07% US Treasuries 1.02% 1.92% 2.39% 3.01%   The equity markets are off to a strong start in 2017.  The markets continue to grind higher despite fearmongering about a sell-off being around the corner and the misguided notion that bull markets can die of old age alone. We fully concede the market has had an eight-year run from its March 9th, 2009 low; but we believe this was a multi-generational low that corresponded with a mass confluence of structural issues, many of which have been reconciled.  We further understand that economic cycles are quite natural and the emotions and politics that accompany these cycles are often predictable and repeated.  Below are some of the indicators we monitor that are NOT yet in place to derail the bull market: An inverted yield curve/widening credit spreads. This is when long-term rates yield less than short-term rates. Translation: the debt market sees more risk in the short term than the long term. Stock prices relative to earnings ratios excessively above norms. Earnings are still rising and no significant earnings warnings have been announced. Euphoric buying/speculative excess in public equity markets. We see no signs of excessive speculation. Heavy inflows into equity funds. Investment into equity funds vs. bond funds is nowhere near comparable peaks in the markets. Significantly increased IPO activity. When... read more