The Past Thirty Days

I entered the investment business in September, 1967, and this is one of the most difficult stock markets I have seen. In the last 30 days, the U. S. stock market and international markets have declined about the same amount, approximately 32%, a frightening number over a very short period of time.  Yes, 30 days.

A little history.  The U.S. experienced a very frothy market—the Nifty Fifty, fifty stocks that seemed as if they would go up forever—from 1970 to 1973, and then the world saw oil prices explode and inflation go to an annualized 9%.  The result was a 40% decline in markets during 1973 and 1974.  In October, 1987, there was a terrible one day decline of 22% with prices recovering after about a year.  As we welcomed the 21st  century, we witnessed the 40% drop in stock prices owing largely to the dot-com craziness from 2000 to 2003.   And more recently, we suffered through the 2008-2009 Great Recession when stock prices again fell over 40%.  

Fortunately we will recover from this recent decline as we have recovered in the past.  Financial markets have a long and verifiable history.  The recent 2020 report on markets from Credit Suisse is now available and the data—the past 30 days notwithstanding—continues to argue for the ownership of equities in a long-term financial plan.  Yes, stocks.   The research shows that in the United States, during the past 120 years, treasury bills averaged 3.7% annually, bonds did 4.9% and stocks averaged 9.6% a year.  (These are nominal numbers and do not account for inflation.) 

This difference in returns between stocks and other financial instruments is magnified significantly when invested over a long period of time.  For example, using the above rates of return, $10,000 invested for thirty years in bonds adds up to $42,000.  In stocks, $156,000. 

On Friday, I looked at the holdings of mutual funds, in aggregate, which we own in client portfolios to get a picture of some of our/your larger positions in common stocks.  Here are five.  

Alphabet, or as we know it, Google.  Who among us does not use this technological marvel in our daily lives?   It shows up in their financial numbers.  During the past ten years, Alphabet has compounded its book value at a rate exceeding 17% annually.   Respected research firm, Morningstar, estimates the fair value of its stock to be $1400 a share yet it has fallen to $1068 from $1519 in the last month. 

Perhaps no one is more respected in banking circles than Jamie Dimon, CEO of JPMorgan Chase.   Dimon guided JPMorgan during the Great Recession when the stock fell to $23.  But with ten-plus years of high returns on equity, the stock moved to $137 in February, only to be plummet recently to $83.  The dividend has grown every year in the past ten and is now providing a yield of 4.2%.  

Mastercard appears to be the largest holding of our mutual funds.  Like Alphabet and JPMorgan Chase, it has been slammed, going from $344 a share in late February to a recent $211.  Mastercard has displayed phenomenal growth for over 20 years . . . .earnings up an average of 20% yearly since 2010.  A very profitable corporation.  

A somewhat smaller company, CarMax, is owned by a number of our mutual funds.  This $9 billion nationwide company is still growing, as here in the Gulf South we see the recent opening of stores in Gulfport and Metairie, Louisiana.  CarMax has averaged a return on equity of 21% annually during the past five years.  But its stock price has fallen 64% (from peak to trough) in the last thirty days.  

Our largest position among international companies is Swiss company, Roche Holding.  Roche is a huge pharmaceutical and medical diagnostic company—second only in annual revenue to Johnson & Johnson—with annual sales of $63 billion.  The company is very profitable with returns on equity during the past five years averaging 43%.  Stock is down 17% since the end of February.  

Each of these companies is a dominant player in its industry and will probably continue to be so in the future.  

The rates of return cited earlier occurred during some very difficult time periods—the Great Depression, four wars, 9/11, 15% inflation, a U.S. president being assassinated, 17% prime interest rate—and this appears to be another of those time periods.   But ever the optimist, I think we will see better days.

It is important for investors to remember that while their portfolio may be down 40% in value, they have not lost 40%.  Cecil Brown was a partner in our firm for many years and during times of market declines was heard to say, “Only if you sell do you lose the 40%.”  

*This commentary is not intended as nor should be considered as a recommendation to purchase or sell securities of any of the companies named.  The companies identified were selected for illustrative purposes only.  Keep in mind that companies’ and mutual funds’ investments are subject to change at any time.  Similarly, the funds or other securities used by Medley & Brown, LLC, in its clients’ portfolios are subject to change without notice.  Investments are not guaranteed, and investors may lose money . There is no guarantee that the opinions expressed in this commentary will prove to be correct.

Tim Medley

Tim Medley

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Sissy Moreland

Client Services Trading

A graduate of Mississippi State University, Sissy joined Medley & Brown in 2017, but her career goes all the way back to 1990 when she was the merchandise director for four years at Phi Theta Kappa. She was also Customer Service Manager and Marketing Development Manager at Crystal Springs Apparel from 1994 to 2005. From 2005 to 2017, she was Manager of Sales Administration at Skyhawke Technologies. Thanks to her considerable operations and administrative experience, Sissy oversees trading and assists with most back-office operations for the firm. Staying so busy at work requires Sissy to recharge her batteries outside the office from time to time which she does by running, reading, enjoying a leisurely brunch, and watching the Saints play football.

Beth Braswell

Client Services Coordinator

Beth spent four years in the investment world before joining Medley & Brown in 2004 as our operations coordinator. She and her husband Robbie are busy parents to identical triplet daughters, so not surprisingly, some of Beth’s favorite things to do are napping and relaxing on the beach when she actually finds the time. Beth also enjoys taking short walks to the pool, attending concerts, and going out of town for long weekends. Beth loves her Mississippi State bulldogs and currently has four dogs, three cats, and three grandcats because having three children simply isn’t enough. No wonder her operational skills are so exceptional.

Doug Muenzenmay, CFA, CFP®

Senior Advisor   |   Principal

When he’s not enjoying the outdoors or attending his children’s school and sporting events, you can find Doug studiously researching investments for his clients. His career began in 1991 after graduating from the University of Iowa with a bachelor’s degree in economics. He spent 17 years in trust investments at three different banks before joining Medley & Brown in 2010. Doug also got his MBA from Mississippi College and served as an adjunct professor in finance there from 2007 to 2013. Married to his wife Sharon since 2001, Doug is a Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), and a board member of the CFA Society of Mississippi.

Eddie Carlisle, CFP®

Senior Advisor  |   Principal  |  Chief Compliance Officer

Eddie’s extensive education includes a B.S.B.A. in accounting, with special distinction, from Mississippi College in 1994, along with a J.D. from Vanderbilt University and LL.M. (Master of Laws) in taxation from the University of Florida. But it’s what he’s learned outside of school and work that really stands out. He’s an Eagle Scout, which taught him a great deal about honesty and hard work from an early age. He learned even more earning black belts in Taekwondo, Hapkido, and Hanmudo. Oh, and he studies the Korean language in his spare time as well. Additionally, Eddie serves as an adult leader for Scout Troop 164 in Madison. He is a past board member of Hope Hollow Ministries, the Central Mississippi Down Syndrome Society, and the Mississippi Corporate Counsel Association. Eddie is currently a board member of the Woodward Hines Education Foundation. He enjoys spending time with his wife, Sarah, and their three children—Andrew, Caroline, and Emma. 

Julius Ridgway

Senior Advisor   |   Principal

Judging from his background, you’d think investments and other financial matters were all Julius cares about. After all, he has two decades of direct investment experience and spent the previous ten years involved in banking and real estate. Julius also received a masters degree from the London School of Economics in 1998, an MBA from Millsaps College in 1993, and a history degree from the University of Mississippi in 1990. But his true passions include driving sports cars on racetracks or twisty mountain roads, running ultramarathons, and taking road trips with his wife and son. He’s worked here since 2002 as a Chartered Financial Analyst (CFA) and member of the CFA Institute while also serving as an adjunct instructor at Millsaps College and board member of New Stage Theatre. It takes major dedication to tackle all these responsibilities—sort of like training for all those long distant runs—but Julius enjoys every minute of the grind. And when it’s time to slow down, Julius finds the best way to clear his head is taking long hikes in the mountains on all those road trips.