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It is said that “every bull market must climb a wall of worry.”  The current bull market, which started last March, is following this timeless truth.  As we all stare up at this wall of worry, we offer this advice: stay invested.

The obvious building blocks include worries about deficits and sovereign debt levels; consumer deleveraging and a persistently high unemployment rate; increasing tax, inflation and interest rates; the possibility of stock market corrections; a deteriorating commercial real estate market; the “second shoe to drop” in the residential real estate market, and more.  While these economic headwinds are real and not to be ignored, they are also responsible for creating some of the best opportunities we’ve seen in decades to invest in high dividend-paying, blue chip multinationals – the very blue chips like those in your portfolio.  These opportunities are supported by high corporate cash levels and strong free cash flow generation, expanding profit margins, manageable debt levels, relatively little need to access the capital markets to fund growth, attractive valuations, sound management teams, and the ability to capitalize on global growth, particularly in emerging markets.  What we are experiencing is the anatomy of a recovery.  Crucial to investors’ success is a disciplined focus on business fundamentals – the same fundamentals that should ultimately move stock prices higher, rewarding patient investors.

Another bull market that climbed a wall of worry was during the 1930’s.  After the great stock market crash of 1929, the stock market eventually bottomed in the summer of 1932.  After that bottom, the bull ran for five years, rising 350%, or 33% per year for those five years.  That bull market had to climb a real wall of worry: 9000 bank failures, 25% unemployment, no unemployment insurance, no Social Security, and no global community of wealthy nations tied together by the internet and other means of worldwide coordination and teamwork.  The present bull market is still in its infancy, and today’s wall of worry pales in comparison.

Much good will continue to come from the recent massive wake-up call.  Not only will the U.S. stock market be trending upwards for many years to come, but massive new wealth will be created worldwide.  This wealth is buttressed by a much sturdier foundation than would have been had we not stopped the worldwide destructive behavior which was, but is no longer, so pervasive.

In the capitalistic free market economic system that the U.S. is blessed enough to enjoy, stock market and economic crashes are business as usual.  We have had 13 ten-year periods since 1871 when the stock market went nowhere.  In most of these cases, this stagnation was caused by a major market bust sometime during the period.  In every single case, once stocks fell out of favor, they provided exceptionally good returns during the subsequent ten years.

The world has never witnessed a period such as the present one, in which new global consumers are being created in dramatic numbers.  Because of this simple reality, coupled with the fact that many alternatives to common stocks have become discredited, we feel strongly that being patient and holding on to great multinational blue chip stocks will create significant wealth over the next several years.  We have positioned your portfolios accordingly, holding significant stakes in several companies which have raised their dividends every single year for the last 25 years.

Disclaimer: All opinions presented in this commentary are strictly those of the Golub Group.  You should not construe any implied or expressed conclusions presented as a promise of future returns.

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