October 2015

Still Prettiest Girl at the Dance

The U.S. stock market has been volatile and essentially flat this year, and some investors are considering changing partners. But we believe that the U.S. market is still the prettiest girl at the dance, even though her makeup might be a little smudged and her gown a little worn.

At Peachtree Investment Partners, we invest almost exclusively in U.S. stocks that pay dividends. We believe that, over time, this is the most prudent approach -- for a variety of reasons.

First, it has proven successful. Over the past five years, the MSCI Emerging Market Index has a negative return of -3.6%, while the Standard & Poor's 500 is up 13.3% over the same period. There may have been periods when emerging markets outperformed the S&P briefly, but over time, we prefer to dance with the S&P.

The U.S. economy is also more stable and stronger than any other economy at almost any given time. Consider, for example, the recovery from the worldwide recession. We are growing again -- though perhaps not as strongly as we might hope -- and have been for years. Europe is still trying to recover, as evidenced by the most recent crisis in Greece. And what about China? In 2014, China posted its weakest growth in more than two decades. Its stock market was in a free-fall much of this year.

The U.S. economy is better-regulated and more transparent than any other. That regulation starts with the Federal Reserve, which has broad power to influence economic growth by controlling interest rates. The Securities and Exchange Commission has significant regulatory control over specific stocks and markets, especially when it comes to ensuring that investors have access to basic facts about publicly traded companies.

All U.S. stocks follow Financial Accounting Standards Board (FASB) standards. This means that, when investors are looking at financial data from a company and comparing one company to another, they are comparing apples to apples rather than apples to oranges.

A free press means that reporters and news organizations can -- and do -- look to uncover any signs of fraud or weakness or likely problems in U.S. companies. This is in stark contrast to China, for example, where the press -- and the information it is allowed to report -- are controlled by the government.

All of which means that there is a much greater transparency in both the financials and the businesses of U.S. companies. It is much easier for investors to understand what a company does, how it has performed over time, and how it stacks up against its competition.

And U.S. companies have been performing in this more transparent environment for a long, long time. There is a long track record for U.S. companies and markets -- much longer than the track record for many emerging markets.

Finally, at Peachtree we also believe strongly in investing in dividend-paying stocks. Dividends are a reliable and predictable return on your investment. In fact, since 1929 reinvested dividends have accounted for about half the market's total returns. We also think that paying a dividend encourages a company to be a more responsible steward of its corporate finances.

So for all those reasons, we believe in focusing on U.S. stocks, particularly those that pay dividends. We know that there are a lot of choices for investors, but we also believe that the U.S. market is still the prettiest girl at the dance.

Garry K. Schaefer
Atlanta, Georgia
October 14, 2015

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