The S&P 500 posted its first monthly decline since February, falling by 1.6% in August. The stock market was down as much as 5% during the month as economic reports showed resilient growth and Fed Chairman Jay Powell said that inflation remained too high.
This raised expectations for higher-for-longer interest rates. The 10-year Treasury yield spiked from 3.97% at the end of July to 4.34% in mid-August, its highest level since 2008.
However, more recent data releases showed a reduction in job openings, an uptick in the unemployment rate, moderating GDP growth, and inflation readings that broadly met economists’ expectations. Yields retreated and stock prices rallied as investors felt more confident the Fed is at the end of its interest-rate hikes.
This fixation on interest rates and whether policy makers will pull off a soft or hard landing for the economy can cause investor sentiment to swing wildly any given month, all based on a few new data points that no one is likely to remember a year from now.
Interest rates are undoubtedly important to the economy and business valuations. But we also can’t control them (Powell’s term as Fed chair expires in 2026 for those who are interested in the job) or lose sight of the bigger picture.
Instead of getting whipsawed by shifts in economic winds, investors should heed the advice Warren Buffett penned in his 1988 shareholder letter
“We do not have, never have had, and never will have an opinion about where the stock market, interest rates, or business activity will be a year from now.”
Instead, as Buffett went on to write in 1993
, “an investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.”
I have staked my livelihood on the continued success of Simply Safe Dividends, so that’s a relatable feeling for me. But I still need reminders sometimes to think about my investments with the same zeal.
Simply Safe Dividends debuted eight years ago in August to the sound of crickets. It didn’t start with much – an old laptop and some elbow grease – but after walking away from my comfortable investment management career, I was determined to empower dividend investors with great tools and honest research they could trust.
(Getting surprised less than a year later that my wife and I were expecting our first child didn’t hurt motivation either. And now we are blessed to have three!)
So much has happened over the past eight years. Thanks to your support and the trust placed in our company by Matt, Brady, and Desirée, Simply Safe Dividends is now a team of four
with hopes to improve our service for many years to come.
Not once have I ever considered exiting Simply Safe Dividends, especially not due to concerns about the economy or whether dividend investing will remain in vogue.
I know that some years will be better than others for us. But I trust that our hard work, product innovation, and dedication to meeting our members’ needs will bring good things over time – regardless of short-term trends and factors outside of our control.
We need to think about our stock investments the same way. If we owned all of a business we were invested in, would we really run for the exits after a slow quarter of sales or down year for the stock? I doubt it. We would focus on the company’s long-term outlook.
Many stock market investors would be better off if the process of buying and selling shares had as much friction as transacting for a private business. You would think long and hard about where to put your money rather than whipping opening an app and clicking a button.
I encourage you to not let noise about interest rates, different types of economic landings, and short-sighted stock analysis take your eye off the prize. Buy great businesses and hold them with tenacity.
I’ll leave you with one more encouragement from Buffett’s 1993 letter:
In 1938, more than 50 years after the introduction of Coke, and long after the drink was firmly established as an American icon, Fortune did an excellent story on the company. In the second paragraph the writer reported: "Several times every year a weighty and serious investor looks long and with profound respect at Coca-Cola's record, but comes regretfully to the conclusion that he is looking too late. The specters of saturation and competition rise before him."
Yes, competition there was in 1938 and in 1993 as well. But it's worth noting that in 1938 The Coca-Cola Co. sold 207 million cases of soft drinks (if its gallonage then is converted into the 192-ounce cases used for measurement today) and in 1993 it sold about 10.7 billion cases, a 50-fold increase in physical volume from a company that in 1938 was already dominant in its very major industry. Nor was the party over in 1938 for an investor: Though the $40 invested in 1919 in one share had (with dividends reinvested) turned into $3,277 by the end of 1938, a fresh $40 then invested in Coca-Cola stock would have grown to $25,000 by yearend 1993.
I can't resist one more quote from that 1938 Fortune story: "It would be hard to name any company comparable in size to Coca-Cola and selling, as Coca-Cola does, an unchanged product that can point to a ten-year record anything like Coca-Cola's." In the 55 years that have since passed, Coke's product line has broadened somewhat, but it's remarkable how well that description still fits.
Coke sold over 32 billion cases in 2022 (up from 10.7 billion in 1993), so that description still fits the company 30 years after Buffett’s letter was published. But you had to have tenacity to stay the course.
Just one year after going public at $40 per share in 1919, Coke’s shares lost more than 50% as investors soured on the company’s growth prospects.
Investors who bought the fear were handsomely rewarded. By the end of 1993, a single share that changed hands for $19.50 in 1920 was worth more than $2.1 million.
Coke’s upward march overcame world wars, inflation, commodity cycles, shifts in consumer preferences, recessions, new rivals, and more. Investors just had to tune out the noise, focus on what made Coke a great business with a long runway, and sit on their hands.
I know that’s easier said than done. But we will keep doing our best to help you stay focused on what matters: owning great companies capable of paying safe dividends and compounding their earnings for many years to come.
“An investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about that marketplace.” – Warren Buffett
Thank you for your support of Simply Safe Dividends, and please feel free to reach out if you ever have any questions or suggestions for us to consider as we improve the site.
President & Analyst, Simply Safe Dividends