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Market Commentary – January 2023

Year in Review

For most investors, 2022 will be remembered but not missed. Using the S&P 500 Index as a proxy, it was the worst year for stocks since 2008. As for bonds, usually a steadier asset class, it was the worst year since 1994 for most benchmarks. This market distress was provoked by a global inflation outbreak, with the U.S. Consumer Price Index (CPI) surging to levels last experienced in 1981. It was a very humbling time for the Federal Reserve, which started the year thinking a little fine-tuning would tame inflation, but by December had implemented seven interest rate increases.

Psychological Pendulum

In the real economy, we spend most of our time between warm and cool. By contrast, financial markets seem to careen from giddy to despondent. Indeed, when things seem temperate in markets, we’re usually just passing through, on the way to another extreme driven by excesses in optimism or pessimism. This calls to mind Warren Buffett’s opinion that successful investing depends more on temperament than intellect. Bartlett was not unduly exalted following a great year in 2021, and we are not downcast in the wake of 2022. In good times and bad, we are resolved to be dispassionate and objective, mindful that achieving long-term investing goals requires steadiness throughout the market cycle. Financial management must be grounded in realism, rather than optimism or pessimism. 

Principles Instead of Predictions

The late John Kenneth Galbraith memorably described the two kinds of forecasters: those who don’t know, and those who don’t know they don’t know. Market predictions are ubiquitous in January, but we think prognosticating is a fool’s errand. Instead, we believe the outset of a new year is a good time to reiterate our core beliefs. These should keep us poised and pragmatic in 2023.

Progress is the rule, setbacks are temporary. Many bellwether companies are experiencing a slowdown in business, and a recession may occur this year. It would be the fourth since 1990. However, downturns are usually relatively brief, lasting six to twelve months, and the economy is in growth mode almost 90% of the time. Therefore, we think a wise investor should focus on long-term progress, while looking at setbacks as times of opportunity rather than peril.

Investing is a marathon, not a sprint. Indeed, it is a very rewarding marathon. 2022 was the seventh time in the last 35 years that stocks finished with negative returns. Notwithstanding these periodic losses, stocks provided an annualized return of almost 10% during this period, wealth creation unmatched by most asset classes.

“Time in the Market” is more important than “Market Timing.” Occasional setbacks, accompanied by sensational reporting, make it tempting to trade in and out of stocks. However, it is unreliable and frequently costly, because the timer usually sells after declines are underway and often repurchases long after recovery has started. We know of no investor – individual or institution – with a record of sustained success in market timing.

Patiently own a diversified mix of great companies. Long-term equity investors have been amply rewarded because stock prices have paralleled rising corporate profits and dividends. These growth factors are vital in our stock selections, as we seek to invest in vital companies having sustainable competitive advantages.

Be careful about valuation. 2022 brought acute sadness to very aggressive investors who were seduced by bountiful conditions in 2021. Many stocks celebrated a year ago – admired leaders in dynamic industries such as electric vehicles, digital currency, and online commerce – plunged by 70% or more as hope collided with reality. It takes a 25% gain to be fully restored after a 20% decline, but a 75% plunge requires a 300% recovery. This is very daunting math for those who forget about risk!

Remember the importance of asset allocation. Bear markets exact a lasting penalty on those forced to sell stocks at lower prices. Therefore, risk tolerance and withdrawal requirements must be carefully analyzed and periodically updated. Less volatile assets, such as cash and bonds, are vital safeguards in controlling risk. As we are fond of saying, bad markets may disrupt a portfolio for a while, but should not disrupt a good financial plan.

Be humble and flexible. We believe adaptability is critical in financial planning and portfolio management. This is vital because so many critical factors – the economy, industries, companies, and client needs – may evolve in surprising ways not imagined by even the most carefully conceived strategy. This recalls Eisenhower’s pithy reflection on the D-Day invasion: the plan was useless, but the planning was essential.

These maxims helped Bartlett manage through prior periods of distress, including nine “bear market” declines since 1990. It will be principles, not predictions, that help us navigate the year ahead. We hope this time-tested approach is reassuring for you.

Good News

We are pleased to announce the addition of Matt Stith and Chad Kolde as Principals of Bartlett. Matt joined the firm in 2006 as a Research Analyst and gradually ascended to his current role as Portfolio Manager and Director of Equity Research. For sixteen years he has been helping us invest effectively. Chad is Bartlett’s Chief Financial Officer. In this critical role, he does yeoman work keeping the firm profitable and fiscally sound, so that we can invest in the people and systems necessary for excellence in all facets of wealth management.

Concluding Comments

Bartlett again achieved its 98% client retention goal in 2022, and we steadily added new clients throughout the year. Moreover, we made terrific additions to our professional staff. At a time when many financial companies are downsizing, Bartlett will continue to thoughtfully hire, so that we maintain a high level of service while promoting business growth.

We are humbled by your loyalty and grateful for your confidence. Please recommend us to family, friends, and associates who could benefit from our services.


This material provided by Bartlett Wealth Management (“Bartlett”) is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Nothing in these materials is intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Past performance is not a guarantee of future results. Opinions expressed by Bartlett are based on economic or market conditions at the time this material was written; actual economic or market events may turn out differently than anticipated.  Facts presented have been obtained from sources believed to be reliable.  Bartlett, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Any reference to an index is included for illustrative purposes only.  Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. 

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