Quarterly Client Letter: Q2 2025
Our weekly investment committee meetings focus on analyzing the latest economic news and its effect on our Model Portfolio* stocks as well as on the companies we are considering investing in. We also discuss interest rate policy and its effects upon the bond market. There usually follows some back and forth about tariffs, the federal deficit and what Jay Powell’s Federal Reserve may be planning to do. Lately there has been time spent on Trump’s “Big Beautiful Bill” and its implications. There is surprisingly little disagreement in these meetings, given the nature of the headlines and the degree of polarization we often face in conversations with people outside of our immediate business niche.
We believe it is vital in difficult and uncertain times to continue to drill down on what it is that has made us successful—a strategic and disciplined approach to investing. Paying a reasonable price for great businesses has worked well in the long term, as has creating and maintaining bond ladders as cushions against the inevitable disruptions of the stock market. Dividends continue to play an important role, and over the last 50 years the annualized return of dividend payers in the S&P 500 was 9.2%, compared with just 4.3% for non-payers, according to Ned Davis Research. The companies that continue to pay them have value because they make a consistent profit and are judicious about shepherding and deploying their precious cash.
One business we have owned for many years is a notable exception: Warren Buffett’s Berkshire Hathaway does not pay a dividend. He once paid a 10 cent dividend in 1967 and says he “must have been in the bathroom” when that decision was made. Buffett at 94 is retiring in December as CEO and will be replaced by his hand-picked successor Greg Abel. I once had the privilege of meeting and talking with Mr. Buffett in the mid-1990s at a party at Borsheim’s jewelry the day before his annual meeting in Omaha. I agree with Jamie Dimon of Chase bank, who said, “Warren Buffett represents everything that is good about American capitalism and America itself—investing in the growth of our nation and its businesses with integrity, optimism, and common sense.” At the end of his recent annual meeting in May, when asked if he had any parting words of wisdom for his shareholders, Buffett said simply, “Be kind.”
Given the unpredictability and even chaos emanating almost daily from the White House, one might think the stock market would react negatively. But as of the end of the second quarter the S&P 500 was up almost 6% for the year-to-date. This is a mixed blessing for value investors, in that we obviously like to see the stock prices of our investments perform well, but since we are also on the lookout for great companies selling at a discount to their intrinsic value, we now find very few opportunities. Typically, solid and predictable businesses such as Procter & Gamble or Emerson Electric currently sell at a premium price-to-earnings ratio of around 24 while their historical rate of earnings growth is in the range of 5-7%. The last time P&G’s P/E ratio was in a somewhat reasonable range of twice its growth rate was during the Great Recession of 2009-2011, and even though we were able to reap some spectacular bargains, nobody wants to experience a period like that again.
Since uncertainty is usually the enemy of investment, there must be some countervailing forces acting to keep the stock market fully valued or even over-valued. The passing of the recent tax bill does remove uncertainty for individuals and businesses over future tax policy as the prior law was set to sunset at the end of the year. Others include the necessity for companies to stock up on imports before tariffs take effect and a large amount of global spending on defense and aerospace, a necessary evil in times of great pain in the Middle East. A fourth driver is the huge amount of corporate investment in building data centers and on research and development in artificial intelligence (AI). And last but certainly not least is simply investor optimism and complacency, driven by forces that can reverse themselves overnight.
With the stock market reaching record highs and an equally historic amount of political uncertainty, it is important to stay centered on who we are—our own values and capabilities and the discipline that has gotten us to this point in 2025. We continue to always place the interests of our clients first, and we appreciate the trust you have placed in us and will continue to work hard to earn it.
Best regards,
Noel F. Bennett
*The Model Portfolio is not a real cash portfolio. It represents the core direction of our portfolio
management strategies. Individual client portfolios are managed in accordance with the clients’
specific objectives and constraints. Historical information is available upon request.
Advisory Services offered through Peak Asset Management, LLC, an SEC registered investment advisor. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management. It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2025 Peak Asset Management
