Greetings Marathoners-

I hope you had a restorative summer and that September has started on the right note. Autumn has a way of inviting reflection and renewal and offers a chance to reset how we spend our time and energy before the year's final stretch.  

I concluded summer by heading out to Fire Island for Labor Day Weekend with a group of friends. While these weekends aren't what they used to be for us 'old-timers', the weather was cooperative and we still had plenty of fun by the pool and beach by day, with adequate sleep at night. There are virtually no restaurants in Fire Island Pines, so dinners are very intimate and communal. I was on dinner duty for the house on Sunday night, and crushed it, if I do say so myself ;) It had been a while since I cooked on a gas grill, but that's where my culinary skills shine---and thankfully I don't think anyone was disappointed. Bonus: no fire emergencies...which would have just been too ironic on Fire Island.

This was an exceptionally busy August for MFG as we've been preparing to transition the practice to operate as a fully stand-alone Registered Investment Adviser (RIA), effective October 1, 2025. 

While preparations have taken many months, we were not able to make any client announcements about the transition until last Wednesday (9/3) when we were formally approved by the SEC.

To reiterate, since August 2021, Marathon has operated within the independent advisory space, but affiliated with NewEdge Advisors, a support platform based in New Orleans, LA. NewEdge provided valuable resources during our early growth, but it was always our vision or 'manifest destiny' to ultimately stand fully on our own, with Fidelity continuing as custodian. 

Over the past four years, our assets under management (AUM) have tripled and to state it as simply as possible, we have now outgrown the NewEdge Advisors support platform and have the resources, team, and scale to function fully independently.

In case you missed it, here's a link to the announcement and more information as to what to expect during the transition. As outlined, virtually nothing is changing for you as a client—our offices are staying in the same place, accounts will remain at Fidelity, we'll continue using all the same client-facing software tools, and the entire team is staying on. 

In the next couple of weeks, you'll be receiving a DocuSign from MFG with the subject line "Urgent Action Required: Marathon Financial Group Transition" for your consent to transfer data and assign your existing accounts to MFG management (as technically, they are currently under NewEdge management). 

We're very excited about this transition and deeply grateful for the trust you've placed in us. 

As you know, I don't really do market commentary—that's Michael's domain. But given the 'crazy' environment we are in right now, I do see a need to at least briefly discuss the turbulence of 2025 as it likely feels as if this is one of the most unpredictable and precarious moments for financial markets in quite some time.

The S&P 500 Index made a new all-time high on February 19, 2025.1 By April 8th, it had closed 18.9% lower.2 And even that doesn't express the degree of sheer panic—there's no other word for it—that enveloped the markets upon President Trump's announcement (on April 2) of a dramatically increased tariff protocol. 

The panic ended just as abruptly after Mr. Trump announced a 90-day postponement of most of the new tariffs.3 And in the time since then—buoyed by strong GDP growth and Q2 corporate earnings, as well as further signs that inflation may be continuing to moderate—the Index has reached new highs. As of this writing, the S&P 500 is showing a YTD return of 10.72%.4

That said, the recent softening in the U.S. labor market data suggests that the once-remarkably resilient jobs engine is losing some momentum. Payroll growth has slowed, job openings are down from post-pandemic highs, and unemployment has ticked slightly upward.5 None of this screams 'recession' yet, but it does indicate that the Federal Reserve's campaign to cool inflation by tightening monetary policy is filtering through to hiring decisions. A string of weak jobs reports could foreshadow weaker consumer spending. Since household consumption makes up nearly 70% of our GDP, a downshift in hiring and wages can ripple across the broader economy. 

Ironically, however, weakness can be good news in the near-term. Softer labor data strengthens the case for the Fed to cut rates, easing financial conditions (because in theory, lower borrowing costs will drive more household purchases and business investment). Markets are already speculating about earlier-than-expected rate cuts. The crucial question is whether the slowdown remains gradual (a 'soft landing') or cascades into layoffs and reduced demand (a recession). Current data tilts toward moderation, not collapse, but the margin is narrowing. 

But please don't mistake this for an economic or market outlook. I have no such forecast for the next 4+ months, any more than I did on January 1. Our only forecast is that excellent businesses of the kind we own will go on innovating over time—increasing their earnings, raising their dividends, and supporting our clients' pursuit of their long-term goals. 

Panic doesn't often seize the investing public as suddenly as it did in the first week of April, nor vanish as quickly as it did the following week. Still, this episode can and should serve as a kind of tutorial because there will be more moments of panic down the line. It's lesson: investors succeed over time by continuously working their plan regardless of the current 'crisis'. Others fail by reacting to negative events and liquidating even the highest quality equities at panic prices. There's always a reason—usually some current events 'crisis' or other—and it's never really The Reason. As Nick Murray says in Simple Wealth, Inevitable Wealth "It's a towel you wrap around yourself so the world won't see your naked fear. You can't deal effectively with panic until you acknowledge that you're panicking. And at that point your invaluable advisor/coach will remind you that it's perfectly OK to feel the fear. But it's never, never OK to act on the fear."

A big part of the problem is that people have a hard time making the critical distinction between volatility and loss. In fact, they often mistake the former for the latter. I don't usually hear people calmly observe, 'I've experienced a perfectly normal, temporary 30% decline in my capital in a garden variety, every-five-years-or-so-on-average apocalypse du jour/bear market, but that's just volatility, and it'll pass." Instead, there's sometimes a scream "I've lost 30% of my money!" (With the corollary, spoken or unspoken, "And I'd better get out now before I lose more/at lot more/all of it!")

The inability to distinguish between temporary volatility and permanent loss is the first casualty of a bear market. When the panic response sets in, it becomes virtually impossible for most people to see that markets may inflict volatility, but—in a well-diversified stock portfolio—only people themselves can create permanent losses. And how does someone turn a temporary decline into a permanent loss? By selling, of course. 

OK, so we talked about panic, now let's talk about euphoria, which is what worries me most these days. One might also simply call it greed. However you label it, it's essentially the loss of an adult sense of principal risk. 

Americans seem to think that, during very long periods when the equity market is rising strongly, the risk of a significant decline is diminishing. The opposite is true, of course: as the price of anything soars, value is getting wrung out of it, so that the risk of a serious shakeout increases. 

At some point, people forget completely about principal risk, and just obsess about everyone else getting richer than they are. That's when they enter the FOMO zone, the all-consuming, always fatal Fear Of Missing Out. 

Murray (now age 81): "Early in 2000, just before the dot.com bubble burst, I actually met an advisor who was being sued by a client whose beautifully diversified portfolio had returned 29% in 1999. Seems the client played bridge with three other people who'd been up 80% that year—suicidally underdiversifying in NASDAQ, of course. You may laugh and call this a quaint old story, but that's because since then we haven't had another great culture-shaking mania...yet. (We will. It's not an 'if', it's a 'when.')"

In 2005, normally rational people were walking around saying things like 'I'm investing in real estate,' when what they were doing was buying pre-development condominiums in the hottest markets like South Florida, Phoenix, and Las Vegas. Tripping out on euphoric underdiversification, they failed to notice that they literally weren't in Kansas anymore.

They were the same kind of people who 'invested' in gold in 2011, because it had gone up every single one of the last 10 years, while 'the stock market did nothing'.

There is a word for what they were doing. Hint: it isn't 'investment'. It's speculation. Never mind how intelligent the speculation seems at the moment: what percentage of your core capital (funds for retirement, education, legacies) should ever be invested in any speculation? 'Investment' has to do with the identification of value. Speculation is almost invariably a bet on the continuation of a price trend. Price and value are always inversely correlated. 

If you're buying anything because it beat everything else around the last four or five years, (a) you're speculating on the continuation of that price trend, not investing in intrinsic value, and (b) you are about to get your head handed to you. All performance chasing is, by definition, speculation. 

Speculative fever is everywhere right now. Meme stocks are back in the headlines. Gold is making new highs. And Bitcoin—which has no intrinsic value because it doesn't produce anything—is regularly surging to new, higher peaks. And it now is now further infiltrating 401k investments, with crypto collateral lending on the rise. It's a genuinely glorious time to be doing what human nature loves most to do: buy things that have already gone up more than anything has ever gone up before, on the thesis that they must go even higher. 

But then there's Warren Buffett. In August, Berkshire Hathaway paid $1.1 billion to buy five million shares of stock...in an insurance company. And a most savagely beleaguered insurance company at that. One for whom the bad news just won't stop coming, and whose stock was—until this five million share purchase—down 46% for the year.

The company in question is UnitedHealth Group, which ended last year as the world's seventh largest company by revenue, and the single largest healthcare company. It was eighth on the 2024 Fortune Global 500 list. Then the CEO was killed. The company's costs began rising even more sharply than they had been. It suffered a cyberattack. And the Department of Justice opened a probe of its billing practices. Whereupon Berkshire pounced, and the stock jumped.

Now, I think you could make a very good case that there may not be any entity in the world that understands the insurance business better than Berkshire Hathaway does. Anecdotally, that's surely the conviction that underlies the stock's popping on the news that BRK was taking a position. And what that position says is: negativity has probably been overdone. The company's troubles may be very real, but the mob has overreacted to them, such that the stock has been driven below its intrinsic value and long-term earning power. This is vintage Buffett.

Is he right? Might there not be more bad news coming that would penalize the stock even further? Surely that's possible. Berkshire didn't say the stock had hit bottom. (It didn't in fact say much of anything at all.) This purchase just signals that BRK has begun to see good value—of the kind that one only finds in a great company like this when it stumbles badly. As UNH surely has.

Buffett has—perhaps for one last time—endeavored to teach us the one great lesson humans refuse to learn. Namely, that buying intelligently into distress is the mother of all true outperformance. And buying things that went up spectacularly before you bought them is one reasonably sure way of realizing substandard returns as far as the eye can see.

I realize that I've perhaps made the stock market sound a little 'spooky' right now, but my stance on bonds has not changed. The roughly 100-year return of large company common stocks in the U.S.—assuming dividends were left to compound—-has been about 10% per year. The return of the most comparable corporate bond index—not exactly the same companies as in the S&P 500, but certainly the same caliber of companies—is about 6%. 

Net of 3% inflation over this period, then, stocks have compounded at 7% and bonds at 3%. Which is to say that equities have returned quite a bit more than twice what bonds did. These are facts.

Yet there are still a lot of otherwise intelligent people out there who are absolutely convinced that bonds are an importantly effective diversifier to stocks. That is, they really think it advisable to give up more than half the historical real return of stocks to invest in bonds. The latter are seen as being somehow 'safer'. 

As surely they are, if one is calibrating the risk of America's largest companies going bankrupt. In that doomsday scenario, the bondholders have a lien on the assets and must be made whole before the stockholders can recover anything. In the greatest extremity, the stockholders could conceivably end up with nothing. This is (however narrowly) true. But it isn't what people who regard bonds as 'safer' are really thinking about. What, then, do such people believe? 

In my experience, they're convinced of one or both of two theses that are manifestly not true. One is that bonds produce more income than do stocks. And the other is that bonds are appreciably more stable than are stocks, thus providing an effective defense against stocks frequent and not insignificant price declines—a phenomenon we call 'volatility'. 

These are illusions. Bonds certainly yield more than stocks do—if you just compare the current interest payments of bonds to the current cash dividends paid by stocks. Indeed, in August, Moody's Baa Corporate Bond Index—a good long-term bond proxy for the kinds of companies found in the S&P 500—yields just less than 6%, versus 1.4% for the S&P.6

This narrow comparison sets aside (among other things) the fact that cash interest payments from the bonds will be flat for upwards of 20 years. While if history is any guide, cash dividend income will have grown over those two decades at something approaching 6% a year. State in the simplest terms, your $1 of income will still be $1 twenty years later. Your dollar of dividend income may well be something close to $3.20. Think about what this might mean over 20 years of retirement, in terms of your ability to fight off inflation in your living costs. 

The other element of bonds' perceived safety is that they are believed to efficiently buffer your portfolio against equity 'volatility'. The reality: sometimes they do. And at other times they very much don't. The last really significant market drawdown wasn't long ago—2022. The S&P 500 declined 25.4% that year.7 Moody's bond index declined 13%—it's worst year since 1976.8 (The iconic 60/40 portfolio had its worst year since 1937). That the bonds went down less than stocks was very cold comfort to people who'd thought they couldn't go down at all. 

By far, the greatest long-term financial risk facing retirees is outliving your money. People tend to greatly overestimate the long-term risk of owning stocks, and the other even graver misperception is that people tend to seriously underestimate the risk of not owning enough stocks. While bonds still do play an essential role in ensuring short- and mid-term liquidity in portfolios, in the long-term, it is still better to be an owner (stocks) than a loaner (effectively what a bond is). If we chase yield too much, it will come at the expense of total return, so it is imperative that we are always carefully attending to the ratio of these two core asset classes when customizing client portfolios. 

Have a wonderful week,

Charlie

Sources:

1 Investopedia

2 Reuters

3 MarketWatch

4 AP News

5 AP News

6 YCharts

7 AP News

8 Forbes