By Drew Wilson, Investment Research Analyst
The S&P 500, an index of stock prices of the largest 500 corporations in the U.S. by market capitalization, was essentially flat for the first half of 2015; including dividends, the S&P 500 Index returned +1.23%. The S&P began 2015 on a down note, falling -2.3% in January. Then, in February, it rebounded and remained in a range between flat and up +3.5% until it fell at the end of June. We said at the beginning of this year that we thought it improbable that the broad U.S. stock markets would repeat the double-digit returns of 2012 to 2014 and so far this notion seems to be correct. We still characterize U.S. stocks as “fairly” priced meaning stock prices are in line with what we think the businesses are worth. Bargains are as scarce as they were at the beginning of the year, maybe more so. This does not deter us, it energizes us! Markets tend to be fairly priced (often overpriced) over time. So, from this perspective, the environment feels more “normal” than it has in some time. Our focus on being long-term investors in a small number of quality companies that possess solid balance sheets and skilled management means we don’t need a multitude of bargains to preserve and grow your wealth over the long term — just a handful. We roll up our sleeves and diligently analyze operations thoroughly, company-by-company, looking for great ones that happen to be unloved, misunderstood, or undiscovered at the moment. This is what we love to do! We believe that our patient pursuit of capital preservation and growth is well-suited for all environments, but even more so for this one.
The focus on when and how fast the Federal Reserve would raise interest rates, Greece’s debt issues, the fluctuation of oil prices, the pace of U.S. economic recovery, and the slowing growth of the BRICs (Brazil, Russia, India, and China) stirred emotions and moved markets the first half of the year. These, and other as of yet unknown issues, will continue to be factors in the coming months. We wouldn’t be surprised if stock prices become more volatile as a result. For bargain hunters like us, volatility has a silver lining — opportunity.