QUARTERLY LETTER

1st Quarter 2019 — Investment Strategy Review

“You make most of your money in a bear market. You just don’t know it at the time.”
                                          — Shelby Cullom Davis


A comment that we hear often these days is that “the world has gone mad.” There is no need for us to dwell on the angst-producing details, because we all know what they are. Our task at Mercer Capital is to focus on how this insanity impacts the investment atmosphere and recent events have certainly triggered the stock market’s bipolar tendencies. Late 2018’s plunge has been followed by a surge in early 2019. The S&P 500 index advanced 13.1% during the first quarter to just below an all-time high.

Bulls can thank the Federal Reserve for the stock market’s happier mood. In the wake of the Christmas selloff, the central bank signaled a pause in rate hikes and stocks immediately began to rally. Simply put, interest rate trends drive the performance of financial assets. At last week’s meeting of the Fed, investors received additional confirmation that interest rate policy would remain on hold throughout 2019. This abrupt shift away from monetary tightening is now the best thing that the stock market has going for it. Keep this in mind as the daily news barrage gets crazier and crazier.

It seems like yesterday, but ten years ago panic ran rampant, the financial system was on the verge of collapse, and the S&P 500 had plummeted 57%, yet the stock market managed to establish a low point that launched the current record-breaking bull cycle. It was the buying opportunity of a lifetime. There is a key lesson here. Investors possessing enough faith to buy amidst the sheer terror and then hang on have reaped tremendous rewards. Furthermore, it was not necessary to buy close to the bottom. Incredible values were there all along for the taking. Be aware, there will eventually be another bear cycle. When everything seems bleak, try to keep in mind the wise observation by legendary investor Shelby Cullom Davis cited above.

Circumstances in 2019 are far different than 2009. Back then, share prices were bombed out. Today, they are juiced up and the overall margin of safety is less than ideal. As mentioned earlier, we are not going to complain about the uncertainty posed by the erratic news flow. This is something that has to be factored into our appraisal of near-term risk and long-term opportunity. After decades of investing, the one thing that can be counted on is that we will never have seen it all. What can be controlled is the quality of the asset being purchased and the price paid. An awareness of investor psychology also helps, because markets will always swing between fear and greed.

Without question – there is plenty to be concerned about these days; however, our main worries lack the tabloid appeal that captures front-page headlines. How is it possible that so much debt around the world could still be yielding less than zero? This lingering phenomenon is a symptom of unhealthy macro-economic conditions outside of the U.S. Furthermore, the Treasury yield curve here at home has inverted, a rare occurrence that has tended to precede recessions. Please note that this is an overview, not a forecast of an imminent downtrend. Mercer Capital invests for the long-run and believes that stock market setbacks reinforce value. Remember, history shows that the most challenging periods lead to the greatest rewards. The time to watch out is when it seems easy.

Thanks for your encouragement and support. Please call anytime.

3/31/19           Henry D. Mercer III

Index 1st Qtr. Return   12/31/18 3/31/19
S&P 500 +13.1% Fed-Funds Rate 2.25 - 2.50% 2.25 - 2.50%
    3 month T-bill 2.45% 2.43%
    10 yr. T-note 2.68% 2.42%

* Please contact Mercer Capital Advisers, Inc. if there are any changes in your financial situation or your investment objectives or if you wish to add to or modify any restriction to the management of your account. Our current disclosure statement as set forth on Part II of our form ADV is available for your review upon request.

* Mercer Capital’s management fee is billed quarterly, in advance, based upon the market value of the assets on the last day of the previous quarter.

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