As we enter the last four months of 2023, I’m reminded that this time last year was not so pleasant. September 6, 2022, the S&P closed at 3,908 on its way south to the low of the year on October 12 of 3,577. We were fielding a few worried calls. What made matters worse was that the asset class in our portfolios, which is designed to be the ballast, Fixed Income Bonds, also had their worst year in decades. (Bond prices and rising interest rates are inversely correlated.)
But markets like 2022 are where real money is made. Market downturns like CY2022 are opportunities to buy the best companies in the world (even in the history of the world) at significant discounts. And the icing on top of those share-price discounts, the company dividends were increasing—up about 11% in 2022. In most of our accounts, we’re reinvesting them. So we buy or hold companies selling at a discount, reinvest our dividends into more shares of those companies, and voila, we have a great year in 2023.
On July 31, 2023, the S&P closed 1,000 points higher (4,588) than that low in October 2022—an excellent return indeed—not even considering the higher number of shares due to dividend reinvesting or rebalancing. As of today (9/6/23)—the S&P has come down from those highs a bit (4,462 as I write), but you get the point.
Our goal is to stay invested through thick and thin—but we should recognize that in the end, we made more money during down years than up years.
Even during these dog days for our fixed-income investments, the monthly dividends are reinvested at excellent prices (as in, low). We will eventually return to higher bond prices when interest rates come back down. We can then look forward to, over the next 24 or 36 months of dividends reinvesting, not only getting the capital appreciation due to the share price increase but also getting the compounding effect of our dividends earning dividends, over and over and over again. We ascribe to Charlie Munger’s rule # 1 about compounding: do not interrupt it unnecessarily.
Thanks for reading, and give us a call if you have anything pending. It’s hard to believe, but 2023 is on the glide path.
