April Newsletter 2025

“Back to Basics - Volume Two”

Dear Client:

To quote one of our long-term fund managers of a “core” Domestic Equity fund: “Uncertainty + Volatility = A Down Quarter”. And a quote from the folks at JP Morgan: “Everchanging tariff announcements and weakening economic data have eroded consumer confidence, sparking fears of persistent inflation and a looming recession. This has sent stocks stumbling toward correction territory”. The roller-coaster, is a favorite graphic I like to use when investor “fear” takes over before the markets recover from the bumpy ride:

It has clearly been a rough quarter for all investors. The individual investor has watched the S&P 500 Index of US companies fall almost six percent in the month of March. As previously noted, our managed portfolio has never been benchmarked to any broad market index. Accordingly, each client’s portfolio strategy is based on meeting the client’s long-term goals as documented in the client’s Investment Policy Statement. Our total Managed Portfolio of Domestic Equity positions fell in value (before management fees) by roughly three and one-half percent for the same one-month period; and by slightly less than one percent for the quarter ended March 31, 2025. Our total Managed Portfolio including allocations to Domestic Equity, Alternative Equity, CD/Bond Ladder, and Alternative Income categories declined in value (net of management fees) by just under two percent. Although there is no foolproof investment strategy, and all investing involves some level of risk, our broadly diversified and time-tested strategy does tend to “even out” the broad market swings and roller-coaster rides often reported in the nightly news. As illustrated in the enclosed Quarterly Portfolio Investment Report for the period ended March 31, 2025, our focus on “total return” (combination of growth and income) easily points out the importance of dividends and interest income to the total net gain. For all three periods reported on, the dependable income inflows overshadow the fluctuating portfolio gains and losses.

Your enclosed portfolio investment report has a new look to it by comparison to previous reported periods. At the request of many clients, we have reduced the number of reports with just columns of numbers and added new visual representations illustrating the Allocation by Account and Allocation by Asset Class of the combined accounts we manage for you. Of particular importance to understanding how we manage your total portfolio, the Allocation by Asset Class reports provide the percentage invested in each of the four categories we invest in. The diversification into the two “Alternative Categories” accounts for much of the risk diversification we aim for without giving up the upside that has been driving the markets’ recent years of “momentum” investing in all thing’s technology.

To illustrate that point, the following one-year category results really tell the story and benefits of our “active management” approach to portfolio construction:

Intelligent Investment Management Typical 60/40 Allocated Managed Portfolio as of March 31, 2025

The current world of investing finds all of us filled with varying degrees of anxiety from continuing uncertainty and everyday stresses, as we ride the securities markets’ rollercoaster. At times like this we all need to step back from the noise and reflect on how past periods of turbulence eventually settled at acceptable levels of equilibrium and the EVENTUAL upward long-term portfolio results. The current euphemism paints an enduring image: “This isn’t our first rodeo!” With that thought in-mind, we can rest assured that “Uncertainty Creates Opportunity”. To illustrate that point, we have analyzed our twenty-year, long-term Total Managed Domestic Equity Portfolio results for the last ten, ten-year rolling periods of total returns.

Here are the takeaways from our analysis:

For the total twenty-year period from April 1, 2005, through March 31, 2025, the total Domestic Equity Portfolio returned 399.95 percent (Gross of management fees).
For the same twenty-year period, the S&P 500 index returned 375.34 percent.
On average, the annual return was roughly twenty percent under both sets of calculations.
The worst ten-year period for both sets of calculations was the period April 1, 2006, through March 31, 2016; with the Intelligent Investment Managed portfolio returning 78.64 percent and the S&P 500 returning 59.07 percent (severely impacted by the Great Recession in 2008 and 2009).
More recently, the ten-year period from April 1, 2015, through March 31, 2025, returned 161.17 percent and 171.38 percent, respectively.
The best ten-year period ended March 31, 2022, and reported ten-year returns of 208.89 percent and 221.65 percent, respectively.
Even with the current levels of uncertainty, we believe that the current depressed levels of valuations will produce future levels of returns in line with the above US equity market results. Furthermore, as illustrated earlier, our current allocations to Alternative Equities, the CD/Bond ladder and Alternative Income positions will continue to dampen the short-term effects on the broader stock market sell-off.

As the engine driving the long-term growth of our portfolio, the Domestic Equity Portfolio category includes positions in ten large, mid and small-cap funds that have produced consistently favorable returns to our clients over the entire twenty-eight years of our existence. I point to the General American Investors (GAM) fund when discussing the
individual positions in the portfolio. GAM was established in 1927, as a closed-end investment company listed on the New York Stock Exchange. Its stated objective is long-term capital

appreciation through an investment in companies with above average growth potential; all with “defensible competitive advantages, prudent and profitable business models, and first-class management teams with the vision and energy to succeed”. Taken from its website, GAM returned 29.0 percent for the year ended December 31, 2024 (S&P 500 returned 25.0%). For the last fifty-year period, GAM returned an annualized return of 14.1 percent (S&P 500 returned 12.4%). The largest positions in its portfolio are concentrated in Information Technology, Financials, Industrials and Consumer Discretionary companies that we all recognize as meeting the above description. The resumes for the other nine funds are equally as impressive and several date back to the 1920s. Clearly, they “have seen it all”!

These observations and conclusions keep us on track with the strategies that have worked for us in the past. Accordingly, we have been consistently “buying low” the quality core equity positions in the Domestic Equity Category of the total portfolio. We have also helped clients with their decision to make both current Roth IRA contributions and Roth Conversions to take advantage of “discounts” in market valuations. The benefits may not be immediate but are expected to be meaningful over time.

Lastly, I would be remiss to not mention the out-of-control US National Debt; currently hovering near 36 TRILLION DOLLARS, which exceeds our Gross Domestic Product!! That amounts to over $100,000 per person!

As a concerned grandparent, I am concerned about how my two grandkids will lookback at how we got there and how they will ever pay it off in their quest for the American Dream! Despite the pain felt by all as the government “belt-tightening” efforts, I believe that we cannot survive without taking back control of the current debt situation. To quote Ben Franklin: “Rather go to bed without dinner than to rise in debt”!

As always, please reach out to either James or me with any questions.

Sincerely, Intelligent Investment Management, LLP

G. Stephen Wheeldon