Chairman’s Letter Q4 2021

At Davis Rea, we are proud of the progress our clients and portfolios have made this year.




January 1, 2022

If you were told that in January of 2020 the world would be beset by a global pandemic where 275 million people would be infected and more than 5 million (20% in the USA) would die, would you have sold all your stocks? If you had, you missed out on a 43% increase in the value of the biggest stocks in the world. Now, getting that return took a lot of patience, fortitude, and trust. Between January 1st, 2020, and January 1st, 2022, stocks also fell for a period by 34% in about 30 days. It’s been quite a ride. 

At Davis Rea we are deeply grateful and proud of your steadfast commitment to investing in quality businesses. Congratulations – you have proven yourselves to being investors not speculators and have been justly rewarded for your discipline! We are thrilled for you. 

If you were told in January what the end of this year would look like, you wouldn’t have believed it, so we won’t try to tell you what the markets will look like this time next year, either. Frankly, we haven’t a clue, but we are highly confident that the future prospects of the businesses you own look very promising, and in 5-years time they look downright fantastic. If they survived and mostly thrived the past two years, they surely can overcome whatever else gets tossed in civilization’s path. The only thing we do not know with any degree of confidence is what people will think these companies will ‘trade’ for over the next year. That’s crowd behavior forecasting, and no one gets that right.

All the companies in your portfolio have done a good job of increasing their prospects for future profits, and that will hold them in good stead for the future. Interestingly, not all have had good years from a stock appreciation perspective. That’s the benefit of having a diversified portfolio: investors exhibit preferences for one company over another for periods of time, but they always come back and reward success. It’s just not a linear progression. Every company in your portfolio is a long-term winner. 

History is mostly the study of unprecedented events, ironically used as a map of the future. Stuff evolves, paradigms shift. So, what worked in the past may not work today or tomorrow. The most valuable part of history is studying how people behave when the world changes, because it’s the most consistent thing over time. This is important stuff, and we are paying a great deal of attention to the big shifts that are right now moving the earth below our feet, gradually but surely. 

Stories are more powerful than statistics and most statistics are incomplete props to justify a story. Stories are easier to remember, easier to relate to, and emotionally persuasive. The trick is to tell a story that follows the facts, and the fact is that the businesses you own are making the moves right now to make profits that in 2 years will justify your investment. These companies are global leaders. 

It is an exciting time, and we look forward to sharing these themes with you over the coming months and hosting an event once again in person. We feel that by the time the leaves are in full bloom this spring, it will be time to gather again, and we look forward to seeing you all! Happy New Year!