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Market Update

Second Quarter 2017


Lunch with Warren Buffet

For the last 18 years, Warren Buffett has auctioned off the opportunity to have lunch with him at the Smith & Wollensky steakhouse in Manhattan. The proceeds go to a San Francisco-based charity that provides food, shelter, and other support for the homeless and impoverished. The first-year auction winner paid $25,000 to dine with Warren. The winning bid in the 2017 auction which concluded last month was a whopping $2,679,001! And this is actually a decrease from last year when the winner paid just under $3.5 million. Since its inception in 2000, the event has now raised $26.3 million for charity.

The incredible amount of money spent to have lunch with Warren and potentially glean some words of wisdom is a testament to his high esteem as both a businessman and investor. The good news – for those who don’t have a few extra million lying around to spend on lunch with Warren – is that you can get as much, if not more, good advice for free by reading the Chairman’s letter in the Berkshire Hathaway annual report. As I read the letter each year, I find it ironic that, although Buffett is widely considered to be one of the best investors of all time, his investment advice is often ignored.

Buffet consistently talks about the wisdom of a disciplined long-term approach to investing. Each year, he reiterates his confidence in the future of American business and advocates a buy and hold philosophy that takes advantage of the dynamic economic growth and wealth creation that has persisted for hundreds of years. In his most recent letter to shareholders, he points out that from a standing start 240 years ago, America has amassed wealth totaling over $90 trillion.

However, in the financial press, we are continually bombarded with negative news predicting forthcoming calamities and “advice” about how to avoid these looming disasters. In response, Buffet writes:

“American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by making their gloomy forecast. Heaven help them if they act on the nonsense they peddle.”

Unfortunately, many investors act on the “nonsense.” Numerous studies of investor behavior show that most investors underperform their own investments. For example, a 2015 Dalbar study showed that the average equity investor realized a 30-year annual return of 3.66% during the period in which the S&P 500 index returned 10.35%.

America’s economic achievements have led to staggering gains for equity investors.  During the 20th century alone, the Dow Jones industrial average gained 17,320% - which doesn’t even include the steadily increasing dividends. The naysayers will maintain that “this time is different” and the future uncertain but Buffett argues that our best days are ahead:

“This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”

Market Update

Office News

We are pleased to announce that Kimberly Chmielewski joined Davidson Capital in May. Kimberly moved to North Carolina from Sarasota, Florida where she had been the Practice Manager at GCAG LLC - a Raymond James Financial Services office in Sarasota, Florida. Prior to joining Raymond James, Kimberly was the cofounder and Executive Director of Good Samaritan Pharmacy & Health Care - a nonprofit organization created to provide pharmaceutical and health care assistance to the uninsured.

Please contact us if you would like to learn more about how our investment discipline can help you achieve your financial and life goals.

Sincerely,

DAVIDSON CAPITAL
Stanley P. Dyl

President

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