Portfolio Article

In the short-term, the stock market is basically a popularity contest. Investors large and small chase the upside momentum of the hottest themes. Concepts like what a business is actually worth are given lip service at best. And every once in a while, things run so far in one direction that even safe, generous dividends lose their luster. But if you’ve invested for more than a cycle or two, you’ve by now learned the long-term market is more of a weighing machine. And outperforming businesses that gain strength and size over time are eventually rewarded with higher stock prices.

When you’re a long-term investor, momentum isn’t always going to flow your way. And when it’s against you—whatever the reason—it can be intensely frustrating, no matter how much in dividends you’re collecting. The greatest danger is it’s all too easy to conflate stock market weakness with a truly unraveling business. You may bail out prematurely from a company that’s only undergoing a temporary setback. Or alternatively, you might hold onto a stock that’s only just beginning its descent, as declining sales lead to dividend cuts and worse.

It’s been mostly more of the same for investment markets this past month, just as has been the case for most of this year.

The headline may sound counterintuitive. But paying attention on what you can control has consistently proven to be the best way for investors to stay whole in tough times, while positioning for the recovery that always follows. The best metaphor for the current stock market is a small group of generals leading an impressive-looking advance, but with a rapidly diminishing number of troops behind them. We know from history that these things have always ended badly. But while they last, it’s increasingly difficult for investors to resist their pull.

There’s no one right way to invest. The key is to seek an approach you’re comfortable with and stick to it, absorbing the best information you can find to make the best possible decisions. The approach that suits me is decidedly long-term. Mainly, I like to build positions in companies I believe will grow consistently, and when their stocks trade at what I believe to be discounted prices.

All in all, it was a pretty flat Q1. The Dow Jones Utility Average finished lower by about -2 percent, including dividends. And that was a mark all three of our model portfolios were able to top: On average, Aggressive Holdings were up 3.06 percent, Conservative Holdings slipped -0.79 percent and Top 10 DRIPs retreated -0.96 percent.

The stocks in each portfolio all have the fundamental objective to build wealth. But they’re set up to do it in different ways.

There’s nothing like a solid start to the year to get investors excited for what’s to come. Some use January’s results as a benchmark, others the first six weeks of the year. But whatever the gauge, at this point it looks like the S&P 500 is off to one of its better beginnings in 2023.

Exactly half of our portfolio stocks posted positive total returns in 2022 and half negative. That matches up pretty well with the mostly neutral returns posted by our Aggressive Holdings (up 3.5 percent), Conservative Holdings (up 1.3 percent) and Top 10 DRIPs (up 9.5 percent). It’s also right there with the Dow Jones Utility Average’s 2.08 percent total return for the year. But the overall numbers do mask some pretty massive divergence among individual holdings. The biggest is the 156.5 percentage point difference in performance between our best stock Constellation Energy (NYSE: CEG) and our worst Algonquin Power & Utilities (TSX: AQN, NYSE: AQN).

Even if the stock and bond markets manage a year-end rally of historic proportions, 2022 will go down as one of the more challenging for investors in memory. But with basically three weeks left in the year, the Dow Jones Utility Average is still very much in the black.