Q3 2024 Newsletter

Second Anniversary Edition

Dear Investors,

It has officially been two years since the launch of The Stewardship Fund, and I can honestly say that I am loving every minute of it! God must have built me a bit differently because I love spending my days reading, researching, studying financial reports, and learning all about the companies in which we invest. For me, the idea of investing is the same as becoming an owner in a business. I start each investment by studying each company thoroughly. Because of this, I can say with confidence that we own quality companies that are set up for great long-term success. Later in this newsletter, I will share the typical financial reports for the fund, but I would also like to share a few of my thoughts and a bit about what I have learned over the past two years.

Investing Lessons

There is a phrase in investing that is often thrown around that says: “There are many reasons people sell a stock, but there is only one reason people buy a stock: because they believe it will go up.” Every investor I have ever talked to would love to know one thing: “Is the market going to go up?” The problem is that no one can predict the future! I see analysts speak almost daily on Yahoo, the Wall Street Journal, Seeking Alpha, the Economist, etc., etc. Many predict the market will be going up, a few predict a dire forecast, and a couple more split the difference of opinion. These analyst predictions can occasionally give some good insight, but I have learned that most of what they have to say is irrelevant due to the fact that no one has ever been able to successfully predict the direction of the markets over a long period of time. Howard Stern’s “The Memo” put it well by saying that predicting the market is a lot like taking a bag of 100 black and white balls and picking one out at random. Let’s assume you know taht 80 of the balls are white and 20 of the balls are black. If you could bet on the outcome, you would likely bet big on a white ball being picked. The problem is that 20% of the time a black ball would be picked and you would be wrong!

Clarity on the economy is much less certain than a simple guess of a black or white ball. Not only is it hard to know the odds of a particular outcome, but there is no certainty of any one outcome coming to pass! You may then ask, how does one invest without being able to determine the outcomes? The conclusions made by the best investors are simple: you either buy the whole market (like the S&P 500), or you invest in great companies at good prices and hold them for a very long time. Both options completely bypass the idea of predicting the market, and allow for great long-term returns. At The Stewardship Fund, we prefer the latter method of buying great companies for the long-term. It has already served us well, and I believe it will continue to to be a winning strategy over the coming decades.

While I truly believe that no one can time the market long-term, I have noticed a hidden benefit of the value investing approach we use. When the market gets overpriced, as it is today, there are fewer good opportunities in the market. This, in turn, slows down our investing, because we only invest in companies when they are at a reasonable or cheap valuation. In practice, this means that value investors, such as Warren Buffet, often accumulate cash in the years leading up to a financial bubble bursting. You can see this today in the stock of Berkshire Hathaway, which is holding a record amount of cash. As you will see below, the Stewardship Fund has begun building up a small cash pile as well. The reason for this buildup in cash isn’t due to market timing, but simply that we aren’t finding many attractive deals in which to deploy our cash.

While the market can, and likely will, keep charging higher at a rapid pace, I would rather hold some “dry powder” back for when good deals inevitably become available once again. I look for these deals almost daily, and I would certainly love to deploy all available cash into quality companies; however, I am also willing to be patient for the right opportunities. As such, you will likely see The Stewardship Fund building up a bit of a cash position until we are able to find deals we are excited about.

There is one more point I would like to make pertaining to the economy. We all know that government debt is increasing rapidly and that spending is out of control, but the real question is what to do with this information. I have been studying this problem for years, and it has become increasingly clear that we are headed for an eventual sovereign debt crisis. There are many factors that point to this problem, such as the $35 Trillion in national debt (over $200,000 per taxpayer!), the record debt-to-GDP ratio, and the fact that paying for the interest on our debt now exceeds any other budget item, including spending on our Military. The national debt is clearly out of control, and sooner or later it will cause major problems.

There are a few solutions to the impending national debt crisis, but none of them are easy. The bottom line is that most economists think that the easiest way out will likely be through inflating our debt away. We all know how painful the recent inflation has been. The price of everything has gone up dramatically since 2020. As much as I would like to think that the worst is over, the truth is that the inflation to come will likely be much greater, and more painful, than the inflation over the past three years. The reason for this is the less valuable our dollar becomes, the easier it is to pay back our massive debt. In fact, the very act of printing money to pay off our growing debt pile is one of the direct causes of inflation! While it looks like inflation is moderating for now, the next decade plus will likely see ever more volatile waves of inflation as our debt gets more and more unsustainable.

So what do we do in the face of a declining dollar? It is often scary to face the prospect of increasing inflation. Our salaries buy less, the cost of homes, food, cards, etc. greatly increases, and we often feel financially “squeezed.” Fortunately there is a clear answer to inflation: Invest in assets. When inflation runs hot, assets are the only real protection from the decreasing value of the dollar. In particular, there are three assets which can help protect your long term capital: 1. Owning quality income producing companies (stocks), 2. Owning real estate (your home, land, or other physical properties), and precious metals (gold & silver). All three of these assets have shown to hold value vs a declining dollar over time. Just look at the long term price chart of Gold vs. the US dollar seen on the following page.

Gold vs USD

Gold vs USD

Stocks and real estate charts show a similar drastic appreciation vs the USD when looked at over long periods of time. The message is clear: invest in assets or lose the purchasing power of your money. At The Stewardship Fund we focus on investing in Stocks and Real Estate (through REITs). We don’t currently invest in gold or silver because they’re not income producing assets; however, I believe it is wise to hold a small position in those as well as part of a balanced portfolio that can protect against inflation. A large part of my research involves finding quality companies that can withstand the test of time and hold up to inflation.

Having a long-term focus is especially valuable when facing inflation. A good example is buying real estate (REITs as well as physical). Real estate tends to fluctuate a great deal in response to interest rates. What this means is that even if inflation goes up, real estate prices may drop if the FED raises interest rates to combat this inflation. The ironic thing is that over a long period of time, real estate is actually an amazing inflation hedge. For the patient investor, this can result in the ability to buy up real estate cheaply during periods of inflation only to see the actual real estate values climb dramatically over longer periods of time. When looking at the inflation of the 70s, the two best performing sectors were energy and real estate. This makes total sense when you think about a depreciating dollar. It is extremely likely that 10 years from now the dollar will buy far less land and buildings than it can buy today. What this means, is that in the long run, all real estate is a hedge against inflation since the value of the land and buildings typically increases over larger stretches time, especially over longer periods of inflation.

Portfolio Performance

The Stewardship Fund continues to perform well. We are up 39.89% since inception with an annualized return of 18.27% after all fees. I found it interesting how closely this lines up with my personal track record. Since 2015 (the date I opened my brokerage account) my personal investing performance, as calculated by my Vanguard brokerage account, has been 22.3% per year, lining up almost perfectly with The Stewardship Fund’s track record after accounting for fees. While there is no guarantee of this type of consistency going forward, I found it encouraging that this track record has been maintained for nearly a decade. The chart below shows the growth of $10,000 since The Stewardship Fund’s inception.

As in the past, we are providing a portfolio breakdown for you to follow. There are a few portfolio changes since our last update, most notably a large reduction in Meta as it has gotten very expensive compared to when it was purchased, and a significant increase in MAIN and CTO in addition to other changes. We continue to evaluate how to best position the portfolio for long-term success. The portfolio chart can be seen on the following page for more information.

I want to give a special thank you to those who trusted me enough to invest with me during these first two years as I launched The Stewardship Fund. I am excited that we have been able to build up a solid track record, and I am eager to begin expanding the investor base to include those outside of the “friends and family” who have so graciously got me to where I am today.

God Bless, 

Pastor Bobby Boyd 

General Partner & CEO for The Stewardship Fund