Hello from Sycamore,
Thirty Years and Counting
The third quarter is now in the rear-view mirror, but this one means a bit more to Sycamore than most. On September 30th, our Growth and Income Composite completed its 30th year. Since its beginning on September 30th, 1996, the composite has returned 10.36% annually before the deduction of fees. Many of you have invested in our strategy for most if not all that period. We want to thank you and hope you’ve been pleased with the results – through good markets such as the 90’s and difficult ones like 2008-09. We’re looking forward to the years ahead.
Investors vs Speculators.
Each year we like to take some time to thank each of you for being investors. There is an important difference between investing and speculating. Investors own good businesses, think in years rather than days, and understand that even worthwhile companies have disappointing periods. Speculators worry about today’s market move and listen to the latest guru who claims to know what will happen tomorrow. We are pleased to have outperformed the S&P 500 over the last 30 years although the index has been gaining on us lately. However, outperforming an index, any index, is not our main goal. Our objectives are to provide reasonably good long-term returns, reduce your overall volatility, and improve tax efficiency where possible. Most importantly, we want to help you reach your goals without taking risks we believe are unnecessary.
The Markets
During the 3rd quarter, our Growth and Income Composite declined 1.93% while the Dow Jones Industrial Average Total return index declined 2.3%, and the technology heavy S&P 500 index gained 2.3%. Technology officially represents about 38% of the S&P 500 index, but when technology-driven companies classified in other sectors are included (think Tesla), the figure is closer to 50%. We are never pleased with a negative quarter, but our results are consistent with our expectations from our strategy in this type of market. Over the past three years, the S&P 500 has gained nearly 70%, considerably more than investors should expect over such a short period. No one knows how long the current pace can continue, but history suggests it could be a mistake to assume it is normal. Much of this advance has been concentrated in a relatively small group of very large technology-oriented companies. That concentration can create risk for index investors, but it also leaves several sound businesses in less fashionable industries trading at prices we find more appealing.
An advertisement from years depicted a man looking at a wall of televisions that were broadcasting financial advice. The caption read…Millions of very fast, slightly misinformed sheep. Now that’s opportunity. Technology has changed. Human behavior has not. We don’t need to be faster than the herd, just more thoughtful. That’s generally where opportunity begins.
The Economy
Our economy continues to grow. As of October 15th, the Atlanta Federal Reserve’s GDPNow model estimated that inflation-adjusted economic growth ran at a 3.6% annual rate during the third quarter. GDPNow is a running model estimate rather than an official forecast, but the current reading suggests our economy remains on reasonably solid footing.
The most recent jobs report was a bit weak, but the short-term numbers can be misleading and are frequently revised. Over the past 5 years, total U.S. payroll employment has increased by roughly 10 million jobs. Some of this increase represented jobs returning after the pandemic, but this remains a meaningful gain. Our current unemployment rate is about 4.2%. We feel these are reasonably good numbers. AI hasn’t taken all our jobs yet! As we mentioned earlier, construction spending and housing starts have slowed somewhat. That weakness may be creating attractive opportunities in selected parts of these sectors. The broad money supply, known as M2, increased about 5.7% during the year ending in August. That is faster than it was growing a year ago, so we will continue to watch this as one indicator of possible inflation.
Interest rates have been front and center recently. Inflation has heated up somewhat, and in September the Federal Reserve raised its short-term interest-rate target by one-quarter percentage point to a range of 3.75% to 4.00%. Federal Reserve projections also indicated that another increase was possible before year end. This has caused share prices to decline some recently, especially share prices of industries like construction that are sensitive to interest rates. We continue to find securities in sectors that we feel are being overlooked which we believe will create opportunity for your portfolio(s).
Looking Ahead
It is difficult to know what markets may do over a short period. Over a long period, however, it is difficult to be anything but optimistic when we consider what American businesses have accomplished and the progress our economy has made.
We will continue to own businesses that we believe serve an important role in the economy. Just as important, we will try to buy these businesses only when the potential reward appears worthwhile relative to the risk. That discipline can occasionally make us look out of step with the market. We’re comfortable with that. Following the crowd has never been part of our investment process.
Thank you for your business and trust,
Sycamore Financial Group
* Composite performance has not been audited. Returns are presented before the deduction of investment advisory fees. Individual account performance will vary.
** Index returns include reinvested dividends where indicated. Indexes are unmanaged, do not reflect advisory fees or transaction costs, and are not available for direct investment.
***Past performance does not guarantee future results. Investment values will fluctuate, and an investor may have a gain or loss when securities are sold.
***DJIA Total Return, approximate/provisional proxy, annualized through September 30, 2026. Dividends assumed reinvested.